FX Weekly

FX Weekly Update – March 28th, 2022

Posted Under: Weekly updates

The dollar did very little last week. There were certain currencies that gained late in the week, namely CAD (1.2485) and MXN (20.00). JPY (122.30) on the other hand continued to weaken into Japan’s year-end. The EUR and GBP did little, with the war keeping oil prices ($110) well supported, while central banks need to concern themselves with rate hikes. One of those, the Fed, did deliver what the market was hoping to hear. Powell said that 50 bp rate hikes are not out of the question. Goldman Sachs has adjusted their forecast to reflect three 50 bp rate hikes, followed by a couple 25 bp hikes. The 10-year yield rallied to 2.50% and begins this week at 2.47%. Here is the issue; the middle of the interest rate curve, 3, 5 and 7-year yields are now higher than the 10-year. The 30-year is only modestly higher by 9 bp’s, dealing at 2.58%! The flattening of the yield curve, and potential inverting of the curve, would signal a recession. Some analysts say that recession can come within 2 years! Seems a bit long, but however long you would like to consider the possibility, the inverted curve is not a positive sign for the economy.

This week holds important economic data including Jolts job openings, ADP employment change, Q4 GDP, personal income and expenditures and Friday mornings employment report. The forecast for non-farm payrolls is +488K.

EUR (1.0980): The euro had a limited range last week and as this week begins it is dealing at the low end of that range. Any break below 1.0980 should lead the currency to 1.0900. If 1.0980 holds, then the resistance is at 1.1025, then 1.1100. There are several economic releases that may impact the currency including, but not limited to consumer confidence, along with manufacturing and service confidence numbers, and their unemployment rate.

GBP (1.3160): The sterling remains in a very narrow range of 1.3300 and 1.3100. We mentioned last week that the Bank of England has raised their short-term rate 3 times and the pound cannot rally! The alternative is GBP falls to main support at 1.3000.

JPY (122.60): The yen is dealing at its weakest level since 2016. The BOJ has announced that they will buy as many JGB’s (0.25%) as they can. The weakening yen, into the Japanese year end, can be a welcome sight for U.S. subsidiaries of Japanese parent companies. Sending yen at these levels provides a boost to their profitability! The next level to be targeted is 1.2500.

CAD (1.2500): The Canadian dollar gained against the USD last week after oil prices moved above $110/bbl. The strength has been expected, but the overall US dollar support was delaying this move. The important level for the USD/CAD pair is 1.2325. Below that, 1.1900/1.2000. Resistance levels are 1.2550 and 1.2600.

MXN (20.00):  The peso rallied all last week. The Fed’s move on March 16 of only a quarter point raise did get the peso buyers moving. Last week’s low of 1.1990 should be an important level as we begin dealing this week. Resistance begins at 20.30 then 20.90. There are a series of lows at 19.60, going back to April of last year and that will be a critical area of support. Below that, 18.00 will be a logical target.

CNY (6.3950): The dollar is challenging the 6.4000 resistance level. The next level is 6.4800 and then targeting 6.6600. Failure to rally through that 6.4000 area will have the USD/CNY slide back to the low 1.30’s. The Chinese governments shutdown of several cities due to a covid outbreak. This, along with the high cost of commodities, has slowed the Chinese economy (which, of course is relative).