FX Weekly Update – September 20th, 2021
Posted Under: Weekly updates
Last week’s currency activity was focused on economic data, namely inflation and retails sales. CPI (consumer price index) in the U.S. printed a smaller number than expected which helped foreign currencies push higher, but when retail sales surprised to the side, the dollar rallied along with the yield on the 10-year (1.37%). This is the week of both the Fed and BOE. In both cases, the markets do not expect any change in rates, but it will be their “language” that will create the movement. The Fed is expected to begin reducing their $120B monthly bond purchases in November. The BOE is expected to raise their rates in Q1 of 2022. The German elections on September 26th cannot be discounted either. Angela Merkle will step down as Chancellor after 16 years! Her successor may be her finance minister, Olaf Schultz. The other person that has a chance is Armin Laschet, leader of the CDU/CSU party (Merkle’s party). The next several weeks will be interesting.
Covid infections are falling in both the Eurozone and, in the U.K. U.S. infections, however, continue to rise but this number remains more of a political football than fact. However you want to look at it, there does seem to be agreement that the Delta virus is having less of an impact globally than a week ago.
EUR (1.1725): Last week we discussed the first level of support, which would likely be seen early in the week, at 1.1750. That level was traded and held for about 24 hours before giving way to the current level. Economic data this week is inflation, as well as Markit number for manufacturing. While these are important, the September 26th German election to replace Merkle will be much more in focus. The short-term technical do indicate an oversold currency. An early bounce back toward 1.1750, potentially 1.1780. This week is a good opportunity for buyers of euro to look for levels below 1.1700 to buy them and either swap them into forwards or place them into a GreenShootsFX currency account.
Resistance: 1.1750, 1.1780; Support: 1.1700, 1.1665
GBP (1.3740): Interesting period for the pound last week and for this upcoming one, too! After falling against the dollar, it did little more than moving around in a tight range. While the economic data will be important this week it really is the BOE’s discussion about interest rates later in the week, that matters. The level to keep an eye on is 1.3700, below that, specifically 1.3600, the trend for the sterling is down! Checking the average forecast on Bloomberg, there isn’t anything exciting to report. That forecast has the GBP at 1.3800-1.4000 for the next 12 months.
Resistance: 1.3760, 1.3820; Support: 1.3680, 1.3600
JPY (110.00): The yen fell for the week, in a lethargic move, following the rally in U.S. yields. There has been very little data or even ranges to get the yen trending in any medium or long-term direction. The one issue that may be keep the currency in a tight range is the North Korean’s missile launches over the last several weeks. There also has been chatter about North Korea enriching their nuclear capabilities. These two issues are major threats to South Korea and Japan. Until there is some positive conversation with the U.S. and Europe, the market will be more likely to sell the yen and buy dollars.
Resistance:110.25, 110.50; Support: 109.60, 109.00
CAD (1.2775): Oil prices gained another $1/bbl. last week, but that did not stop the Canadian dollar falling further against the U.S. dollar. Economic data released last week to show a slowing in the Canadian economy. Manufacturing shipments fell further than expected, CPI ticked higher, and housing starts missed expectations. Combine these with an overall strong US dollar, and the weakness should not surprise! The high of 1.2949 that traded on August 19th is within shouting distance. Look at the below chart. The spike high of 1.2949 was reversed quickly, providing Canadian buyers an opportunity to jump in and buy CAD at those cheap levels. There is a strange thing about markets, specifically currency markets. When a quick high or low is made, then reversed, there is a tendency for the market to head back toward that high or low. This is what is happening with the USD/CAD. The USD made a high, reversed, and is now going back to test that level again. 1.3024 is the 38.2% retracement of the entire move (1.4650/1.2002). A great opportunity to again buy the Canadian has and will present itself.
Resistance: 1.2800, 1.2840; Support: 1.2725, 1.2680
MXN (20.0000): We will keep this short and sweet. There has been very limited movement or developments in peso trading. The range is small and there is no economic data (other than the Fed this week) that will impact the currency. Trade the range, be prepared to buy peso’s with any move toward 20.2000.
Resistance: 20.2000, 20.3500; Support: 19.8500, 19.7500
CNY (6.4700): Limited movement in USD/CNY as has been the story for a couple months! 6.4000 was clearly a major support level. There was NO rumor that the PBOC was challenging U.S. dollar sellers at that level. Now the next challenge will be the 6.5000/6.5300 area. Like Japan, the coin flip will be the North Koreans.
Resistance: 6.5000, 6.5300; Support: 6.4300, 6.4000