FX Weekly Update – November 30th, 2020
Posted Under: Weekly updates
We begin the week with USD coming off last week’s sell-off as the market is embracing the delivery and distribution of two of the vaccines. Saturday, United Airlines delivered the first shipment, landing in Chicago. Taking a step back from the markets, with all the sickness and the deaths that COVID-19 has brought to the globe, we should all take a breath and celebrate the fact that these vaccines have been created, tested and approved, 10 months after the virus began its terrible trek through the communities around the world. 40 million doses are expected by the end of the year and it is expected to be available to the U.S. population by March. This is historic and historic by years! Thank you to the science and medical teams that bravely brought all of humanity these vaccines.
The USD index has matched its low for this current decline (91.70). Last week we talked about currencies like CNY, MXN and JPY rallying against the dollar while CAD, EUR and GBP moved little. These last few trading sessions saw the majors catching up; CAD rallied to 1.2970 (oil has now traded to $45/bbl.) and EUR (1.1970) and GBP (1.3330) jumped against the USD, testing important resistance levels. Whilst there are more issues ahead for the majors (Brexit, Covid and central banks) clearly USD will continue to slide. The U.S. non-farm employment numbers are released on Friday. Forecasts are expected to add 540K jobs and pushing the unemployment rate to 6.7%.
EUR (1.1970): The currency jumped in the holiday liquidity last week and this week we have several important economic releases; Eurozone PMI, PPI and German retail sales will be the most important. Resistance for EUR will be at the 1.2000 area and then followed by the 1.2500 level. This would support the forecasts from earlier in the year. Support at 1.1800 and the most important is 1.1600.
GBP (1.3330): Similar to EUR, GBP also jumped higher, to 1.3397. It has backed off that level but this was a strong move, stopping out the short GBP positions. We have talked about 1.35 as the most important resistance level and that remains a level we need to watch. Further rallies in GBP should test that and the response will determine the next leg (up or down). Support is at 1.3275 and then 1.3200.
JPY (103.70): USD could not hold the previous week’s gains (105.60) and is now back to 103.90. That is a very large move for a relatively stable currency. It is a safe haven for investors, this seems to contradict the rally in the equity markets. There is also sad news coming out of Japan with their suicide levels jumping these last few months. Numbers we saw are 17,000 suicides versus 2,500 deaths due to covid. Yet the need for safety drives the currency. 103.70 has been strong support on the hourly chart. Below that is 102.70. We will watch for any rally in the dollar as a sign that the ‘carry trade’ is in play and that would mean investors are borrowing or selling the 0% Yen and deploying it around the globe, looking for yield!
CAD (1.2980): West Texas Oil is dealing at $45.50/bbl to begin the week. This strong print provides Canadian buyers fuel to keep buying! CAD is now below 1.3000, trading at 1.2985. The lowest level for USD was back in January at 1.2960. Once the USD closes below that area, the target would be 1.2450. GreenShootsFX has been forecasting CAD between 1.20-1.25.
MXN (20.00): The peso has been gaining strength, but the speed of its rally has slowed. We are expecting USD to snap back, potentially to 20.75. This will be more of a function of an oversold USD rather than any change in the overall direction. One interesting and sad point, Mexico has reported over a 1 million covid cases and a 10% death rate! The U.S. has less than a 2% rate and the U.K. 3%. This high rate may impact the urge for companies to move manufacturing operations. We will keep an eye on this moving forward.
CNY (6.5780): Quietly gaining strength at 6.5700, similar to the MXN, the USD continues to fall against CNY but at a much slower pace. We would expect USD to recover toward 6.75. Big support levels for USD are 6.40 and then the level most firms have forecasted, 6.30.