FX Weekly

FX Weekly Update – July 31st, 2023

Posted Under: Weekly updates

Last week was “Central Bank” time. The Fed and the ECB increased their rates by 0.25%, which was expected. The BoJ, on the other hand, did surprise when they stated that they would purchase JGBs at 1%, which is an increase from 0.5%. This added flexibility to the yield-curve control (YCC). It caused USD/JPY to fall to 138.06, then bounce back to 141.00. U.S. data included Durable Goods, PCE, and GDP. In each case, the details were better than expected. Equity markets continued to rally while the dollar remained relatively stable.  

Friday’s U.S. and Canadian employment reports will highlight the week ahead. Early forecasts for the U.S. is an increase of 148K non-farm jobs. Forecasts for the Canadian release are unavailable, but they lost 140K jobs last month! That is a huge number, yet the Canadian dollar has done little—inflation data in the Eurozone, along with the BoE interest rate announcement on August 3. The consensus is an increase of 0.25%.  

EUR (1.1020): Last week’s range was significant, given the overall lack of movement in the single-currency. 1.1150 to 1.0945. After the ECB announced a quarter-point hike the low print expressed disappointment in the slight increase. Moving into this week we expect the inflation data will significantly impact the euro. Levels to watch: last week’s low of 1.0945, then 1.0900 and 1.0830. Rallies should find resistance at 1.1150 and 1.1200. 

GBP (1.2850): The pound sterling has remained subdued but this week with the BoE announcing their next interest rate move (+0.25%), there can be some fireworks. The last two weeks have printed a high of 1.3145. This level is just under a long-term trendline at 1.3200. A failure to push through 1.3200 will lead to a deeper sell-off than last week. 1.2600 is the target. 

JPY (141.00): The BoJ’s change in their YCC created sparks in the market last week. They left their overnight rate unchanged (-0.1%) but increased the level they would purchase JGBs to 1% from 0.5%. $/Jpy fell on the announcement but quickly rallied to an unchanged level on the week. The dollar is setting up for another rally, with 142.00 and 145.00 as the key resistance levels. The BoJ will be “sniffing” around if the dollar rallies above 145.00. The market will be cautious U.S. dollar buyers. 

CAD (1.3245): Oil prices are at $80/bbl., Canadian employment will be released on Friday. Following last month’s disaster of a report (-140K), the market will look for positive information. Higher oil prices will be testing at $85/$90. This alone should push USD/CAD to 1.3000. Of course, if U.S. employment continues along as it has, and the Canadian number disappoints, another test of 1.33/1.34 is expected. 

MXN (16.6800): The peso continues its march higher against the dollar—last week’s low of 16.6000 was another new low for the pair. Resistance is now at 16.75/80. All USD rallies have met with a considerable amount of sellers. Keeping a long peso position, especially in the forward market, will continue to be the right way to trade USD/MXN. 

CNH (7.1500): The U.S. has agreed to supply weapons to Taiwan yet the currency market has not reacted to this news. Politics in China and the U.S. will dictate the next move with Taiwan. The FX markets will be impacted, but the direction and speed of the movements will be based on news releases. Remember that 7.3750, high on October ’22, and 6.7000 will need to give way for a more sustained move.