The dollar fell against most currencies as the equity markets staged a large rally and U.S. bond yields fell to 2.74%. Falling yields means that cash has been flowing into bonds. The U.S. PCE released on Friday printed a 4.9% year over year, lower than last months (5.2%). Combine this with oil beginning this week at $117.50/bbl, and the inflation conversation will remain front and center. Fed governor Christopher Waller would like to see 0.50% Fed Fund rate increase for the next several months. His goal is to make sure inflation moves lower to 2%. On the other hand, Atlanta Fed President Raphael Bostic said that he sees a case for pausing rate increases entirely in September.

This week’s activity will be punctuated by Fridays U.S. employment situation. Forecasts for non-farm payroll is 320K, lower than last month, but still a strong number. The rate is expected to tick down to 3.5%. In general, the U.S. employment situation has been one positive in this recovery story. The markets are focusing on any support from positive information.

The dollar will be under pressure to begin the week. Lower U.S. interest rates, higher oil prices and several European and Canadian economic reports will keep foreign currencies well bid into Friday.

EUR (1.0775): The strong rally in the single-currency has left many “shorts” covering their positions, adding fuel to the move higher. The area between 1.0800 and 1.0850 should be strong resistance. A medium term trendline, drawn from the high 1.2200 are intersects with the 38.2% retracement of that 1.2200, against the low of 1.0350. Eurozone unemployment on Wednesday, retail sales, PMI and PPI will also be released. The EU just agreed to impose an oil embargo on Russia!

GBP (1.2650): Last week was an interesting one for the pound. Pushed higher by the dollar’s weakness, the sterling withstood Nancy Pelosi’s comments on Northern Ireland. This week the U.K. will have housing permits as well as further pressure by the EU, and the U.S. in decisions around trade. But the pound has been resilient, and the next major level is 1.2800.

JPY (127.60): The yen rallied against the dollar as interest rates in the U.S. fell. Profit taking and weak long positions also helped. The quick move that USD/JPY has experienced in the last six months has run out of new dollar buyers, and we would expect that support at 126.50 then at 125.00. Between the U.S. interest rate scenario and the non-farm payrolls, the yen will remain range bound. Selling yen at 128.00 and buying dollars near 125.00.

CAD (1.2650): The Canadian dollar has benefited from the Bank of Canada’s hawkish tone and rate hikes, along with oil prices at $117.50! USD/CAD has fallen from 1.3050 (May 9, ‘22) to 1.2650. That is a 3% move. As oil prices begin to move higher again, then we would expect the Canadian dollar to continue to get stronger. The first line of support is 1.2470, which was the low in March of this year. Below that would be 1.2322, the October ‘21 low. U.S. dollar rallies should find solid resistance at 1.2740.

MXN (19.5500): While the dollar fell against most major currencies, it lost far more against the peso. The current level is now the bottom of a long-term support area. Below 19.5000, the dollar can continue to fall toward 18.8500. This can be attributed to the high Mexican interest rates and the rise in oil prices. Remember too that the peso does better when the U.S. economy is doing well. This week can be a gauge as to the strength of the U.S. economy.

CNY (6.6500): USD/CNY continues to ride a roller coaster. The covid concerns and complete lockdowns in Shanghai and Bengji pushed the dollar toward 6.8500. Now, with those concerns behind, and the economy opening again, the dollar is falling. We can argue that the PBOC may come into support the currency pair near 6.55/6.60, which has been a pivot level.