Last week can be summed up with three letters: CPI! The U.S. posted another record increase after CPI printed at 8.6% versus a forecast of 8.2%. Immediately after the number, yields on U.S. treasuries jumped. The 2-year (which is highly correlated to the dollar) rallied 25 bps, ending the week at 2.82%. The 10-year yield ended at 3.03%, while the 5 and 7 years closed at 3.6%. The equity markets fell, along with bitcoin (27,700). We only mention bitcoin because it is nearing the low (24,476) from May 8th. There may be some margin call selling below that and some of that cash may flow into treasuries, slowing down their fall.

The dollar jumped on the news, with the euro falling 2% within a 24-hour period. The single currency traded 1.0505 and begins this week with not much enthusiasm to buy it. The weak currency was not helped by the ECB’s decision to not raise rates, announced at last week’s meeting. As a result the dollar rallied against most currencies. Oil prices ended the week at $120/bbl after dealing at $123/bbl.

The set-up for this week will see more dollar buying and equity selling. Technology stocks tend to fall as rates rise and there seems to be more of both. The major economic data for the U.S. will be the June 15th Fed announcement. There is a 97% probability (according to Fed Fund Futures) of a 50bp rate hike. They are also forecasting a high probability of two more 50 bps hikes in July and September.

EUR (1.0505): The currency fell 2% in 24 hours, Thursday into Friday afternoon. The top that had formed on the hourly charts has a measuring objective of 1.0467 which is just above the May 18th low of 1.0455. Below that, there isn’t any meaningful support until the 1.0347 low from May 13th. Pullbacks should be sold near 1.0575. 1.0625 would be the next resistance area. Between the ECB not raising rates and CPI in the U.S. at 8.6%, there is no surprise the euro is under pressure.

GBP (1.2300): The sterling followed a similar pattern as the single-currency. In a 24-hour period the pound fell from 1.2600 to 1.2300. Although the BoE has been adjusting rates higher, the speed that the Fed is forced to move U.S. rates does give the dollar an advantage. May 8th low of 1.2154 is in target and then the 1.2068 low in May of 2020. Resistance is at 1.2450.

JPY (134.65): Last week we discussed the path for USD/JPY was 135.00. The high today has been 134.72. We are not sitting on the sidelines this week. The measuring objective of the yen’s consolidation pattern is 136.00 but keep in mind that the last time the yen was in this area was December of 2001, then a high for the dollar at 147.63 in July of 1998. In other words, the yen is clearly being sold as U.S. rates move higher. 140.00 has been a level that the BOJ has defended in the past. Buying yen against that level would be a wise decision. Forward points are negative, but spot moves more than the forwards, locking this level in for a portion of your yen payables is advised.

CAD (1.2790): The roller coaster ride for USD/CAD continues. Early last week the BoC hinted at a 75 bp rate hike this week. Between that and oil rallying to $123.00/bbl., the Canadian dollar rallied against the U.S. dollar, touching 1.2513. 48 hours later, it was back at 1.2800! This should prove to be an interesting week. If the BoC does not deliver a 75 bp hike, USD/CAD will test the 1.3075 area, the level seen on May 11th. A 75 bp hike will settle down the Canadian selling and most likely take the currency pair back toward 1.2500. Below there, the 1.2450 area has a series of lows and trendline support. We have been looking for a fall in USD/CAD to 1.15/1.17 but the high inflation and aggressive Fed is making that difficult to maintain. Play the range, sell USD at 1.3000 and buy them at 1.2500.

MXN (20.0000): Since early 2021, USD/MXN has found support at 19.5000. The last several weeks the pair have been challenging that level. Another failure there this week, sets up more dollar short covering, with potential to reach 20.5000, and 21.0000. There does seem to be a lack of interest in the peso. Markets are more focused on the majors. Normal corporate flows are dealing the peso. Therefore, look to buy pesos near 20.5000, use forward contracts to hedge payments.

CNY (6.6300): The Chinese manufacturing data was much better than expected last week as China opens their economy, post yet another covid close. The CNY has gotten stronger against the dollar, but the support level of 6.5800 is keeping the dollar supported. The issue with getting too excited about any longer-term directional move is the ever-present PBOC. Regardless of the economic forces and cash flows, they will dictate the path of their currency. Keep an eye on the pair near 6.7500, that would be a resistance area, and a good place to layer in hedges to purchase CNY.