FX Weekly Update – September 11th, 2023
Posted Under: Weekly updates
It has become difficult to vote against the U.S. dollar. The market continues to buy dollars and sell currencies. This past week saw a USD/MXN rally; two weeks ago, the dollar was rallying against the euro and pound sterling. Before that, it was the yen that fell. The data calendar is a packed one this week. In the U.S., CPI, PPI, and retail sales will be the highlight whereas the ECB will announce its interest rate decision on Thursday. The U.K. has manufacturing data and monthly GDP.
EUR (1.0710): The single-currency has fallen for eight weeks since trading at 1.1275. During this period, there was only one meaningful rally. The declining euro does seem stretched in the short term. We have not changed our view that the currency will continue to weaken. With the ECB on Thursday, the euro may move toward 1.0850/1.0900 on short-covering. Any chance to sell euro against those levels would be a welcome opportunity.
GBP (1.2490): The pound has quietly fallen and is now in danger of breaking down toward 1.2290 and then 1.1860. This would create volatility in the Sterling crosses which can lead to more significant moves in USD/GBP. Friday, the U.K. releases its consumer inflation expectations and this may provide the market insight into the BoE’s next meeting.
JPY (146.80): USD/JPY has traded to 147.90 six times in the last six days! We can call that a critical resistance level. We have not heard of the BoJ checking rates or selling dollars at this level. The market is concerned that the BoJ will come in and check rates. This will keep USD/JPY trading in a tight range. Buying yen for future payables is recommended at these levels. Forward points are negative, but the current spot level is attractive.
CAD (1.3625): Oil prices rallied to $88 last week. The UAE said they would keep their oil output low, as they have for several years. The Biden administration told Alaska they would wait to get the permits to drill. Together, these two developments pushed oil higher. This would typically support the Canadian dollar but that is not happening. The Canadian dollar has no support and trades sideways in a very tight range. 1.3750 is a significant resistance level, and 1.3400 is support.
MXN (17.55): Major U.S. dollar reversal last week. The change happened quickly and has yet to finish. The bottoming pattern developed since July has a measuring objective 18.20, with resistance at 18.00. We did not see this happening, but the rally in the dollar does provide companies with peso expenses, an opportunity to lock in forward contracts at cheaper levels.
CNH (7.3400): Nothing new to report. The CNH continues in a narrow range. There is no urgency for the market to push USD/CNH in any direction—two support levels: 7.2380 and 7.0750.