FX Weekly

FX Weekly Update – July 5th, 2022

Posted Under: Weekly updates

The extended U.S. holiday has taken some of the volatility out of the currency markets, but not the direction of the U.S. dollar. After last week’s falling U.S. yield curves (10-year at 2.89%), volatile equity markets, and strong dollar, we are setting up for another week of the same. In fact, this week will end with a boom (July 4th humor) as both Canada and the U.S. release their monthly employment numbers. No currency has been spared from the USD’s strength. We would say that the “strength” is less an actual “buy U.S” and more of a “we are too nervous to own another currency”! GreenShootsFX also believes that the employment numbers will be a less important driver of market activity going forward. Economic data tend to grab the attention of the investors for a period, then, as the economy moves through another phase, they move to another piece of information. With inflation decimating the global economy, numbers like CPI / PPI / PCE are more meaningful. For this week, we will keep an eye on the growth difference between the Canadian and U.S. employment numbers, but unless one or both are outsized gains or losses, we would not expect the market to overreact.  

EUR (1.0425): The current level of the single-currency is a major level; we cannot emphasize that enough. Since February 2012 it has been traded six times, 3 in the last 3 months. From the low print of the euro (0.8220) to its highest (1.6038), the Fibonacci retracement of 61.8% lies at 1.0381! A close below that area does open a move to 1.0200 at a minimum. Inflation data in Europe continues to move higher with the ECB remaining on the sidelines. The trade issues with the U.K. are coming back into the headlines and of course their need to begin importing NG from Canada only increases their inflation. Resistance is 1.0625, then 1.0750.  

GBP (1.2100): Since Brexit (2016), the Sterling has been dealing between a low of 1.1980 and 1.4378. Apart from the flash1.1409 low on Feb 29, 2020.The pressure on the currency is more pronounced now because of the speed it has been falling, the external pressures (Northern Ireland trade / inflation) and the overall strength of the US. Dollar. We believe that a test of that 1.1409, or close to it, is warranted. The more concerning move would be to 1.0500, which is the current consolidation patterns price objective.  

JPY (1.3570): The dollar is taking a breather against the yen. We would assume that it will maintain this theme as the spread between the U.S and Japanese interest rates come closer together. Make no mistake, the spread is still wide, but has narrowed in the last week. We would not be surprised to see a larger weekly trading range of 1.3100 to the current 1.3570, as the dollar consolidates ahead of the next Fed meeting in July. Trade accordingly.  

CAD (1.2850): It may seem odd to use the word “yawn” when discussing the Canadian dollar, but we believe it is appropriate. Sorry, cousins! Oil prices are bouncing around, beginning this week at $110. The push lower toward $100, just two weeks ago, dd little in for USD/CAD, and now that it is up $10/bbl, the currency has not responded. We mentioned earlier that the Canadian employment numbers are going to released later this week, and the BoC will be watching them closely. Their need to keep pushing interest rates higher will not be too impacted by this report. The longer-term range of 1.2450 and 1.3025, will keep $/CAD in a range.  

MXN (20.2700): No change from the previous week’s comments. The currency pair remains within a tight range. There is limited economic news in Mexico. The resistance at 20.60 is a trendline level, that if the dollar close above, will push the dollar to 21.5000, this might be a result of a stronger than expected employment report in the U.S. 

CNY(6.6930): Rumors of another close-down in Eastern China, resulting from an increased number of covid cases. That will only create more supply and logistic nightmares. The CNY is at risk of testing the 8.8400 level from back in May. We always need to add that the PBOC does control the currency speed and direction. Difficult to get too focused on small moves, look at the larger picture.