GreenshootsFX is committed to providing the most accurate, and up-to-date market information. Our focus is to give the corporate treasury, risk managers or any individual, that is tasked with reducing the cost of foreign currency transactions. We will be introducing concepts and information that will assist in the decision-making process around hedging FX cash flows, instruments commonly used, and how the forward points (interest rate differences between currencies) can be a financial gain or loss.

Please continue to check our website (www.GreenshootsFX.com) to view currency specific information, changing trends and the entire catalog of blog and podcasts!

USD (90.00): We always begin our Weekly Update with a review of the overall US dollar activity. Why? As the world’s reserve currency it is important to understand the overall trend, the other financial assets that impact the dollar, and of course to develop a longer-term view to assist in hedging decisions.

Last week, the dollar fell a touch over 0.3%, falling back near the low last seen in December of 2020 (89.20). The yield on the 10-year settled in at 1.64% and this lower level is most likely one of the reasons the USD fell. Housing starts came in lower than expected which is a change from the last 12 months! There was also important wording coming from Fed Governors about the Fed moving sooner on reducing bond purchases (tapering). This proved to be a market mover but was quickly refuted.

The coming week has a busy economic calendar in the U.S., specifically at the end of the week. More housing information, personal income and spending, GDP, durable goods, trade balance, Chicago PMI and finally University of Michigan consumer sentiment! One note on durable goods: it is a very volatile report. Although we all want to see strong positive numbers, the market may not be as sensitive to this release.

EUR (1.2175): The currency has traded four times to the 1.2240 level. This matches the high from February 24^th. This level is now a very strong resistance level as we begin this week. An interesting scenario for corporate hedgers that have Eur receivables: as soon as the EUR settles above 1.2240, a quick move to 1.2350 is expected. Importers take advantage of this now and lock-in with forwards or window forwards! Trend-line support at 1.2100 extends from the March low of 1.1704. Buyers of the EUR should be prepared to buy the currency ahead of this level (1.2110)

Economic Data: German GDP and consumer confidence, Euro Zone consumer confidence

Resistance:  1.2240, 1.2300; Support: 1.2100, 1.2050

GBP (1.4135): Inflation fears after the CPI and PPI released last week held the pound firm against the US dollar and other currencies. We say “firm” because it did not rally as one would expect. Hedgers should-be aware of the lack of a rally and be prepared to sell into any strength! There will also be an opportunity to purchase Sterling if in fact the lack of rally pushes the currency back toward 1.4000.

Economic Data: No important releases

Resistance: 1.4205, 1.4250; 1.4100, 1.4000

JPY (108.70): The yen is back to tight ranges (less than 40 pips). The relationship between the yen and the U.S. 10 year has kept the US dollar under slight pressure. It is our view that the lack of any dollar strength, will push the greenback toward 107.65 (April 26^th low). This does provide the hedger an opportunity to sell yen and buy dollars at a much better level and with the forward points the additional “pick-up” provides an even better rate!

Economic data: No releases

Resistance: 109.00, 109.30; Support: 108.15, 107.65

CAD (1.2035): The CAD continues to march its way to the 1.2000 level. Oil prices have eased up, and yet the loonie continues to rally. This rally has given companies that sell product into Canada a better return as they convert these revenues into US dollars. The US dollar will rally at one point. Hedgers should actively sell Canadian dollars to protect future cash flows!

Economic Data: No releases

Resistance: 1.2100, 1.2150; Support: 1.2000, 1.1950

MXN (19.95): The peso has been stuck in a very tight range since April 18^th (19.78) and a high of 20.22 (May 2^nd). The US dollar bounces from the 19.78 support level has become “more shallow”. In other words, the rally’s off the support level have been smaller and smaller. What should the company that has expenses in Mexico consider? The peso offers a unique value, not only is it weak versus its historical level (which is under 15.0000) there is a positive forward point pick-up*. Peso interest rates are at 4% versus the dollar at 0.25%! That means buying pesos in the forward market are cheaper than buying them spot. Using a forward or strip of forwards to lock in peso exchange rates for delivery cheapens expenses and provide clarity on expenses!

Economic Data: First half month core inflation

Resistance: 20.05, 20.25; Support: 19.70, 19.50

CNY (6.4300): The PBOC said that their goal is “exchange rate stability”. Historically, this means that they will closely monitor the rate because there may be an upcoming meeting with the U.S. administration. 6.4000 remains the floor for the US dollar while 6.4500 is the top end of the current range. Another thing to think about when a central bank says they want stability for their currency: we are not sure a central bank has said they want volatile or weak currency!

Economic data: No data release

Resistance: 6.4500, 6.5000; Support: 6.4000, 6.3500

*Please keep an eye out for this week’s deep dive into the Mexican peso, and how to manage the expenses and revenue that a U.S., Canadian or European company should consider!