FX Weekly Update – September 26th, 2022
Posted Under: Weekly updates
The Federal Reserve Bank raised rates last week by the forecast 75 bps. More importantly, it was the chairman’s words that fueled the U.S. dollar, again! Powell said that another 125 bps this year is on the cards. They will not stop until they get inflation back near 2%. The dollar made advances against most currencies. The euro fell to 0.9655, GBP to 1.0780, the Canadian dollar was above 1.3600 and the Chinese yuan fell to 7.1600! These currencies have continued their fall against the dollar as this week begins. The euro traded to 0.9548, while the GBP fell to 1.0248! Both of these currencies came under pressure during the Asian trading hours, liquidity may be one of the reasons.
This week has a limited calendar of economic data in the U.S. The two that should have some impact on the dollar will be durable goods and Thursday mornings PCE. The Fed has made it clear that the PCE is their most important indicator. Yields across the world have moved higher, with the most interesting being the U.K. bonds. The new economic plan was released in the U.K., and the market doesn’t like it. Yields are higher and will most likely continue in that direction.
EUR (0.9550): We have been looking for the ‘95 handle’ for some time. The action for the single-currency remains decidedly bearish. We would expect the Euro to remain under 0.9800, with the 0.9400/0.9500 area acting as support. Now would be a great time to purchase euro and either use a forward contract to pay future cash flows or open a GSFX Euro Account and hold them. The point is, the euro has fallen very far, and this rate may not be the lowest, but it is most likely within 10 cents of the ultimate low. Buying the currency now and picking some up more at lower levels is just good risk management.
GBP (1.0550): The historic fall at the end of last week and continuing into this week was spurred by the newly announced economic plan. Liz Truss, the new Prime Minister, has rolled out an aggressive mix of tax cuts, gas caps and interest rate hikes. The debate is on as to how this will work, but the market has answered, and it does not care about it. We opened this week touching 1.0258! Liquidity during the Asian time zone may not be great, which could be why the 1.0258 level was touched. That does not stop the market from going back and testing that area, which is what we believe will happen.
JPY (143.50): The yen fell against the dollar, after the BoJ came into the market and bought yen! Selling yen for the interest rate difference and the cheap ‘capital’ deployed into foreign assets. The range may look clearer. The BoJ came in near 148.00 so that will be resistance and 140.00 the support. Yen will have to fight the BoJ, but if the rest of the world’s interest rates continue higher, the yen will fall further.
CAD (1.3630): Oil prices remain weak, and while that in itself should weaken the Canadian dollar, the Bank of Canada matches the Feds rate hikes. The combination of the two has kept the Canadian dollar weakening more quickly and that will be the scenario moving forward. A weaker Canadian dollar but not at the pace of the other currencies. The major resistance level to keep in mind is 1.4650. That was a high in both 2015 and then again in early 2020. Below is the support area of 1.2500. Inside those two are 1.2800 and 1.3900.
MXN (20.3100): this currency pair firmed but still has not moved out of their recent range. Resistance has 20.7500 and 21.0000. Support at 20.1000 and then of course, the big level of 19.5000. Trade the range.
CNY (7.1650): The most surprising dollar strength. These last several weeks have had USD/CNY move from 6.8200 to 7.1650 which is large for a currency that is managed by a central bank. The next key level is 7.1950, which was a high in 2019 and again in 2020. There has not been much in terms of PBOC commentary on the cheap CNY. The Chinese economy will begin picking up steam as oil prices fall and their currency weakens. The cost of those two variables will improve profitability and support the Chinese economy,