FX Weekly

FX Weekly Update – January 30th, 2023

Posted Under: Weekly updates

The economic data released last week, PCE and PPI, confirmed that inflation is decelerating. Durable Goods, precisely the “ex-defense” number, jumped an impressive 6.3%. The “ex-transportation” data was lower than the forecasts by 0.1%. Why the difference? Boeing received a substantial order for new jets. This is the one reason why Durable Goods is a volatile number. The dollar began the week at critical support levels, with a risk of falling further. By Friday, the market reversed and is set up for the Fed, ECB, and BOE interest announcements. In each case, the expectation is for a 0.25% hike. The U.S. inflation data and the E.U. and U.K. data all point toward less hawkish central banks.

EUR (1.0870): The single-currency traded to 1.0930 three times last week but could not maintain its strength. The E.U. has inflation data this week, retail sales, and GDP. Along with the ECB, this week can be volatile. Technically, when a currency tests an area (1.0930) three times, it is likely to move through that area. 1.1000 remains the big hurdle, but if that is paid, the target is 1.1500. Support is at 1.0760 and 1.0700.

GBP (1.2445): The sterling did not give up any of its strength last week remaining ‘bid’ throughout. The BOE announcement this week will have an impact on the currency. Regardless of the central bank’s decision, GBP is poised to test the 1.2446 high print from December 13. Above that, the resistance level of 1.2636 and 1.3000 is in play. Below the current level, the major area of support is 1.2200. The pound has been holding steady these last several weeks because the EUR/GBP has been range trading, with most of the volatility in the euro. The range is 0.8870 / 0.8580, currently dealing at 0.8770.

JPY (129.45): USD/JPY has rallied above 130.00, only to find resistance at 130.30. This is important because it is a trendline from the high of 150.16. A close above that area will set up a test of 135.00. Failure to move above there will put the recent low of 127.20 in play. The BOJ did make a rate announcement last week, but it fell in line with expectations and did not create yen buying.

CAD (1.3320): The Canadian dollar has been quietly gaining strength, but it is like watching paint dry! The combination of oil prices and rate hikes is helping the Canadian dollar rally. 1.3230 is crucial, and a daily close below will cause more USD/CAD selling to 1.2800. A more considerable rate hike by the Fed (greater than 0.25%) will likely take USD/CAD back to 1.3500.

MXN (18.7700): 19.10 was the high dealt last week for USD/MXN. 19.10 will now be a significant resistance level. 18.56 is support. That range has been set up for the next two weeks’ trade. GSFX always recommends buying pesos in the forward market. A move near the top of the range is a great place to begin adding forward contracts to cover future local expenses.

CNY (6.7450): There has been little change in the currency pair, and more of this sideways trade is expected. U.S. dollar strength will not be as much of a concern to the PBOC as it cheapens Chinese exports. China continues to open its economy. Controlling the currency, explicitly avoiding a sharp rally against the dollar (and other currencies), is essential for their opening. The key support area is 6.6500, which was dealt briefly two weeks ago.