FX Weekly

FX Weekly Update – September 6th, 2021

Posted Under: Weekly updates

The dollar index is 2.7% higher than the beginning of 2021 (January 3). The 10-year is higher by 45% and yet there is so much uncertainty with the strength of the U.S. and global economy (thank you Delta variant), that any emerging trend in the dollar is difficult to call. Last October we called a major trend change in the greenback which could last for ten years (that is the normal time frame for trends with the U.S. dollar). But twelve months later, there hasn’t been much to speak about!

Last week’s major news was Friday’s U.S. employment situation. Forecasts for non-farm jobs was a strong 720,000 but unfortunately the actual number was just 235,000. The unemployment rate did fall to 5.2% from 5.4%, and the hourly earnings increased 0.6% (forecast 0.3%). Open jobs in the U.S. remain at around 10MM. One other important consideration, the enhanced unemployment benefits end this week so there should be another pick-up in jobs next month. This week has a limited economic calendar for the U.S. with just PPI on Friday which is another measure of inflation and one that will be looked upon as very important!

EUR (1.1900): The currency ground higher all last week, back to 1.1900 and back to the previous high (1.1909) of July 29th. The quiet trading does have one trend to consider: the currency traded at 1.1662 on August 19th and is now 2% higher. For buyers of euro your margin just eroded by 2%. Euro sellers have experienced the opposite. This coming shortened holiday week does have important information releases. ZEW surveys, Euro-zone GDP and Thursday’s ECB meeting.

Resistance: 1.1975, 1.2050; Support: 1.1830, 1.1800

GBP (1.3865): The question with the GBP is simply this: has the currency been trading in a range or a topping pattern, or has it been in a range, ready to break-out higher. The chart below highlights the dilemma. The resolution of this will happen in time. One thing to point out is that small gap in July. Technical analysis says that gaps get filled, and this one has. Now that it has happened, we believe we have seen the low and a grind higher toward 1.4000 and above is in store. Buyers should consider accumulating the pound and parking them in a GreenShootsFX wallet! This week has manufacturing numbers, construction, and trade balance.

Resistance: 1.3880, 1.3980; Support:1.3760, 1.3670

JPY (109.65): The choppy trade in USD/JPY reflects the uncertainty in the market. The Delta variant is creating a slow-down, China is slowing, the U.S. is slowing, yet the inflation numbers, transitory or not, are moving higher. Middle east issues are front and center, along with the attention China is giving it. The dollar does look vulnerable against the yen. But not a direct move lower as we thought previously. Trade the yen defensively, pick your spots, and do not get too confident with any move for too long!

Resistance: 110.40, 110.70; Support: 109.10, 108.70

CAD (1.2520): Oil prices are higher two weeks in a row and are now dealing at $70.00 bbl. As expected, the Canadian dollar is higher. The recent U.S. dollar high of 1.2949 (August 19) should be the top and now the weaker U.S. dollar moving toward 1.2000 and most likely below 1.1900. Employment situation is released Friday morning, the forecast is +94k and 7.5% rate. The Canadian economy has been soft, but with oil prices moving higher that should bring some relief!

Resistance: 1.2600, 1.2700; Support: 1.2490, 1.2425

MXN: (19.9000): The dollar is sitting on a short-term trendline, but it will not hold. The next level is 19.5000 which was the low on June 8th. There will be several other levels to keep an eye on, namely 19.75, 19.60. Strong oil prices do have a limited impact on the Mexican economy and that will be a contributing factor to future peso strength.

Resistance: 20.0000, 20.0800; Support: 19.7500, 19.6500

CNY (6.4330): The dollar is slumping against the CNY and it is nearing the important 6.4000 area. There are a couple geo-political developments that are most likely driving this move:

1) China has made an agreement with Iran for oil

2) they also agreed that the Chinese Road will be built through Iran.

3) China has announced that they support the Taliban as the new government of Afghanistan.

Combine the three and the demand for the CNH may continue. The 5.8000 level has been an area that we believe will eventually be traded and manufacturing in China will become more expensive. Defending against this by using forward contracts, even longer-term, in anticipation of this currency strength should be considered.

Resistance: 6.4500, 6.5000; Support: 6.4000, 6.3500