FX Weekly

FX Weekly Update – May 22nd, 2023

Posted Under: Weekly updates

The dollar found strength last week against most major currencies. We have been watching the gap on the weekly DXY chart, specifically last week when the gap was “filled” as the dollar rallied. This development makes our view of a weaker dollar more reliable by the end of 2023 and into 2024. The U.S. debt situation and the argument about raising the debt ceiling continue, which should keep the dollar from rallying further. On May 25, the PCE will be released, and forecasts are looking for another dip in the important inflation indicator. On the same day, Durable Goods data becomes available which is a volatile number. The market will only be concerned if there is a significant gain or loss.

EUR (1.0830): The euro buyers failed to push the currency above 1.1100, the sellers took over, and the currency slid last week to 1.0802. Current support levels of 1.0780 and 1.0730 are now in play. Inflation in the Eurozone remains the top concern of the ECB. Further rate hikes by the central bank will be bullish for the single-currency. Levels to buy the euro are just above the support areas.

GBP (1.2465): While the euro was under pressure last week, the pound held its own. It has weakened, but not to the degree of other currencies. Last week’s low of 1.2378 will be tested this week, but that level is a good buying opportunity. The Brexit trade negotiations continue, keeping a lid on the pound. The medium-term target for the GBP is 1.3000.

JPY (137.60): The yen has weakened, and there is no specific reason to point to it. The best explanation is that the rally in global equity markets has driven investors to sell yen (lend yen) and deploy those worldwide. The carry trade has been very impactful on the currency. Until there is a significant sell-off in global assets, the yen will remain soft. This week, we expect the USD to be under pressure, bringing USD/JPY back toward trendline support at 134.00. This does not change the demand for cheap yen but will relieve the pair from the overbought situation.

CAD (1.3500): USD/CAD has been consolidating these last several weeks between 1.3300 and 1.3650. These are the two levels we will need to keep focus on. 1.3200-1.3300 is significant support. A rally in oil (currently at $71/bbl) to $80.00 will be needed to push USD/CAD to 1.3200. Without higher energy prices, the path of least resistance is 1.3600.

MXN (17.8000): USD/MXN touched 17.34 last week, the lowest level for the pair since June of 2017. The current bounce is expected to last up to 18.00. Banxico left its interest rates unchanged at 11.25%. This was expected, but the difference between Mexican and U.S. rates remains wide. This, along with a pickup in the U.S. economy, will keep the pressure on this currency pair.

CNH (7.0300): The high for USD/CNH last week was a surprising 7.0750. The dollar buying pushed weak shorts out of their positions. The rally was in conjunction with overall dollar strength. Nothing has changed with the relationship between China and the U.S. President Biden’s trip to Japan weighed on the Chinese currency last week. GSFX expects the dollar to fall back below 7.0000, targeting 6.8400!