FX Weekly Update – January 4th, 2021
Posted Under: Weekly updates
This week has an economic calendar that will dominate the market. The early part of the week has German, U.K. and U.S. manufacturing, German retail sales and their unemployment rate (forecast 6.1%). Friday the U.S and Canada report their unemployment situations. The U.S. forecast is a 4.4% rate while Canada is expecting 8.6%. We will start focusing more on economic data as the expectation for a global recovery is on the “cards” and the USD will be more negatively impacted. There is always a question about “USD weakness” versus a “foreign currency strength” – to be clear, USD has entered a bearish trend and we expect that to last for a long period of time. In General, foreign currencies will become stronger. In the case of GBP, that currency story is more of a “GBP strength” picture. With Brexit agreed and the Covid vaccine slowly being implemented there is ground that needs to be made up and GBP will continue to rally.
Why you need to know: Many businesses issue international payments and whether they are in a foreign currency or USD with a weakening dollar those payments will become more expensive. Using the GreenShootsFX digital wallet, or other hedging strategies through us, you can [protect your margins. On the other hand, sales in foreign currencies will be worth more in local currency terms, so managing that revenue should be on top of mind for finance departments.
EUR (1.2235): Keen to see how EUR is going to trade over the next couple weeks. The move from 1.1600 to the current level has happened quickly and in a straight line higher. Although we think the target is ultimately 1.2500 there may be a break-down through the steep trendline and that can bring it back below 1.1900. We would expect that the move will happen more as a result of rising GBP against EUR. Important levels in the EUR/GBP cross may cause EUR to weaken. Keep an eye on the trendline support at 1.2200 and then again at 1.2125.
GBP (1.3660): GBP opens the week at levels not seen since June of 2018! The good news is in and the pound is reacting positively and moving quickly. The 1.3700 level will offer some resistance but the 1.4400 high from April of 2018 is the target for this move. Although the advance against USD is well mapped out there will also be an important move against EUR, JPY and CHF. These currencies will weaken as well and provide a choppy trade against the dollar.
JPY (103.30): The yen continues to gain ground against USD and this week looks to be no different. Strong support at 103.00 should give way early in the week and 102.75 will be a target. GreenShootsFX has discussed this before, the struggle between the buyers of yen (overall USD weakness) and the carry trade (sellers of yen) will continue,
CAD (1.2730): Our favorite theme for CAD, higher oil prices! USD was rejected at the 1.3000 level least week and now the path of least resistance is USD lower and that is where it is going. We mentioned in the introduction that Canadian payrolls are released on Friday. Unless there is an outsized number either way, the USD should test the recent low of 1.2685. Below there, the target of 1.2300 would be the next level.
MXN (19.85): The peso remained in a narrow range last week, but our expectation is that it will rally against USD and continue toward the 19.00 and 18.85 level. One major reason is the potential move by Mexico’s central bank to hike rates. Mexico has always maintained higher interest rates than the U.S. but as commodity prices rally, and Mexico is a commodity-based economy or at least to some degree, there is a concern about an inflationary impact. If rates do go higher then the accent of the Peso versus the USD will pick-up speed.
CNY (6.49): We are opening the week with USD moving below what had been very strong support at 6.50! It will be interesting to watch this week develop. Will the PBOC shove USD back above that level? Or will they let the market dictate the next move? There is strong trend line support at the 6.40 area and of course we believe the USD will fall to 6.30 and potentially 5.85.