FX Weekly Update – November 6th, 2023

Posted Under: Weekly updates

The Fed, along with several other G7 central banks, left rates unchanged. This was widely expected, but the Fed’s language was dovish and so interest rates fell, pulling the dollar lower. The employment report on Friday showed a slowing in non-farm Payrolls of only 150,000. Forecasts were looking for +170,000. The increase in jobs was robust, and in most normal economic cycles, it is. But, the market has changed with lower interest rates, higher equity prices, and a lower dollar. A market that has turned is ‘looking’ for a reason to continue. The employment report was the reason.

This week is slow for economic data. The trade deficit and the University of Michigan survey are the highlights and neither of these have much impact on the dollar. The greenback sell-off could continue with a target on the dollar index 102.50. Currently, it is dealing at 105.00, down from 106.75 on September 30th.

EUR (107.30): The recent range of 1.0630 / 1.0550 has given way to a higher euro. The rally should continue, targeting 1.0830. The lower U.S. interest rates and the decreased spreads between the dollar interest rates and German bund rates are supporting this rally. Resistance is at the 1.0830 and 10875. Support for the single-currency is at 1.0630.

GBP (1.2370): Last week’s range for the pound, 1.2184 / 1.2390, was as large a range that it had experienced since early summer. Interest rate differences between the dollar and the U.K. rates have decreased, giving the GBP a reason to move higher. The resistance levels of 1.2450 and 1.2730 are far away, but 1.2450 can trade by mid-week. 1.2290 will be supporting.

JPY (149.55): Last week’s high of 151.72 relieved a lot of pressure on the previous week’s 150.00 resistance level. We would have expected BoJ to intervene either verbally or by selling USDs. Neither happened, but dollar buyers were cautious. The risk is for further USD/JPY selling. 148.75 and 148.10 are logical levels to test.

CAD (1.3650): USD/CAD remains a mystery. It has largely disconnected from oil prices. Technically, the rising channel, which developed over the last several months, is now moving toward significant support at 1.3550. A close below that level will target 1.3200. The Canadian dollar has a history of long, consolidating periods followed by substantial, quick, directional moves. It may be beginning that move.

MXN (17.4500): Last week’s dollar fall was never more evident than against the peso. USD/MXN remains well above the 16.5000 level, which was low in June of ’23, but that will be the target for this next leg down in the dollar. USD/MXN rallies should be sold, and building a longer-term short position using forward contracts will be most beneficial.

CNH (7.2820): USD/CNH is topping. Support is 7.2660 and 7.2350. Both levels have a high chance of trading over the next several months. The weaker dollar will support the PBOC’s goal of increasing their currency’s value in an orderly fashion.