FX Weekly Update – February 28th, 2022
Posted Under: Weekly updates
The dollar rallied last week as the news of the Russian invasion of Ukraine became front and center. No currency was spared. The euro, as expected, fell quickly as the war became real. The pound also took an immediate hit. The Russian Ruble was absolutely crushed. Countries around the globe sanctioned Russia in nearly every way possible. The current level is 83.90 Rub to the dollar. Compare that with 32.50 in 2014 and 23.00 in 2008. The EU, U.S., Canada and the U.K. plan to cut some Russian banks from SWIFT, the international messaging system used to communicate and make global payments. The weak RUB will drive inflation much higher in Russia. Sunday evening, Putin put the Russian nuclear program on alert. More from a defensive position.
The USD index (not the perfect way to value the dollar) has rallied to a technical level that is critical. Currently dealing at 96.50, the next major area of resistance is 97.50, above that 102.50. (see attached chart). Oil prices held stable and closed the week at $92.00/bbl. A surprising market reaction, given Russia’s oil production. At the time of writing crude is dealing at $96.50. The U.S. 10-year is trading at 1.96% as safe haven buyers continue to move in and keep rates steady.
This week, and the next several, will be defined by the Russian invasion but there are economic reports all week that are important. The U.S. will release the Chicago PMI (Tuesday), Market manufacturing, PMI new orders index and total vehicle sales (Wednesday), Fed Chair Powell testifies (Thursday) and the employment situation on Friday!
Technical analysis: The next several weeks and months will be dictated by news stories, which we will not be able to react to as quickly as the market. The below currency analysis will be based on technical analysis. By definition, technicians look at charts with limited input from news and economic reports. We are aware of these, but the market should be pricing in all that information and therefore the movements, patterns and price objectives are on the chart.
EUR (1.1180): The euro fell to 1.1100 Friday morning, meeting our short-term hourly objective. The bounce back to 1.1270 was impressive, falling just shy of the 1.1300 resistance level. This week’s open “gapped” lower, printing 1.1120. With the two lows, 1.1100 and 1.1120 in lace, that area is this week’s first support. The medium-term objective is 1.1000 and then 1.0630, which was the low from March of 2020. The gap which was created with today’s lower opening will offer resistance at 1.1200 with the chance to move back to 1.1260 (gaps tend to fill themselves). With this choppy, headline driven market, leaving orders to buy or sell Euro’s, is the best way to manage the risk.
Economic reports in Europe this week include manufacturing PMI, CPI (Tuesday), PPI, unemployment rate (Wednesday), and retail sales (Friday).
GBP (1.3375): The pound fell to a low of 1.3272 on Wednesday, bounced to 1.3438 on Thursday, and consolidated near 1.3400 on Friday. Today’s open remains within that three-day range. Support is Wednesday’s low of 1.3272, and December’s low of 1.3160. Below that there isn’t a chart point of consequence until 1.2650. Resistance is at 1.3438, 1.3490 and 1.3630.
JPY (115.50): The yen has remained in a rising channel without testing either side. The top portion is 117.50 and the bottom of the channel comes in at 113.50. Resistance is the high print of 116.33 which printed twice in the last two weeks. Above 117.50, the major level to keep an eye on the 2017 high of 118.60. Below the current level support is Friday’s low of 114.40, the previous week’s low of 113.50.
CAD (1.2765): Possibly the most frustrating currency to follow. The correlation between oil and CAD has fallen and may fall further throughout these next weeks and months. The safe-haven dollar is king right now. Any further rise in oil prices ($96/bbl.) will be less important for the CAD. Resistance at 1.2820, following by the high print of 1.2963 (Dec ‘21) and the 38.2% Fibonacci retracement at 1.2987. Support at 1.2650 (Feb 6), 1.2620 trend-line support off the low of 1.2040 May ‘21. A close below that 1.2620 will not be met with support until the January 23 low of 1.2550.
MXN (20.5500): Last Wednesday’s range of 20.78-20.23 has contained the peso. In other words, it is quietly dealing between those two levels with limited volatility. 20.2500 has been solid support in 2022, while 20.2100 remains a difficult level for the dollar to push above. It represents the 38.2% retracement level from 22.15 (Nov ‘21) and the low of 20.25 (Jan ‘22). We always suggest using any dollar rally as an opportunity to not only lock in a cheap spot level but also using forward contracts to take advantage of the large forward points.
CNY (6.3165): Moving away from the technical analysis, Chinese fighter jets did fly over Taiwan last week. Many analysts believe that China will not make any move toward Taiwan until after the Chinese Presidential “elections” in November. Three outcomes: 1) Xi JinPing is reelected to another term 2) he is given a life-time appointment as President or 3) a new person steps into the position. The PBOC does seem to be “holding” the currency at this current level but technically the USD seems to be oversold. A move above 6.3550 should open up a larger rally to 6.4160. Above that, the next target for the dollar is 6.6635. Support is 6.3000 and then the low print of 6.2360 (Apr ‘18).
Finally, GreenShootsFX thoughts are with the Ukrainian people, our NATO forces that are doing so much for the refugees, and Poland which has opened its arms and is welcoming them! Lastly, we keep our faith in the leaders of all countries that will work together to stop this atrocity!