FX Weekly

FX Weekly Update – October 5th, 2020

Posted Under: Weekly updates

USD remains flat against most currencies, week over week. President Trump’s covid diagnosis initially spooked the markets but they did recover quickly.  The dollar remains near the long-term trendline which would, if confirmed, lead to a much deeper and long trend lower for the dollar. Unemployment was released on Friday and disappointed some with only 661,000 jobs added but the rate did fall to 7.9%.  The biggest concern going forward is the “permanent” unemployed. Each time there is a shock to the economy technology fills the gaps and that suggests less employed going forward.

EUR (1.1720) The euro remains in a very well defined range. Any negative USD news has been offset by equally uncertainty in the EU. Brexit and covid has the euro buyers on the sideline. Most firms are forecasting the currency to move higher to 1.25 by the end of ’21. Levels to watch: 1.1450,1.1500/ 1.1870 and 1.2000.

GBP (1.2915) The pound looks poised to move higher, with the Oct 15/16 Brexit meeting  providing potential for an agreement adding support to the currency. While the range  has been relatively narrow GBP did make a high at 1.33 several months ago. That level is the first important hurdle followed by 1.37. Support at 1.27 and 1.25. 

CAD (1.3295): The least volatile currency of the majors. Because oil and the Canadian dollar are strongly correlated, the price of oil drives the currency. There are two scenarios; first, if covid gathers strength again then demand for oil will fall and the price will too, CAD will then weaken and test the 1.37 level. On the other hand, if the global economy picks up steam, oil will move to $50 bl and CAD will strengthen to between 1.20 and 1.25.

MXN (21.58): Volatility is the underpinnings of the peso for the last several weeks. Sensitivity to the U.S. Election is the main reason. The new trade agreement has been a positive along with the resurgence of manufacturing in Mexico. The maquila (manufacturing/assembly) operations are going to grow which will put pressure on USD/MXN because of the demand for the currency for payroll or other expenses. First support is 20.75 below that not much help for the dollar until 19.75. Strong resistance remains at 1.2275

CNY (6.7395): The yuan will be the most important currency to watch over the next year. The current level has moved lower than the key 6.85. This level is now resistance. The next target is 6.50. Strength in CNY increases the cost in USD or EUR terms. Trade agreements, covid and general dollar weakness all have been contributing to the strengthening currency. The main level to watch is 6.40, below that is 6.00!