FX Weekly Update – January 31st, 2022
Posted Under: Weekly updates
The dollar ended last week at levels not seen since June of 2020! The strong rally happened after the Fed held rates on Wednesday, and 4th quarter GDP printed a 6.9% versus the expectation for 5.3%. Equities had been under pressure all last week; the Nasdaq was in correction territory and Friday’s rally wiped out weak short-positions and sets up what can be a very volatile coming week. CPI, PPI and the employment report; individually, each report is important, but all three in one week will create opportunities. Oil prices fell back to $83/bbl, but rallied on Friday closing near $88/bbl and JP Morgan called $150/bbl. over the next couple years. Yields on U.S. treasuries ended the week at 1.77%. The 10-year/2-year yield spread is –0.63%. In April of ‘21, the difference was –1.60% and this indicates a flattening curve. We always suggest that spending a few minutes a week looking at that curve where when inverted (short-dated yields are higher than long-term) it does signal a recession.
EUR (1.1150): GreenShootsFX has been looking for this euro weakness and it finally occurred so EUR buyers (importers) should welcome these levels. The obvious reason is the potential Russia / Ukraine conflict, which has now gotten the world’s attention. The ECB has remained steadfast that it is keeping their interest rates steady. Technically, there is a large ‘top’ formation and the 1.1150 level was the first objective. The larger measuring indicator has an objective of 1.0500 and this week we will see if there is more selling momentum. 1.1000 is a good support level, we suggest buying some euro at 1.1050 and euro sellers should continue to calculate your sales margins, using FX rates, to know when a currency move will squeeze those!
GBP (1.3400): The sterling held up well last week, even as the single-currency closed the week on its lows. This is reflected by the EUR/GDP cross, dealing at 0.8310, which has been supported since 2017. GBP did bounce from last week’s low of 1.3357, which is typical when the ‘cross-currency’ trade is dominating the currencies. GreenShootsFX suggests leaving orders to buy/sell. When the EUR/GBP is volatile, one currency will be more impacted verses the other which means a currency that looks very weak one moment can reverse quickly. Buyers of the pound should be focusing on 1.3300, 1.3250 and 1.3100. Sellers are met with resistance at 1.3425 and 1.3550.
JPY (115.40): The yen did not remain strong for too long. The strong equity market on Friday pulled investors in, and yen selling is one way to get cheap dollars to fund that equity market. The dollar is setting up for another push higher. Resistance is the previous high of 116.35 and then 117.00. Support at 113.50 and 112.75. Yen buyers should consider being more aggressive at levels above 116.00 to buy yen!
CAD (1.2745): The U.S dollar strength was too much for those selling greenbacks. Although oil prices did close at $87.50, it was not enough to slow down the U.S. dollar buyers. Resistance comes in at 1.2800 and then again at 1.3000. Canadian dollar payables are cheap. This is a good area to buy CAD. The Canadian’s also release their employment information on Friday and a solid report will make the BoC begin raising rates sooner than the Fed which will likely be supportive of CAD.
MXN (20.8000): Mexican pesos did not avoid the dollar strength. The dollar is stretching its fibonacci retracement, which comes in at 21.0000. The peso will most likely trade in a narrow range until the U.S. economic data later in the week where the dollar can push higher on overall dollar strength. We always suggest purchasing pesos at these weak levels so any opportunity to improve margins is worth investigating. Feel free to reach out to GreenShootsFX to discuss current spot and forward levels.
CNY (6.3700): Two issues behind the CNY weakness. Overall dollar strength and the Chinese holiday this week. It is not unusual for the PBOC to purposely weaken the CNH ahead of these vacations. 6.4200 is a resistance level to buy CNY.