FX Weekly

FX Weekly Update – January 11th, 2021

Posted Under: Weekly updates

Last week ended on a sour note. The employment report in the U.S. was disappointing, losing 54K non-farm jobs and the rate ticking up to 6.7%. USD in general did almost nothing last week. The exception was a strengthening of USD v JPY. Currency markets were very quiet. The answer may be found in a rally in the U.S. ten-year yield, which moved above 1% (1.07%) for the first time since April 2020. Equity markets continued to rally, making new historical highs. The question should be asked, how are rates and equities rallying and the USD remains flat against most currencies? This may be answered by the market considering the inflationary pressures that printing money might hold. Inflation has been tamed for a very long time, the Fed has kept interest rates low and now they are increasing the printing of money. Once there is a sigh of relief from Covid and the incredible vaccines are deployed, inflation will be real. Central banks have a difficult task ahead.

EUR (1.2210): The lack of activity by the single currency does give pause to what has been a relatively fast ascent over the last several weeks. From a daily technical chart perspective, the currency has moved up in a classic Elliot wave pattern. Another rally after sideways activity should be expected. We are still expecting a resolution at 1.25 and support near 1.21 and 1.20.

GBP (1.3550): GBP failed to rally above the next important level of 1.37, reaching a high of only 1.3643 early in the week. The currency has quietly fallen back without much activity heading into the weekend. GBP opens at the low area of the last week’s range and we would expect that it continues to move lower. We keep our first level of support at 1.35, then most likely 1.3425. Our bias remains toward a higher GBP!

CAD (1.2700): We have previously referenced the correlation between CAD and oil and have to say they were not correlated last week! Oil rallied to the current $52.50/bbl while the currency just “floundered” around the 1.2700 area. GreenShootsFX expects the Canadian dollar to resume its ascent this week, moving below 1.26 and potentially as far as 1.25. Why would the Canadian not react to the higher oil prices? U.S. interest rates moving higher as much as they did.

JPY (103.95): The yen was the big mover last week. Falling against USD (as well as others) all week, in a classic “carry trade” move. We recall that we have talked about JPY as a funding currency for investors and there is no doubt that the market was borrowing yen. Equity markets are rallying, and those funds are flowing into them. We must watch how assets are reacting in the first quarter, will they rally or move lower? That reaction will most likely dictate the moves in the currency. 100.00 and 105.00 is the current band that it is dealing within and most likely will for some time.

MXN (20.00): Nothing much to discuss with the peso! USD rallied to 20.15 late in the week after a week of dealing in the 19.80 area. Most likely covering up short USD positions heading into the weekend. Important to remember, if the U.S. economy begins to grow then the peso should get stronger. We believe that this will be true, therefore MXN should benefit and we are still looking for the 18.85 area. A MXN weakness should be an opportunity to purchase cheaper currency!

CNY (6.4750): Very little activity last week as CNY has rallied through 6.50 the week before. There is an important trendline that begins at the low that occurred in 2014 and has moved higher toward the current level of 6.4170. This is very important point for USDCNY. We would expect the next several weeks of activity will be respecting that trendline. Resistance for USD is at 6.50 and of course the trendline support.