FX Weekly

FX Weekly Update – March 21st, 2022

Posted Under: Weekly updates

The dollar spent last week losing ground against the EUR, GBP, CAD, and MXN (among others) but managed to rally against JPY. U.S. PPI was released and it matched forecasts of 10% (YOY). The Fed did raise rates (0.25%) on Wednesday, March 16th, The move was not a surprise to the market and neither does the forecasted additional 6 rate hikes in 2022. The Bank of England also raised their rate a ¼% point. This was the third hike by the BoE yet the sterling (1.3160) has had little movement against the dollar. The U.S. 10-year yield did rally to 2.15%; where it will begin dealing this week. But the 7-year is yielding 2.18% and the 5-year is yielding 2.15%. The flattening of the middle of the curve should prompt economists who haven’t already discussed an economic slowdown, to begin the conversation. More U.S. dollar will be closely dealing off the curve. The 2-year, which is highly correlated with the dollar, did move to 2.0%, supporting the dollar, but by weeks end fell to the current 1.94%, and the dollar lost ground.

This week is heavy on data in the G-7 countries. The U.S. highlight will be Wednesday’s Durable Goods report. Later in the week is housing data and then the Michigan Consumer Sentiment.

EUR (1.1040): The single-currency continues to battle back above 1.1000 after falling to 1.0805 two weeks ago. The high print of 1.1137 on March 17th was 16 pips higher than the March 10th level. This area will be the first major resistance level. Support remains at 1.0985, and then major support at 1.0900. Below 1.0900, the target is 1.0700. A close above the resistance area, will target 1.1390.

The EU economic calendar is packed with inflation numbers, along with manufacturing data.

GBP (1.3160): The BoE raised their interest rates for the 3rd time, and yet the pound continues to deal with a weak tone. The currency is losing ground against the EUR. Any GBP/USD buying is being offset by buying euro and selling of the pound. The currency pair has been dealing within a “falling channel” since May of 2021. A break-out above 1.3600 should continue to 1.4250. A close below 1.3000 extends the downward trend .

The U.K’s economic calendar is full this coming week. Inflation numbers, housing data, and retail sales are the most important.

JPY (119.25): GreenShootsFX has targeted the current 119/120.00 level for USD/JPY. The currency’s weakness is related to the increasing U.S. treasury yields. Selling yen and buying dollars does lock in an interest rate pick-up for dollar buyers. As long as the Fed is committed to raising rates, there is no reason to expect the yen to rally. The big “IF” is if the equity markets fall quickly and make new lows (that were printed last week). The speed of the fall will unwind those long USD/JPY positions.

CAD (1.2600): USD/CAD has rejected the 1.2900 resistance level and has fallen to the current 1.2600. Higher oil prices (rallying $10 throughout the week) have supported the Canadian currency. There has not been a serious change in the U.S. convincing the Saudi Arabia to increase their oil output. There is   nothing to note on where the Iranian negotiations are currently. The first stopping point for USD/CAD is 1.2585, which if it does not hold, should push the dollar toward 1.2500.

MXN (20.4000): The dollar rallied to 21.4700 on May 7. The reversal has the dollar near the lows of this year. Below 20.0000, the dollar has support at 19.80-50, which is where it spent most of 2021. The interest rate advantage favors the MXN, which was not helped by last Fed’s 0.25% hike. The market would have had dollar buyers if the Fed moved 50 basis points.

CNY (6.3700):  The dollar tested 6.4100 last week, but without follow-through, it has fallen back to 6.3700. USD/CNY remains in the down-channel it has been in since December of 2000. 6.3000 remains a support level. Below that it is 6.2400 and then the 2014 dollar low of 6.0100.