FX Weekly

FX Weekly Update – June 28th, 2021

Posted Under: Weekly updates

The previous week has been one of mixed economic reports, inflation talk and a dollar that has held steady versus most currencies but fell against both Canada and Mexico. U.S retail sales were lower by 1.7%, while the GDP number came in at 6.4%. These two have kept currency markets in a typical sideways trade after the dollar’s rally two weeks ago. The 10-year yield managed to rally and begins this week at 1.52%! The Fed, economists, and traders are going to be focused on Friday’s employment report when non-Farm payrolls are expected to be an impressive 700,000 but, the real number that will keep them on edge will be the wage data. This inflation indicator has been moving higher each month and the Fed is calling the current value as transitory. Yet, between oil, cattle, grains, etc, the rise in prices are putting a dent in the consumers pockets. Housing, which has been fueled by cheap money and younger buyers, is beginning to slow. Prices are high, sellers have been in the ‘cat bird seat’ but it may be moderating. All of these mixed indicators will keep the markets nervous and reacting to any Fed discussions around inflation.

EUR (1.1935): The single currency has traded in a very tight range. 1.1990 being the top for the euro and the low of 1.1920. The technical view would indicate that the next move would be lower, targeting 1.1850. We have been looking for the euro to rally throughout the year and into next. This short-term weakness does push our forecasts of 1.2500/1.2800 out another quarter or so (Q1/Q2 of 2022). Develop a plan that emphasizes flexibility. A plan that provides for buying EUR, as it falls, will develop a cheaper average for longer-term payments.

Economic releases:

Resistance: 1.1990, 1.2050; Support: 1.1900, 1.1850

GBP (1.3865): The lack of follow through in last week’s rally, and the potential Delta COVID variant in the U.K. , is making it difficult to buy GBP. The level of support that is most important is 1.3660. We feel that this week is setting up a test of that level. This is a very crucial area for the medium term, and may in fact change the overall view of a higher GBP. Companies that are selling product/services to the U.K., may need to hedge a portion of those revenues with any rally. Managing risk is not a “one way” game! Part of the process is understanding when data begins to change one’s view and responding with a plan.

Economic releases:

Resistance: 1.3925, 1.4000; Support: 1.3780, 1.3660

JPY (110.60): Last week’s range of 111.15 to 110.45, as any market observer would comment, was not providing any information. The yen, which is a “safe haven” currency, is also one that is used to fund asset purchases. Let’s think about that. When markets are nervous, buying yen to protect a portfolio makes good sense, but as equity markets continue to make new highs, selling yen (same as borrowing yen) also makes good sense! So the tug of war will continue, using the Yen.

Economic releases:

Resistance: 111.15, 111.50; Support: 110.45, 110.15

CAD (1.2300): Last week, the Canadian dollar staged a very impressive rally against the US dollar. Oil is dealing at $74.00 / bbl and the Canadian really caught up to that price. We always discuss the strong relationship between the CAD and oil, and that certainly fell apart, two weeks ago. The CAD is back on the trail of getting stronger as oil rallies. The important level is 1.2000. Buying CAD at the current levels will prove beneficial.

Economic releases:

Resistance: 1.2375, 1.2450; Support: 1.2250, 1.2000

MXN (19.8000): Our only comment on the peso rally last week is WOW. We did not see such a sharp increase in the currency. What happened? The Banxico unexpectantly raised rates 0.25% to 4.25%, and the forecasters are now expecting another two rate hikes in 2021! This does change the landscape for the peso. We have been expecting a move to 18.50 and these rate hikes should be the catalyst. We strongly urge companies with peso expenses to add to their purchases and lengthen the tenor of their forward purchases.

Economic releases:

Resistance 20.2000, 20.7500; Support: 19.5000, 19.0000

CNY (6.4545): The dollar failed to rally above 6.5000, and looks to most likely settle back to the 6.4000/6.5000 range. Keep in mind that the goal of the PBOC is a stable currency so this is what they are achieving.

Economic releases:

Resistance: 6.5000, 6.5500; Support: 6.4000, 6.3500