FX Weekly Update – June 14th, 2021
Posted Under: Weekly updates
Last week was a confusing one for the dollar and for markets in general. First, the yield on the U.S. 10-year fell below 1.50% and ended the week at 1.45%. Oil has rallied and is now dealing at $70.78/bbl. U.S. Equity markets are making historical highs. Together, this would signal a weakening dollar but of course that would be in normal times. The dollar rallied on Friday and is set-up for more strength, at least in the early part of the week.
The Fed will have their meeting on Wednesday/Thursday and this will be looked at very closely. No “rate” change expected but at this point in time it is about the tapering conversation therefore markets are looking for a statement on the monthly bond purchases. Any hint of tapering will push the dollar higher and most likely interest rates as well. Keeping focus on inflation, transitory or long-term, will continue to be the question. The Fed believes the current jump in inflation is transitory, keeping them from adjusting rates higher. They may be right and if they are the Fed has done a great job. If they are wrong on the timing of the transitory inflation or missed it completely, rates will jump and the dollar may follow. But, over time inflation erodes the value of the dollar so there is still an overall, long-term dollar lower story.
EUR (1.2100): Last week was one of the dullest trading weeks for the EUR until Friday when the buyers had enough and the currency fell back to 1.2092. 12200-1.2250 has been formidable resistance. We are looking for the EUR to move to 1.2000 this week but the currency has not changed its overall trend. Wednesday’s meeting between President Biden and Russia’s Putin has the currency taking a defensive position.
Economic releases: Euro Industrial production, Germany CPI, Euro CPI
Resistance: 1.2200, 1.2250; Support: 1.2000, 1.1950
GBP (1.4090): The UK hosted the G7 near the end of last week, the Queen was there, and Boris Johnson and his new wife were wonderful hosts. But, this gathering could not help the GBP climb above 1.4200. Like the EUR late week US dollar strength pushed the pound back to the current 1.4090. Several important trend-lines come into focus this week. 1.4040 and 1.3890 will be key to holding the GBP from testing the April low of 1.3668.
Economic releases: Unemployment rate,PPI, CPI, retail sales
Resistance: 1.4200, 1.4240; Support: 1.4040, 1.3980, 1.3890
JPY (109.55): Not much activity to highlight with the yen. Ranges remain tight and no new levels have been achieved. The key areas to watch are 110.75-111.00 and 107.50. For the time being any dollar rally should be an-opportunity to buy yen. Above 111.00, there will be a push toward 115.00, but again, this is an opportunity to buy yen. Near 107.50 should be an area to sell yen revenues, in fact hedging out those revenues will capture not only a stronger yen but the addition of the negative forward points will also be a nice pick-up.
Economic releases: Machinery orders,BOJ rate decision
Resistance: 110.00, 111.00; Support: 109.00, 108.50
CAD (1.2150): Last week we discussed a reversal in the USD after spending several weeks near 1.2000. We are beginning to see the Canadian dollar weaken, even as oil prices are rallying. This can be an interesting story as the week moves forward. 1.2300 is our target and that would be an opportune level to buy Canadian. We remain bullish on the Canadian dollar but it has come a long way in a short-time.
Economic releases: Manufacturing shipments, housing starts, CPI
Resistance: 1.2180, 1.2300; Support:1.2020, 1.1975
MXN (19.8500): The peso has dealt in a very small and lethargic range. This past week, Vice President Harris visited the President of Mexico and there was nothing of significance from the meeting. The U.S. economy continues to improve which should support the peso against the dollar. This has been our view for some time, and it remains the same, targeting 18.50. Any peso weakness should be purchased, and hedged!
Economic releases: nothing
Resistance: 20.0000, 20.4500; Support: 19.6000, 19.2500
CNY (6.3935): The G7 meeting did not accomplish much, but there was a handshake agreement to coordinate a plan to manage the Chinese relationships. What this actually means will depend on a lot of factors. We will keep an eye on any developments.
Economic releases: Retail sales, industrial production
Resistance: 6.4000, 6.4500; Support: 6.3500, 6.3000