FX Weekly Update – November 1st, 2021
Posted Under: Weekly updates
Last week began with the dollar under pressure, looking as if the long forecast weakness was going to finally become reality! By the end of the week, the dollar staged a rally and enters this week on solid footing. GreenShootsFX described this potential move in last week’s update, using the euro to trace it out. We suggested selling EUR into any rally toward 1.1700 (1.1690 high) with a target at 1.1450, and potentially 1.1350. The low on Friday was 1.1533, and we continue to look for a higher dollar.
This week is really going to be the last week for 2021 that will give the key economic data along with central bank decisions. There is also the possibility that the U.S. Build Back Better and infrastructure plans are passed on Tuesday. We should also mention that local elections will be held around the U.S. on Tuesday as well. A busy week. The Bank of England rate announcement and the FED highlight Thursday and the employment situation in both the U.S. and Canada are released on Friday morning. The U.S. forecast for non-farm employment is +452K jobs and the rate is expected to tick down to 4.7%. Markets are expecting the Fed to begin tapering this week.
EUR (1.1560): Like we traced out above, the single currency failed at 1.1690 last week and quickly reversed. We continue to look for the target level of 1.1450, with an outside chance of 1.1350. The ECB president, Largarde will speak on Thursday, and this may be a very interesting discussion. Markets do not believe that the ECB will move tapering or raising rates any time soon, but with the other G7 countries beginning to discuss both, this could put the EUR in a much more vulnerable position.
GBP (1.3690): The BoE’s Bailey has been talking about a Q1’22 rate hike for the last couple months and will be on the agenda this week. Will they raise rates or have a more hawkish statement? Either way, the sterling will be on ice for the next 5 days. The dollar is looking to continue its rally from last week, but will the cable hold its own or fall like the euro? 1.3560 is a key reversal point for the currency. Between the current level and that point, we would suggest that EUR/GBP will be the main driver. Below 1.3560, the pound will accelerate below 1.3400.
JPY (113.75): USD/JPY’s long rally failed to trade above the October 2018 high of 114.52. Profit taking has pushed the dollar lower and may continue that to the support level of 112.85. Buying dollars into weakness will be a good plan, as we believe that the dollar will rally through the 114.52 level and target 116.00. Keep in mind that the weak yen is a great deal for Japanese corporates when they receive dollars and sell them for yen. The weakness in their currency gives them a welcomed increase in profitability!
CAD (1.2380): An OPEC meeting this week may change the direction of the oil market, but we are not sure how that will impact the overall direction of oil prices. The Canadian dollar is stuck above its high level of 1.2002, while a strong US dollar shoves it lower and high oil prices push it higher! A classic struggle in the currency markets. Oil prices will need to hit $90/bbl before the 1.2000 area gives way and a test of 1.15/1.17 is achieved. Buyers of Canada may find opportunities near 1.2500, while US dollar buyers may find 1.2290/1.2300 as an area to place orders. Keep in mind that the Canadian employment numbers will be out on Friday of this week and that may be a driver behind a higher Canadian dollar.
MXN (20.6000): The dollar bounced off 20.10 (now support) and is again looking to test the recent high level of 20.90! Above that, 21.63 is the next major level. Buying pesos is always a great idea in the forward market. Pick your levels and execute a percentage of your payables!
CNY (6.4000): Failing to hold a dollar rally above 6.4500, the pair begin this week at 6.4000. The 6.3500 level is a key support but we are not confident that it will remain holding the currency much longer. Evengrande did make another interest rate payment late last week and that provided confidence and support in the Chinese currency. 6.2000 is a target for this next leg lower in the dollar.