What a week we’ve just been through! The much-anticipated U.S. employment report was disappointing, adding only 266,000 non-farm jobs versus the forecast of circa 1MM. In any other economic recovery, this would have been a strong number. The 10-year fell to a yield of 1.48% before rebounding to end the week at 1.577%. Equity markets in the U.S. continued to rally to historical highs, while the U.S. dollar fell. The key support levels for the dollar versus individual currencies were tested, but did not break. This sets up a very interesting week ahead. How will the dollar respond to these levels, after a weekend to reassess the data and to retool the models to include the latest data. Looking ahead, the U.S. calendar includes CPI and PPI, which will provide intel on any inflationary pressures. We will also see the Industrial Production and Capacity and the preliminary look at the University of Michigan Survey of Consumers.

There has been much discussion about inflation over the past several months. The Fed says it is not concerned about it (which is why they are keeping rates low and the not decreasing bond purchases). Others are looking at lumber and copper prices making historical highs. Pundits are saying that these prices will settle back down as the economic recovery becomes more normalized over the next several quarters. In other words, the pent-up demand will fall back to historical levels. Markets will watch this closely and we would expect that the dollar will continue to reflect the changing views around long term inflation.

EUR (1.2160): The euro has started the week near its highest level since February. Short-term resistance levels were pushed aside during the rally. Latest data on Covid-19 vaccinations in the EU point to a much higher rate and most likely will match the U.S. number by the end of June! This may be one reason why the EUR is rallying against the dollar. We will focus on this in the next several weeks. Our forecast remains 1.2500 for Q3 of 2021.

Resistance: 1.2220, 1.2245; Support:1.2125, 1.2095

GBP (1.3950): The pound continues to struggle to rally above 1.4000. After a sustained move higher last week, it printed 1.4000 and then fell back. There have been 5 attempts to break through in the last several months. The pullbacks are getting less deep which suggests that the market is comfortably long in sterling and is less concerned about getting out of their position. We expect the GBP to break through 1.4000 on its way to 1.4400. The BOE has suggested they will begin to cut back on their bond purchases over the next several months. This is very GBP supportive!

Resistance: 1.4000, 1.4220; Support: 1.3935, 1.3900

JPY (108.40): The USD looks to be breaking down from its recent high of 110.96. Last week the dollar did rally to 109.70 but has again fallen below 109.00. There is a conundrum with the yen: although the yield in the U.S. did rally into the weekend, the yen continued beyond. Normally a higher yield would suggest a weaker yen. The lack of dollar buying may be more indicative of the “weaker U.S. dollar” scenario rather than strength around the Japanese economy.

Resistance: 109.00, 109.50; Support: 108.00, 107.60

CAD (1.2100): The Canadian dollar is rallying without much resistance where the current level matches that of September of 2017. The CAD has rallied 17.5% against the USD since March of 2020. That is a large move for a major trading partner. U.S. companies that have not hedged their Canadian dollar expenses have lost that percentage in their margins! We have been forecasting these levels for some time, but we have to say we are surprised that they have reached it so quickly.

Resistance: 1.2200, 1.2275; Support: 1.2075, 1.2000

MXN (19.9000): The peso reversed its previous weeks weakness and is now setting up to continue powering through the USD support of 19.85! This is one of the currencies that seem to be reacting to any concern about the dollar. Commodity prices are impacting the currency, which is now considered a “commodity currency”. This week might be a critical one for the peso if it manages to close below 19.85 and more importantly, 19.50. Clients with operations in Mexico should consider using these levels to hedge their expenses!

Resistance:  20.00, 20.15; Support: 19.85, 19.50

CNY (6.4130): The CNY has accelerated higher against the US dollar. This reflects the weaker overall dollar and the lack of intervention by the Bank of China. The 6.40 level has been supported since the CNY began its rally in April 2020. This week could be critical for the USD. Below 6.4000, the next level would be 6.25 (Feb 2018).

Resistance: 6.4500, 6.4800; Support: 6.4000, 6.3500