FX Weekly Update – February 8th, 2021
Posted Under: Weekly updates
After holding steady most of last week, the dollar slipped Friday after a disappointing U.S. jobs report. The headline non-farm number was right on (+49k) but fell short in manufacturing (-10k v. 30k forecast) and private non-farm (6k v. 50k). Other economic news around the globe was a mixed bag. The Euro-zone registered a nice jump in retail sales (0.6% v. 0.3%), with PPI and CPI ticked up. Inflation will be a big concern for the markets. Central Banks have been printing money and hoping to keep their economies from crashing during this past year. Once Covid-19 is under control, who knows when that will be, this priming of the pump may cause commodity prices to jump and that will cause a very large problem! This week, the dollar will be challenged not by the Covid Relief Bill but the debt that it will bring on top of all the other spending that the Harris//Biden administration is proposing.
EUR (1.2035): The single currency slid to 1.1957 last week in one of the more boring weeks of trading. We have discussed the impact of a EUR/GBP cross, and it was very apparent last week. EUR fell against GBP in a very meaningful way and that was the reason EUR was slowly falling against the dollar. The EUR/USD hit an important trendline (support) at the low and is why it moved back above 1.2000 to begin this week. We will continue to watch the action above that trendline. U.S. importers that need to make euro payments should be thinking about this level as a chance to purchase the currency.
GBP (1.3725): Keeping with the EUR/GBP theme from above, the pound fell last week against the dollar but it rallied against EUR. Why? Markets are betting that the U.K. economy will recover stronger and faster than the EU. But there is already a “bid” (buying) under GBP against the dollar to start this week. 1.3740 is now an important resistance level and GBP is dealing just under that area. GBP expenses look to be rising and may be getting much more expensive if the 1.3740 level gives way. Just to be fair, failure to move above it will quickly push both GBP and EUR lower! Keep an eye on the UK’s GDP report on Friday!
CAD (1.2750): Can we just say that CAD is very frustrating? Oil prices continue to move higher ($56/bbl.) while CAD remains in a tight range that is weaker than one would expect. Last week as oil rallied, CAD fell to the resistance level of 1.2880. That is now a very important level as is 1.2580. Canada’s employment report last Friday was weak and that is why we saw the currency weaken. That is behind us now so focus should be back on the oil relationship. Buying Canadian dollars this week may prove to be a very good call. GreenShootsFX offers a digital wallet that can automatically open an account as soon as you purchase the currency. Your CAD can remain there until you need to wire it out.
JPY (105.40): The dollar has rallied against the yen for the last two weeks. We are going to say that this week might be the end to that rally. JPY is “oversold” and a should recover to at least 104.00. Like many of the currencies we watch, buying yen early in the week may prove very smart.
MXN (20.10): The peso remains one of the more interesting currencies to watch. Falling to 20.59 (USD strengthened) last week before reversing and now rallying through 20.00. We continue to look for the peso to rally to 18.50/18.85. U.S. based companies that manufacture or assemble in Mexico (typically referred to as a maquiladora) need to pay employees and other expenses on a weekly basis. As the peso gets stronger, those weekly expenses will become increasingly expensive, whether in USD or MXN. Purchasing pesos using a series of forward contracts to match those delivery dates will not only avoid the more expensive currency but also give you a cheaper currency through the forward points (interest rate difference)!
CNY (6.4580): The range has been 6.45 / 6.50 for weeks. The market is expecting that the Harris/Biden administration is going to roll back the tariffs on Chinese goods and return to an easier relationship with China. The concern at this level and the reason the currency has settled in at these ranges is the PBOC can reset the rate whenever they please. If the market is getting too short of USD, expecting a test of 6.00, the PBOC can set the rate at a much higher level and then there will be “short covering”, further pushing USD higher. The next couple months are going to be very interesting!