FX Weekly

FX Weekly Update – November 16th, 2020

Posted Under: Weekly updates

USD fell last week even as the equity markets moved higher and most European countries took more harsh steps closing down their economies. New Covid infections continue to climb across the globe with the exception of China. They seem to have avoided any meaningful outbreaks. Economic releases this week include CPI/PPI and manufacturing numbers for nearly all major economies. The U.S. will provide retail sales. Although the inflation numbers will continue to show no increased pressure, the markets will be focusing on the manufacturing and retail sales. Two more important developments to watch: Brexit negotiations will continue this week. Apparently, the EU negotiators need the Brits to sign-off, but they are not ready! The next installment of the “Crown” is being released on Netflix and we assume that the U.K. is focusing on that. Lastly, Mexico’s senate has moved forward, with the support of their President, to legalize recreational cannabis across the country. This may seem trivial given all of the other economic concerns but with the business controlled by dangerous cartels this will become a major change to watch.

EUR (1.1840): The currency has been very quiet after hitting a post-election high of 1.1900. Last week’s low was 1.1750 (that is now support) and this week EUR is poised to try and take-out last week’s 1.1900. Companies that are looking to purchase EUR for payments should be keeping close eye on the any “dips” in the market. The most likely reason for short-term EUR weakness would be a result of a cross currency move, namely EUR/GBP. GBP has been gaining strength and the cross is nearing a brief sell-off so that can push EUR back toward the 1.1750 low.

GBP (1.3220): Brexit negotiations remain ongoing as we mentioned earlier. This is better than “One Life to Live”. The saga seems to be playing out like the best soap operas. One report says things are moving without a hitch and then the next is a more precarious outcome. Let’s just consider what the market is saying. The negative news is not impacting GBP, in fact, it is supporting the currency against USD and EUR. 1.3350 has been the first line of resistance for GBP for several months and above that 1.35. We have been writing that for some time and it remains.

CAD (1.3100): Not much to discuss this week. The excitement with the Covid vaccine has subsided and the oil markets have settled in at $40/bbl. The currency has done the same. Canada has both inflation and manufacturing numbers this week, any outsized readings may impact CAD but that is not expected. We continue to forecast CAD stronger, targeting 1.20-1.25, in other words, the current levels are ideal for purchasing CAD.

MXN (20.30): Friday’s report of the Mexican Senate moving forward with country-wide legal cannabis has provided an early trade to buy MXN. Technically, the peso has acted perfectly. Once it rallied through the 20.75 level (original USD support) it weakened but could not fall back toward that level. Opening this week at 20.30 does point toward 20.00 and then 19.50.

CNY (6.58): CNY has benefited most from the U.S. election and the possible Covid vaccine. We expect the currency to continue toward 6.40. The strengthening will increase the cost of product coming from China, ultimately pushing inflation higher in the USA. Companies that import from China can utilize the CNH forward market and lock in the costs and better manage the risk. GreenShootsFX is happy to discuss how these contracts can protect margins and potentially limit the volatility in costs.