FX Weekly Update – November 29th, 2021
Posted Under: Weekly updates
Last week the dollar took a backseat to equity and treasury markets as equities fell hard on Friday courtesy of news spreading that the new omicron strain of covid is making its way around the globe. The dollars’ role last week was to absorb the demand for U.S. assets, while giving back some gains as markets now need to absorb information on the new variant, while gaging the economic impact of it. Oil prices fell last week on the demand issue of omicron. WTI fell to $68/bbl. (it is dealing at $72 Sunday evening).
This week has the potential to increase uncertainty and volatility. How will the market react when equities begin trading? What information about the new covid variant will be available? Of course, the economic data, specifically Friday’s U.S. employment situation, will be crucial with the forecast for over 500k new, non-farm, jobs added in the last month.
EUR (1.1270): Last week, the euro fell to a low print at 1.1206, closing 100 pips higher at 1.1310. We have found that if a currency ‘spikes’ higher or lower (like the euro did), the currency will go back and ‘revisit’ that level. If this is the case with the single currency, then buyers of euro should be leaving orders around 1.1206. Buying ahead of this level is the best strategy and then a smaller percentage under 1.1200. Parking these funds at a GreenShootsFX foreign currency account or utilize our forward contracts to hedge against future expenses. The coming week has inflation data in the EU zone. This data, if it continues to move higher, will make the ECB consider tapering and rate hikes, a positive for the currency.
GBP (1.3335): The sterling had a quick fall last week, then bounced to its current level. It is not experiencing the higher volatility that other major currencies are. The short-term technical indicators do point to a higher currency, potentially to 1.3450. U.K. home starts / sales and inflation data will be important for the BOE’s decision on their interest rates in 1Q22.
JPY (113.60): USD/JPY touched 115.50 early last week but with equities and U.S. interest rates falling, the yen staged a rally, which gained momentum as stock selling accelerated. Why would the yen rally as equity prices fall? Quick falls in stocks can force investors to unwind their long USD / short JPY positions. Depending on how the markets recover this week, there will yen sellers if the equities rally. 112.80 is an important support level.
CAD (1.2750): The story behind the Canadian dollar is clear; it is about the value of oil. The new covid variant spooked the market and oil fell to $68/bbl, which pushed the Canadian dollar to 1.2800. This level is key resistance. Oil has recovered but as the week moves forward it will be key to watch how oil reacts around $75-$80. For USD/CAD, that same oil level should equal 1.2650 in the exchange rate which is now support.
MXN (21.6000): The central bank in Mexico hiked rates another quarter to 5%! What happened? A small rally in the peso, before falling, as the demand for US dollars outweighed the rate hike. The dollar rallied through our target of 21.50, losing momentum at 22.00. Our peso story always ends with the same thought: buy pesos, using forward contracts, and benefit from those high interest rates!
CNY (6.3850): Nothing new with CNY. 6.35-6.40, that range will remain until the PBOC decides it is time to change it.