FX Weekly Update – October 26th, 2020
Posted Under: Weekly updates
USD is currently opening the week where it ended on Friday but lower than the previous week, with two currencies, GBP and MXN, gaining the most. Sterling is obviously in the “hot seat” with Brexit negotiations continuing. The Peso continues to gain strength as the U.S. election polls continue to show a “blue wave” which would mean the wall on the southern border would no longer matter.
This week the the U.S. calendar is filled with important releases; Durable Goods (volatile but important), New Home sales, Trade Balance, and most importantly, the first release of the 3rd Quarter GDP. Estimates are around a 35% increase! Balance these against the increase in Covid cases both in the U.S. and in Europe and we will be faced with a very volatile and choppy trade.
EUR (1.1840): The 1.1875/1.1900 level has capped last week’s rally and will be key resistance. Europe struggles with an increase in Covid cases which is one of the reasons the rally fell short. This week’s economic releases include Monday’s German Business Expectations as well as the IFO, followed by German Unemployment on the 29th. Markets are going to be very sensitive to these because the strength of Germany’s economy is the most meaningful component of the EU’s. If the euro deals through 1.1900 the next important level is the previous high of 1.2011. Support is 1.1800, 1.1700 and 1.1600.
GBP (1.3040): All the expectations of Brexit aside, sterling has been rising in a channel making a high of 1.3176. By definition this channel typically breaks down to lead to a lower pound. The likely target is 1.2630 and that would take the “air” out of any further attempt to challenge the 1.35 major resistance level.
CAD (1.3155): We will continue to note the correlation to crude oil. There has not been any movement in the commodity and therefore not much activity in the Canadian dollar. The Bank of Canada releases their rate decision on Wednesday, the 28th. No change expected so 0.25% remains. Look for more range trading until the U.S. election. A Biden presidency means that the oil industry in the U.S. will likely decline quickly. Less supply, higher prices and the Canadian trades to 1.20-25.
MXN (20.90): This current level is a great support area for the USD. This level held on September 17th before jumping to 22.75. A break down below may provide a stronger peso to 19.05, which would equal the levels of March 2020. This stronger level means that Peso expenses will increase. Hedging those expenses can provide a US or European corporation transparency to the USD or EUR expenses, respectively, in Peso terms.
CNY (6.6640): Quietly stronger this week. The double top on the daily chart has broken down and the measuring objective is 6.40. Similar to the peso, a stronger CNY means higher expenses in USD terms. These can be hedged using CNH if the Chinese supplier is willing to accept CNY as payment. CNH is the same as CNY but it can be hedged and is tradable in the FX markets.