FX Weekly Update – January 19th, 2021
Posted Under: Weekly updates
The Martin Luther King Jr holiday had the U.S. markets closed and, as usual, the currency markets were very dull. USD had a decent week last week holding strong against most currencies and gathering some strength against EUR and CAD. The U.S. 10-year yield has maintained its strength at 1.08% which does provide some support for USD. We will start looking at gold for some insight into the market’s inflation expectations. Gold is dealing at $1,840, down 11% from the $2,060 high back in August. Technically, the daily gold chart is sketching out a potential “falling wedge” which is a bullish pattern. If this holds true we expect gold to at least get back to the $2,060 level in the next several months. This week has a slew of European and British economic data being released, including CPI and PPI. Last week, the U.S. release of both proved that inflation is peaking its head with the CPI posting 1.4%, slightly above expectations. The ECB will also make a rate announcement on Thursday. We will follow this announcement closely and expect that at least EUR will remain steady the first part of the week.
EUR (1.2090): As we mentioned above, the ECB announcement will be the big piece on the calendar. Support for EUR is at 1.2000 and 1.1850. Both are important levels, but neither would change the overall long-term trajectory of EUR. The current move lower is less a negative discussion around EURUSD but more of an adjustment against other currencies, namely GBP.
GBP: (1.3565): Last week a roller coaster ride did not give way to new ground for the pound. 1.3700 does seem to be a formidable level of resistance while 1.3450/1.3500 is a good level to buy. GBP payments will become more expensive in the future (in USD terms) and after the quick move from 1.3000, this area of support can be the next best opportunity.
CAD: (1.2730): The Canadian dollar has entered the region of confusion, at least for us! Oil and commodities in general continue to move higher while CAD has stalled and fallen against USD. The Bank of Canada does have its quarterly meeting on Wednesday and even if they cut rates again, we do not see USD rallying above 1.2900/1.300. We maintain that there are more positives for CAD than there are negatives and look for 1.2000/1.2500 by mid-year.
JPY: (103.80): What to say? The USD rally stalled at 104.50 following the last week’s late sell off in equities. More volatility ahead for equities with the Harris/Biden administration being inaugurated on Wednesday. The cabinet picks are already showing more spend and print commentary so this will surely be seen in equities as well as the carry trade for the yen. Resistance for USD is 104.50 and the support area 102.50.
MXN: (19.65): The peso is already reacting positively to this week’s inauguration, rallying against USD matching the highest level during this recent positive peso period. 19.65 has been the support level holding the USD from falling further to the 18.50/18.85 target area.
CNH: (6.4900): China posted a large year-over-year jump in GDP, +4.9%, versus a U.S. number of -2.8% an 8.6% fall in Britain and a fall in 4.3% for the eurozone. Media reports are lauding the Chinese impressive handling of covid. The currency, though, has fallen from 6.45 to the current 6.49. The PBOC has allowed their currency to weaken in the past prior to their fixing it higher. Keeping an eye on news this week for any indication of the next PBOC move(s).