FX Weekly Update – March 15th, 2021
Posted Under: Weekly updates
The past week has been one of positive economic data including record levels in U.S. equity markets as well as a new high in Bitcoin. The U.S. dollar has remained steady against the major currencies. U.S. consumer price data for February was 0.4% higher than the previous month and 1.7% higher than a year ago. The U.S. Treasury also sold $120 billion of 3 and 10-year notes as well as 30-year bonds. The market received the auction with solid demand, but late on Thursday and into Friday the 10-year bond was sold off pushing yields to 1.63%. This is the highest level since February 2020!
Moving into this week, the U.S. economic data include retail sales, capacity utilization, industrial production and housing starts. These alone can provide more clues to the strength and sustainability of the economic recovery. There is one factor that we should watch closely and that is oil prices. Last week, Russia and OPEC decided to keep the current low production levels in place. This alone is supportive of higher prices but couple this with real demand we will continue to expect oil prices to rise. Gas prices are rising at the pump. We will look at this as a positive for global growth, stronger employment and positive GDP growth. Job growth is a main component to the U.S. Fed and other central banks around the world in their decision to adjust their key interest rates higher. The Fed will release their decision on rates this Wednesday (March 17th) but there is no expectation of higher rates until 2022/23 or if inflation spikes and the U.S. unemployment rate falls to 3.5%.
EUR (1.1950): This past week price action was quiet with not much trading activity in the euro. The currency did fall to 1.1835 which was in line with our previous weeks target. We do not expect a major challenge to last week’s low or even to the resistance area of 1.2050. Any dip toward the 1.1835 low of last week should be viewed as a good level to purchase euro.
GBP (1.3900): The current level of the pound remains very close to the medium-term support level. This important trend-line (1.3850) has been generated from the September low of 1.2700. A break and close below can target the currency back to 1.3400 and as such we will be keeping close attention to this type of move. Our clients that need to buy GBP to pay international vendors will be spending less USDs to and this will help their expense margins. GreenShootsFX suggests keeping a level in mind and buy the total needed for the next quarter or two or even for the balance of 2021. Place these in your digital wallet and hold there for your future payments.
CAD (1.2465): The USD fell most against the Canadian dollar in the previous five days and it remains weak heading into this week! Canadian retail sales will be released this week and this can have a meaningful impact on the currency pair. But oil prices remain the driver and there will be close attention on the $70.00 bbl. level (currently at $66/bbl.) Above that, there can be a meaningful sell-off in USD/CAD and it can touch to our year-end forecast of 1.2000 which may need to be looked at again.
JPY (109.00): The yield on the U.S. 10-year made a new high of 1.63% on Friday and USD/JPY rallied! The high print of 109.23 has been the highest since May 2020. The strong USD rally in 2021 does not have resistance until 110.00 and 112.00. Equity markets and the higher yields are related to this stronger dollar/weaker yen. For clients that need to purchase JPY, then these levels are a welcome relief and should be taken advantage by utilizing our digital wallet or with forward contracts!
MXN (20.6000): USD/MXN touched a high print of 21.63 last week but then reversed and is now 1 centavo below that level as the new trading week begins. What is causing this stronger peso? There is an inverse relationship between the peso and the U.S. economy. With a stronger U.S. economy driving global growth, demand for the peso to pay for expenses in manufacturing facilities in Mexico will increase. U.S. and European companies that utilize the cheaper cost of manufacturing in Mexico have been taking advantage of the stronger dollar and this has pushed the dollar lower and peso stronger. We expect this to continue and we strongly recommend clients to purchase pesos using forward contracts matched to weekly cash flow needs.
CNY (6.4900): The fall in USD/CNY on Friday continues into this week. The PBOC has provided guidance for 2021 with a 6% GDP growth number. The market is surprised with this low hurdle. Most data suggest that the Chinese economy is growing at a level closer to a 8.9% pace. Couple this with a U.S. administration that is beginning to take a more dovish stance on the relationship between the two countries. The fall in the dollar below 6.5000 has given rise in confidence in a stronger CNY against USD. Like many currencies we recommend that clients take a more focused look at paying and hedging the Chinese expenses in CNY. Our guidance remains bearish on the currency pair.
The trendlines above provide what can be considered a pattern of USD strength against CNY, only to be followed by USD weakness. Below the current trendline USD can move back toward the recent low below 6.4000! Keep in mind that the high USD/CNY print in 2020 was 7.1300, so the cost in USDs to companies buying product from China has increased as the USD falls. GreenShootsFX is happy to discuss how paying in CNY and hedging those purchases can provide you with more stable margins and potentially save your bottom line deteriorating.