FX Weekly

FX Weekly Update – March 29th, 2021

Posted Under: Weekly updates

Equity markets moved into record territory at the end of last week, treasury yields slid, with the U.S. 10 year touching 1.75% before closing at 1.68% and the USD gaining against most currencies. The market is concerned about a couple things heading into this week. The Suez Canal, which handles about 10% of global shipping, has been blocked by a ship which has run aground. What was first reported as a couple days worth of blockage has now been pushed out to a couple weeks (although reports this morning indicate the ship is afloat)! Shipping has picked up steam as the global economies are opening, but they have run into issues at the ports because of safety measures. Together, this may begin to slow growth and temper growth expectations!

This week will begin to “wind down” early with Good Friday and the Easter Holiday Weekend. The week is packed with economic data being released in nearly every major economy. Of course, Friday is the release of the U.S. employment situation.  Expectations for a non-farm payroll increase of 630,000 (last month +372K)!! The employment rate is expected to fall to 6% from last month’s 6.2%! All things considered, these numbers will keep equities moving higher and the USD benefiting!

EUR (1.1790): Last week was a difficult week for the EUR. Selling pressure pushed the currency lower, touching 1.1761. As we highlighted last week, the slow rollout of the Covid vaccine, coupled with continuing lock downs, has long EUR positions being cut. Hedging with short forward and option strategies, locking in EUR sales margins has also added to the pressure. We are expecting the EUR to continue this trend toward 1.1600-1.1650 this week. These levels will give EUR buyers a great opportunity to purchase the currency and cheapen up their current and future payments.

GBP (1.3780): The GBP fell quickly last week, touching 1.3670. Short-term panic selling pressed the market lower, but it did not last. Buyers came in and quickly pushed it back above 1.3800. We have been anticipating a falling currency and would suggest that another attempt lower should be made. This rally in the USD and fall in the GBP is not a change in overall trend, rather a short-term correction. GBP buyers should be prepared to purchase under 1.3700, with an eye on the 1.3550 area.

CAD (1.2560): CAD fell for most of last week on the back of falling oil prices and overall USD strength. The high USD/CAD print was 1.12628 but a late week rally in oil ($60/bbl.) did find Canadian buyers. Trendline resistance has been capping any gains in the USD and that level is 1.2650 this week. Simple equation when looking at the USD/CAD pair. Oil rallies, CAD gets stronger, oil prices fall, and the CAD weakens. We keep looking for the CAD to settle near 1.2000 by years end.

JPY (109.50): Parabolic is the best way to describe the USD’s advance against the JPY. Last week’s high (109.85) matched the high from May of 2020! Japanese year end is March 31st and there is typically strong buying of yen as Japanese companies bring the currency back to close their year-end books. They have benefited greatly from this weak yen. We cannot rule out a retracement from this strong USD/JPY level ahead of 110.00. Clients that need to buy JPY can benefit from purchasing a percentage of their 2021 needs at these levels.  Forward levels are not a benefit to buyers of yen but they have never been, so think less about those negative forward points and focus more on the current spot levels. Above 110.00 the next area to focus on is 112.00.

MXN (20.5000): USD/MXN traded to 20.96 last week but fell back on short-term profit taking. The recent high of 21.63 (two weeks ago) will be the next level of resistance. We have mentioned several times that the economic recovery in the U.S. directly impacts the Mexican economy in a positive way. This, along with Mexico’s high interest rates, is a positive for the peso. Trouble along the Mexico/U.S. border does create concerns and will most likely keep the peso from rising too quickly. GreenShootsFX continues to suggest U.S. and European companies with peso expenses should be taking advantage of the spot and forward levels and buy the currency.

CNY (6.5380): USD trend higher has lifted the CNY and will most likely continue. The resistance area of 6.5500 should be an area of interest. Keeping an eye on the PBOC and the hostile conversations between the U.S. and China will be the key drivers throughout 2021. Above 6.55, 6.70 is the first Fibonacci retracement level (38.2%). Companies that are used to sending USDs for their invoices from China should consider asking for an invoice in CNY as well. CNY is the onshore currency that is needed for the payment of local expenses. CNH (what we look at) is the currency that the market buys/sells and hedges, to mirror the CNY. It is fully convertible at one to one with the CNY.  By comparing a USD invoice and its CNY counterpart, we can show the difference in price, if there is one. This can assist companies in deciding which currency they should be sending.