FX Weekly Update – September 27th, 2021
Posted Under: Weekly updates
Last week was a very volatile week for the G7 currencies that ended the week unchanged except against the Yen, which fell against the dollar, and the Canadian, which rallied! The early week fall in the global equities was sharp but recovered all those losses by the close of trading on Friday and a key contributor was Chinese real-estate firm, Evergrande (owned by China’s wealthiest person), could not make their interest payments.
The company expanded quickly, providing affordable housing, but it amassed debt of $300BN (2% of China’s GDP). Consequently equities swung wildly, as the original reaction was fears of another 2008 Lehman situation. But, after Monday’s activity, the market bounced back, realizing that this situation was not the same at all. The other big story last week was the bounce in yields in U.S. treasuries where the 10-year moved to the current 1.45% from 1.31% earlier in the week.
The interest rate scenario does set-up an interesting week ahead. One would think that this should support the dollar, but the 10-year yield is more important to the mortgage rates and equities. The two-year yield is more directly connected to the greenback’s strength. The two-year has moved higher (0.24% v. 0.21%). The story behind the higher yields was the Fed’s announcement that they would begin tapering. The market has been waiting for this, but now that the Fed has provided more direction, yields are moving.
Economic Data: Durable goods (Monday), housing prices and GDP highlight the economic data.
EUR (1.1720): Not as much activity versus most currencies. Like last week, the hourly chart has another “rising wedge” developing. What does this mean? This is a bearish sign for the euro and the objective is 1.1680 which is the same level it dealt last week. The major headline for this week is the German election – results due Monday – and replacing Angela Merkel, who is stepping down, will be no small feat. As we write this Sunday night, the Socialist Democrats have a thin margin.
Economic data: German CPI, unemployment and the Euro area consumer confidence and GDP.
Resistance: 1.1740, 1.1780; Support: 1.1680, 1.1635
GBP (1.3660): The sterling had a very volatile week but has not entered any new ranges. The low of 1.3608 was followed by a high of 1.3750, just a day later. Now it’s back down and may challenge that low again. A weekly close below the 1.3600 level does not provide a positive medium or long-term strength for the pound. We would target 1.3400 as the level that would be the next import area.
Economic data: GDP.
Resistance: 1.3700, 1.3750; Support: 1.3600, 1.3575
JPY (110.70: The yen experienced a roller coaster ride. Once the Chinese real-estate news hit the “wire”, safe-haven yen buying pushed the USD/JPY lower to 109.21. At the same time, the Bank of Japan announced that they were leaving their interest rates low for a long period of time. The Fed announced their statement about tapering and U.S. interest rates rising, which drove the dollar higher against the yen, leaving the yen struggling and most likely ready to test the July 1st high of 111.65! Keep in mind that as the yields in the U.S. rise and fall, USD/JPY does the same!
Resistance: 111.20, 111.65; Support: 110.50, 110.20
CAD(1.2660): Another volatile week for the Canadian dollar. Oil prices pushed higher to above $75/bbl! Keep in mind that Goldman Sachs is forecasting oil to be at $80/bbl. by years’ end. The Canadian weakened early last week but quickly gained strength. Looking at the daily chart below, the 38.2% retracement level of 1.3020 is clearly safe from further Canadian dollar weakness. We begin this week right at the trendline support area of 1.2660. A weekly close should put the May 31st low of 1.2002 at risk.
Resistance: 1.2700, 1.1235; Support: 1.2620, 1.2580
MXN (20.0500): The peso continues to quietly range trade. No news seems to impact this. We will just continue to look at the levels of 20.35 and 19.50. Unless those give way, we don’t see anything to speak about.
Resistance: 20.1500, 20.3500; Support: 19.9500, 19.7000
CNY (6.4620): The yuan remains flat against the USD, even as Evergrande began to implode. There are some whispers about the Chinese moving in on Taiwan. This would have huge global implications and we will follow this and report on any news we discover.
Resistance: 6.5000, 6.5300; Support: 6.4200, 6.4000