The dollar is trending higher to begin the trading week. Friday’s PCE data was higher than expected, pushing U.S. interest rates north, which put support under the dollar. Equity markets have retreated, with most major indexes giving back their 2023 gains. The upcoming week’s calendar begins with Durable Goods, which surprised us with a strong print last month but is forecasted to fall by 4%. Later in the week, there will be several reports, including the Chicago Purchasing Managers Index, Housing Price Index, and Consumer Confidence.  

One of the Fed’s most difficult decisions is the troubling employment situation (strong job growth), higher PCE, and the falling equity markets.  

EUR (1.0545): The euro has fallen from the February 6th high of 1.1027 to the current level without even a slight uptick. The critical area for the single-currency is 1.0480, which is the January 6th low. The steepness of the decline keeps us on guard for a quick move above 1.0600, heading toward 1.0700. Will this create an extended rally in the euro? Possibly, but the most likely outcome will be further range trading between the current area and 1.1000.  

GBP (1.1945): The sterling is on a critical support level. A close below 1.1945 will target 1.1500. The strength of the U.S. dollar is the reason for the move. The interest rate difference between GBP and USD needs to be wider to favor the dollar to the extent it has. Several Brexit “hangovers” are creating issues for their trade arrangements which remains the underlying issue for the pound.  

JPY (136.25): The history of USD/JPY differs from what somebody can easily understand. The interest rate difference between the two currencies has favored the dollar since 1987 and last week, and continuing into this week, has widened further in dollar’s favor. The pair can move toward 138.00 before falling back to 135.00.  

CAD (1.3610): Oil prices have fallen, pushing USD/CAD higher. The next resistance level is 1.3700, and then the October ’22 high of 1.3977. Support is 1.3350. 

MXN (18.4000): The peso is the one currency that has risen against the dollar. The most apparent reason? Banxico has been more hawkish than expected, and a statement over this past weekend has confirmed that. The peso will continue to strengthen, with a near-term target of 18.1500, then 17.8000. U.S. dollar resistance is 18.8000.  

CNY (6.9850): China / U.S. tensions continue to build. China and Russia announced a meeting between Putin and Xi in the next several months. These have helped the dollar settle on the 38.2% Fibonacci level. The current area should be resistance and turn the dollar lower, but with geo-political news driving USD/CNY it isn’t easy to map future movements with any certainty.