FX Weekly

FX Weekly Update – Jan 17th, 2023

Posted Under: Weekly updates

U.S. CPI, released last week, did confirm that inflation continues to move lower. The YoY  level fell to 6.5% and the MoM printed -0.01%. Consequently, the bond market rallied along with the equity market and the dollar weakened as interest rates fell. This week, PPI will be the headline report, but housing starts will also have an impact, especially if it is higher than forecast (1.358M). The market is confident that the Fed is near the end of its tightening cycle, resulting in lower interest rates and a weaker greenback. Support is near the current dollar level, which may prevent it from falling too fast.

EUR (1.0820): The euro remains well-bid against the USD and the Sterling. The resistance level at 1.1000 is the first challenge to slow down the strengthening currency. Support comes in at 1.0520 and 1.0450. Warm weather in Europe has tamped down the concern over high energy prices. This has been supportive of the stronger currency. The EU has a booked calendar of economic data releases this week. Inflation and retail sales highlight the information but should only impact the currency if they miss their forecasts by a wide margin.

GBP (1.2185): The sterling has been consolidating for several weeks. It remains bullish, but with inflation, retail sales, and BoE’s Bailey speech in the upcoming week, there will be some squaring of long positions. We would target 1.2100 and 1.1980 levels to keep an eye on. These are both areas to purchase pounds for the next leg higher.

JPY (128.80): The yen is quickly becoming the favorite currency for the investment community. The BoJ’s change in interest rate policy has also changed the dynamic around the yen. Rather than looking at the “carry trade,” the market is now considering the safety of the currency and the potential interest rate pickup. The BoJ does make a rate decision this week and yen buyers are expecting more hawkish commentary from the BoJ. The result will be a test of USD/JPY support at 125.00.

CAD (1.3400): Limited movement in the Canadian dollar. Oil is now dealing at $79.00, up from two weeks ago. The move has not impacted the Canadian dollar and the price action is typical for USD/CAD. The pair will consolidate for a time before making its next significant move. Support is at 1.3250 and 1.3000, and resistance is at 1.3700.

MXN (18.7800): GSFX has been expecting this level for too long. With Banixco pushing their interest rates higher and the Fed slowing down, the peso is storming higher. The next level of support is at 18.5000, then 18.2000. The risk of the dollar snapping back above 19.0000 remains, but that will be an opportunity to purchase pesos in the forward market.

CNY (6.7500): The PBOC has an interest rate announcement later this week, which might create a more volatile currency. The first support zone is 6.6500, which held last week. The range to respect this week is 6.8500 and 6.6500.