FX Weekly Update – March 22nd, 2021
Posted Under: Weekly updates
The story in the financial markets is the rising U.S. yields, while economic data continues to be mixed. Retail sales in the U.S. were lower last month, but last week they rose much higher. Europe is struggling with the distribution of the Covid 19 vaccine. The U.K. experienced streets filled with protestors upset about the recent close downs. France still has a curfew at 6:00 pm! China and the U.S. spoke for the first time this past week and it became a contest over which country was a bigger racist. With all that said, the currency markets were quiet last week, and the USD is relatively flat compared to the previous week.
EUR (1.1880): The market is selling the EUR after failing to climb above 1.2000, late last week. The low of 1.1835 on March 8th will be a support area and should be looked at as a good level to buy euro for short-term needs. Medium to longer term, we feel there may be a larger move to 1.1650. Does this change our view that we should see the target of 1.2500 by years end? No! But it does reflect the comment said a long time ago: “when the market changes, so will I”. The positive momentum around the EUR and other currencies has changed with their vaccine issues, new variants of the virus and the rising U.S. interest rate story.
GBP (1.3830): Like the EUR, the GBP has failed to reach new highs in the last couple weeks. The result? The market is closing out long GBP positions and taking a step back. For buyers of the GBP, this is a welcome relief. How much further can it fall? Well, it currently sits on a trend-line that has been rising since mid-June. A break-down below this will push the currency lower toward 1.3650. We will keep a keen eye on the developments with the protests in the U.K. They are certainly a factor along with more developments around the post-Brexit trade agreements. The U.K. has reached out to their old commonwealth buddies, Australia and New Zealand, but must address the more pressing and profitable countries in the Euro-Zone.
Trend-lines are at risk of giving away this week. Levels to focus on are 1.3800 and the 1.3600. Companies that need to purchase GBP should be prepared to move forward and purchase the currency near 1.3600. GreenShootsFX will watch these levels and let any clients know when these are dealing and execute the purchases.
CAD (1.2515): Canadian retail sales disappointed and oil prices pulled back. The CAD fell against the USD, retracing some of the 1.65% rise it has had in the previous weeks. We continue to believe that the Canadian dollar will continue to strengthen even after this current bit of weakness. No currency or commodity goes straight up or down. We further believe that global growth is picking up its pace and the U.S. is leading it. The important level to consider is 1.2600. This is trend-line resistance which began back in October. Support for the USD/USD is last week’s low of 1.2388.
JPY (108.70): The USD/JPY high was 109.36, which is a 6.6% rise from the December low of 102.59! Two factors have driven this move, first is the rise in the equity markets. We have discussed the impact of the carry trade several times, selling Yen (borrowing) and searching for higher yields. Secondly, and certainly most recent, is the sharp rise of the U.S. 10-year yield. Last week it traded to 1.75%! History tells us that the difference between the U.S. yield and Japan has always played a strong role in the value of the currency pair. Last week’s high should offer the first line of resistance and then it’s 110.00. Below, the most meaningful support level is the 38% Fibonacci retracement of 106.80.
MXN (20.65): Peso strength was the theme last week, rising 6.2% from the previous week’s high of 21.63 to the low of 20.28. The main reason was the Fed’s decision to keep rates low for a long time (2023). The impact on the peso is more pronounced than most other currencies. The peso has much higher rates than the U.S. and that difference provided a reason to buy the currency. The peso did open this week at 20.80, which was a big move and we have not found a reason for the weakness. Support for the USD/MXN is last week’s low and then 19.90. Current levels are still great for buying MXN and taking advantage of its relative cheapness to fund Mexican manufacturing and assembly.
CNY (6.5070): These next weeks and months are going to prove difficult for the USD relationship to China. Last week’s meeting turned into a finger pointing argument over racism. The Chinese came out hard and did not back down so negotiations about trade will most likely be delayed. The USD did rise slightly on the back of the yield rise and the difficult conversations. What GreenShootsFX is finding, however, is that as the USD fell (7.13-6.40) this past year, most U.S. companies have not experienced an uptick in costs from their Chinese vendors. The vendors have held costs steady and are absorbing the rise in the CNY in order to keep their products moving. This should offer some relief to the U.S. companies. We will follow this through future surveys and update if-and-when things begin to change!