FX Weekly

FX Weekly Update – May 3rd, 2021

Posted Under: Weekly updates

Last week started out with the US dollar under pressure and currencies moving close to key resistance areas. The Fed remains more concerned about growth and jobs than inflation. Equity markets in the U.S. were supported by the large tech companies crushing their forecasts. U.S. data continues to outperform forecasts as well. The Chicago PMI, personal income, spending and manufacturing were stronger than expected. GDP was higher by 6.4%, and the yield on the 10-year drifted higher to 1.64%. Together, these halted the dollar from falling further and in fact the greenback was much higher at weeks end. Germany and the EU both failed to improve their data which aided in the fall of the euro. Looking forward, Germany has upgraded its GDP forecasts, and set a record for 1 million vaccinations in one day. As more shots are administered, the recovery that has so far stalled in Germany, will increase. Japan is on holiday, adding momentum to the dollar. Oil prices are trading at $64/bbl., and copper is near record highs! The data set that markets will be focused on this week is Friday’s U.S. employment numbers. Forecasts are looking for non-farm employment numbers to add over 1 million new jobs!

EUR (1.2030): The EUR topped out at 1.2092 last week and fell quickly to 1.2020. The struggle to gain ground above 1.2100 (trend-line resistance), can be attributed to the lackluster expansion in Germany and the EU. Couple that with the ongoing saga between Brussels and the U.K. around trade after Brexit and there is a clear picture to why investors are wary of getting too long the EUR. As mentioned above, Germany hit 1 million vaccine shots in a day, but U.S. employment is expected to be very strong.

Resistance: 1.2050, 1.2100, 1.2175; Support: 1.1985, 1.1930, 1.1885

Data releases: Retail Sales, Markit Manufacturing

GBP (1.3830): Price action was like the EUR. The high print of 1.3976 fell short of 1.4000 (resistance) and quickly retreated to 1.3802 (Sunday). The trendline support level of 1.3840 gave way without much fanfare and will now be considered resistance. Look for a bit of a bounce above that, to 1.3860, but until the UK’s May 6th local elections there should not be much reason to buy the currency. Clients looking to purchase GBP for expenses, could have an opportunity in the low 1.37’s!

Resistance: 1.3840, 1.3880, 1.4000; Support: 1.3800, 1.3740, 1.3700

Data releases: Market Manufacturing, Consumer Credit

JPY (109.40): Japan is on holiday and the USD buyers/Yen sellers are taking full advantage of the lack of liquidity. The US dollar is higher by 1.9% from its low print of 107.47 on April 23rd. The “risk on” trade is back and stronger than ever. The 111.00 area is back in play, especially with the U.S. employment numbers released on Friday.

Resistance: 110.00, 110.30, 111.00; Support: 109.20, 108.70, 108.40

CAD (1.2280): We have mentioned in previous updates that the Canadian dollar is one currency that trends for a long period of time. The current trend has been intact since March of last year when it touched a US dollar high of 1.4668! The Canadian is now higher by 16%. The 1.2247 level was the low on January 28, 2018 and below that, 1.2057 on September 3, 2017. Oil prices are higher this week ($64/bbl.) and Goldman Sachs is forecasting it to move as high as $80/bbl by year end. That would put the USD/CAD comfortably at that 2017 low. Buy Canadian dollars!

Resistance: 1.2320, 1.2380, 1.2410; Support: 1.2250, 1.2190, 1.2060

Data releases: Markit Manufacturing, Imports/Exports, Building permits

MXN (20.25): Two weeks ago we talked about the important level of 19.85. That held perfectly, and the dollar is moving higher and looks to be focused on touching 19.50. The peso typically rallies when the U.S. economy is doing better, but this time around there is another factor that is coming into play. When South American economies like Brazil and Argentina are struggling, investors will sell Mexican peso’s as the ‘defacto’ hedge. Brazil and Argentina are expensive to sell in the forward market, the peso isn’t nearly as expensive and is more liquid.

Resistance: 19.35, 19.50, 19.75; Support: 19.00, 18.85, 18.35

Data releases: None

CNY (6.47): The US dollar started the week heading toward 6.45, but without follow-through, it has backed up. This week, the overall dollar strength should prop-up USD/CNY most likely toward 6.5000.

Resistance: 6.5000, 6.5500; Support: 6.4500, 6.4000

Data Release: None