FX Weekly Update – November 20th, 2023

Posted Under: Weekly updates

The dollar begins this week under pressure. Currency support levels held last week and the interest rate story is weighing on the greenback. The U.S. two-year yield has weakened to 4.88% where the correlation between the two is solid. The rate curve remains inverted but it is beginning to flatten and if this continues the two-year yield will accelerate lower, dragging the dollar with it. The calendar in the U.S. is light this week (durable goods on Wednesday), and the Thanksgiving holiday will keep the market quiet. One warning: many times, the Friday after the Holiday, currencies have been known to make significant, unexpected moves.

EUR (1.0920): The current euro rally may continue toward 1.1200. The rounding bottom on the daily charts is proving to support this. There continues to be a focus on the ECB and its future rate activity. The euro calendar is limited. Attention will be on the Hamas/Israel war, the Russia/Ukraine war, and energy prices.

GBP (1.2495): The pound sterling has rallied from 1.2077 (Oct 2) to the current level. That is a 3.5% move in a concise time frame! The rally will not stop until 1.2650 is traded and above there the target is 1.2800. Support comes in at 1.2320. The only information in the U.K. is the BoE’s Governor Bailey speaks.

JPY (148.90): The yen has rallied without the hint of BoJ intervention or rumors. The high may be in place. 151.90 on Nov 12, held twice, and now the support at 149.00 has been given during the early Asia trade. A close below 149.00 will target 145.00. Japan has no economic data releases this week. The market will be focusing on the equity markets. Higher prices may weaken the yen, just as a sharp sell-off would strengthen the currency.

CAD (1.3695): USD/CAD is breaking down, like other currency pairs, and we expect it to continue toward 1.3500, with a support level below 1.3420. Canada has two economic data points this week beginning with CPI on Tuesday and followed by BoC Governor Macklem’s speech.

MXN (17.2000): The peso is gaining speed in its ascent against the dollar. Support is at 17.0000; expect a bounce back toward 17.3000. Below 17.0000 is the 16.6000 low from August. A stronger peso may indicate a pick-up in the U.S. economy. It may also mean moving from a ‘safe’ dollar to a high-yielding peso. Either way, buying pesos is an excellent way to pick up yield or lower payroll costs at Mexican maquilas.

CNH (7.1790): Last week President Biden / Xi’s meeting in San Francisco was scrutinized by Americans. While the outcome is TBD the CNH has rallied to 7.1790, over an 8% move in just a few days. This is common. The PBoC has been known to hold a currency in a tight range leading up to political meetings, only to allow the currency to strengthen right after. This week may take USD/CNH to 7.0000.