The dollar fell despite the Fed increasing rates 75 bps (expected) and the U.S. employment data suggesting the U.S. economy is still creating jobs at a solid pace. The increase of 261K non-farm jobs was much higher than forecast (200k) but the unemployment rate did up-tick to 3.7%. Markets took the Fed’s language as a negative for the USD. Expectations had been the Fed will raise another 50 bps in December and most likely several 25 bp hikes in 2023. The language after last week’s hike was more dovish whereas the market expected a more hawkish response. With the economy still creating jobs, the difficulty the Fed is facing has now leaked into the USD. Other central banks, including the ECB, not only raised rates last week but they are now more hawkish going forward. The question remains (and it is a big one), has the U.S. economy cooled down enough for the Fed to slow down on its hikes or is the economy shaking off the high interest rates and continuing to grow in an inflationary way. This week the focus on the U.S. CPI. The YoY forecast is 8% and the MoM is 0.5%.

China has announced that they are going to fully open their economy. That has pushed oil prices above $90/bbl. while metals prices jumped with copper higher by 7%! If commodity prices continue to rally, inflation will remain high and most likely will push the Fed to continue to raise rates. That will be USD bullish.

EUR (0.9940): The euro rallied but failed to push through 1.0000. This level has been well defended by the euro bears and looking at this week, there is going to be a struggle to push the single-currency higher. After the 75 bp hike by the ECB and Legarde’s comments that they will continue to raise rates, the euro has several headwinds. High energy prices, high food costs and now the ECB’s issue with Italy’s UniCredit bank, will weigh on the single-currency. Apparently, UniCredit was supposed to sever ties with Russia and pay back the ECB but they are now using the funds to buy back shares and have refused to stop working with Russia. The risk is another test of the 0.9535 low from September 27th.

GBP (1.1330): The pound has been a leader against the dollar, but that may be coming to an end. The new Prime Minister and the reversal of the economic plan that was announced by the previous, short-term Prime Minister, has been the main support for the sterling. But the failure to hold above 1.1500, and the trade issues, the hangover from Brexit, will keep a lid on the pound. We believe that another round of selling can push the currency toward 1.1000. Resistance will be the 1.1500 and 1.1645 (October 26 high)

JPY (147.00): The yen was virtually unchanged last week, even as the dollar was sold against all others. This week, Japan release their Foreign Investment in their stocks and bonds. Normally we don’t highlight economic data in Japan. The currency has always been driven by the U.S. / Japan interest rate differences and how investors are using the yen to fund global investments. But, with all the disruption in the markets, the foreign investment numbers will be important. Technically, the triangle formation points to a higher U.S. dollar and weaker yen but the market is concerned about BoJ intervention. Expect more sideways trade.

CAD (1.3540): The U.S. dollar fell from 1.3800 to the current level on the back of overall U.S. weakness but also, the rally in commodity prices, specifically oil. The BoC did raise rates last week but only by 50 bps, this disappointed CAD bulls, which is why the 1.3800 level was tested. But now the potential head and shoulders top on the daily chart. A close below 1.3400 will push the USD/CAD back to 1.3000 and will most likely get the currency back to 1.2500.

MXN (19.5500): The peso has been on a quiet rally against the dollar. There has not been much attention given to this move. USD/MXN now sits just above 19.4500, which was the last support area before the 19.0000 level. Demand for the peso is driven by companies that are funding their production in Mexico. Growing production in Mexico, by U.S. companies that manufacture or assemble there along with the high yields, make the peso very attractive. Resistance for the USD/MXN is 19.75 and 20.00. Support is at 19.45 and 19.00.

CNY (7.2160): The dollar fell hard last week against the CNY. It began the week at 7.3000 and fell through 7.2000 before recovering to the current level. Two reasons: 1) the dollar weakness in general, and 2) the announcement that the Chinese economy is opening! We would suggest that the opening Chinese economy will drive demand for their currency as they see their exports rebound. Now that the elections in China are over, and Xi Jinping is now in his third term, then expectations of the currency gaining strength toward 7.0000 and back to 6.5000 is expected.