FX Weekly Update – August 28th, 2023
Posted Under: Weekly updates
The dollar remains well bid. Jerome Powell spoke on Friday at Jackson Hole and his message was straightforward: 2 months of good inflation data does not mean inflation is no longer a concern. The Fed will raise rates if inflation begins to move higher. This was supportive of the dollar and will influence the markets this week. PCE will be released on Thursday, and Friday’s employment report will follow.
EUR (1.0800): The dollar’s rise keeps pressure on the single-currency. This trend of a lower euro has been well-defined since the high point of 1.1275 on July 18th. How much further can this currency fall? 1.0700 is an extension level, then the 1.0450 level.
GBP (1.2600): Technically, the pound has broken down out of a 3-week consolidation pattern. The target for this pattern is 1.2350. One of the difficulties of technical analysis is determining the “timing” of the target price achieved. The rule of thumb is that the objective is met in half the time it took for the pattern to develop. In the case of the pound sterling, that should be less than two weeks from now.
JPY (146.50): How weak can the yen get? Three factors are apparent: The U.S. will continue to have higher interest rates by a wide margin, the strong equity markets need more cheap capital (selling yen), and lastly, the overall strong dollar. These are solid factors but keep in mind that the BoJ is very aware of the current USD/JPY level, and the market will be cautious buyers of dollars. A hint of intervention and the yen will rally quickly to 142.00.
CAD (1.3600): Minimal movement in USD/CAD. Oil prices have softened below $80. There is no urgency for the pair to move one way or the other. With this in mind, keep 1.3650 and 1.3865. Support is currently at 1.3500 and 1.3375.
MXN (16.7200): The peso is the only currency strengthened from the previous week—The strange thing about the USD and MXN relationship is that when the U.S. economy is doing well, the peso is in demand and rallies. The market is expressing that fact with the higher peso. Keep the 16.6000 as a level of support.
CNH (7.2870): Geopolitical concerns keep the PBOC keen to keep their currency steady. The 7.3500 level is a crucial area of resistance. The weaker the CNH, the cheaper Chinese product is, which is needed to begin pushing the Chinese economy forward.