FX Weekly Update – November 2nd, 2020
Posted Under: Weekly updates
Regardless of any economic releases this week and subsequent weeks it’s all about the U.S. Presidential election. Some states have held firm to the November 3rd voting date as the deadline and others, like Pennsylvania, have extended mail in voting and counting of votes to several days after. The impact on the currency markets will be a choppy trade. Last week USD gained against most currencies except JPY. EUR and GBP fell as Covid cases increased and the markets have moved into a defensive mode. Treasury yield increased and the U.S. rate curve looks healthy! In other words, the slope is positive and frankly does not indicate a recession (flat or inverted).
EUR (1.1640): EUR is 200 pips lower than 7 days ago and there is most likely more selling ahead. Last week we tweeted that the target for the currency is 1.1600 and we do not see a reason why EUR won’t print that early in the week. Economic releases include Monday’s unemployment rate and manufacturing PMI. November 5th is German factory orders. We can’t forget the French issues with recent terrorist attacks. This week target 1.1600 with a possibility of 1.1450.
GBP (1.2900): In our previous commentary we talked about the rising channel the pound had been in, and late last week it broke down through that channel heading toward 1.2800. A Bloomberg article over the weekend describes how the BOE is combating the latest Covid shutdown with stimulus aid. Look for 1.2800 and potentially 1.2700. Latest Brexit news? Looks like the important fish issue is heading for resolution.
CAD (1.3310): Oil prices have fallen on the Covid slow down. WTI is trading at $35/bbl. CAD has weakened as expected. The range has been 1.29-1.37 for a very long time and one can say 1.31-1.34 has actually been more accurate. More of the same with 1.34 and 1.37 getting challenged this week.
MXN (21.15): Similar action in the Peso. Weakening ahead of the election and the falling oil prices. MXN is considered a commodity currency and the Mexican government receives a large part of their revenue from oil. Most of this revenue is used to fund social programs. Keep an eye on 21.50 as well as USD support area of 20.80! This support level, if broken, can target 18.30.
CNY (6.6920): The PBOC just set today’s rate at 6.6700 versus last Friday’s rate of 6.6500. What does that mean? Not too much as the semi-free floating CNY traded above that level Friday and remains above it today. The election means more to China because of trade deals. Watch 6.73 (last weeks high) versus the low of 6.64.