FX Weekly

FX Weekly Update – March 13th, 2023

Posted Under: Weekly updates

The dollar was hit by a little bit of everything last week. The Fed’s Powell testified early in the week and his comments were clear; the Fed will do everything necessary (read higher rates) to keep inflation from reversing the recent data. Fed Funds futures jumped to nearly an 80% probability of a 50 bp hike on March 22. The dollar jumped, matching its recent highs (Euro: 1.0550). Employment data on Friday morning was more robust than the Fed would like (+311k non-farm jobs), but the unemployment rate increased to 3.6%. The dollar gave back some of its early gains, but that sped up on news that California technology bank, SVB, has been shut down by state regulators.

This week the fallout from SVB and over the weekend Signature bank’s issues will keep the dollar under pressure. Tuesday is CPI, and Wednesday is PPI. The market expects both of these inflation reports to continue to show that prices are continuing to ease. The dollar will remain under pressure.

EUR (1.0710): The short-term euro technicals are over-bought, but these traditional signals may take a sideline this week. The single-currency is gathering steam on the SVB news where the extent of this has begun with SVB’s British and European subsidiaries. The levels of resistance begin at 1.0820, 1.0875, and then 1.1120 and is moving in a rising channel. This formation does suggest that the euro will be lower in the next six months. The concern about the U.S. financial system will keep the currency as a bid for now.

GBP (1.2125): The sterling has been trading in a very narrow range. EUR/GBP is the main culprit for the lack of movement. The pair has been moving between 0.8575 and 0.8900. The GBP has had a range of 1.1835 to 1.2450. GSFX expects the range to continue, but 1.2450 is our near-term target. The market is preparing for the inflation data released this week. Any sign of an increase in inflation will support the dollar and weaken the pound.

JPY (134.00): Volatility has increased for the yen. After the SVB announcement, the flight to safety was toward the Japanese currency. Friday’s range alone was 1.3700 to 134.10. The strength continued this week, with a low print of 133.53. The critical technical breakdown of USD/JPY should continue over the next few days, targeting 131.50.

CAD (1.3710): The U.S. dollar rally ran out of steam at the high of 1.3861. This level was the highest since October ’22. The current U.S. dollar weakness should continue, pushing the pair toward 1.3500. The Canadian dollar has been under pressure with falling oil prices, and the BoC chose not to increase its rates. The market expects the Fed to do the same on March 22.

MXN (18.2800): USD/MXN jumped higher after touching last week’s low of 17.9000. The rally in the dollar topped out at 18.5950. That is now the range that will contain the pair as the market works through the possibility that the Fed decides not to raise rates next month. In the case of no Fed, the hike will push this currency pair through 17.9000 and continue to 17.5000.

CNY (6.8700): Support for USD/CNY is 6.4400, which had been a long-term resistance. Now it will be the first support area, followed by 61.8% of 6.7000. Along with the continued opening of their economy, the USD should continue to fall, testing the 6.3000 area by the third quarter. The Chinese minister’s forecast for the 2023 GDP increased to 5%.