Start the week of March 1, 2021, with our Forex forecast focusing on major currency pairs here.
EUR/USD Forecast
The month of March is going to be very volatile and choppy, but it also looks as if it is going to continue to favor the upside in general.
The euro has had a volatile month, and as you can see on the monthly chart, we are trying to form a bit of a hammer. It looks as if we are trying to build up the necessary momentum to go looking towards higher levels, with an eye on the 1.23 level, extending all the way to the 1.25 handle. The 200 points in that area suggests massive resistance, and I do think that it is going to take a lot of work to get through there.
It is worth paying attention to the fact that the bond yields in the United States are spiking, and they are playing havoc with not only the equity markets, but also the currency markets. The 1.20 level underneath will offer support extending down to the 1.19 level, and I do believe that the month of March is going to be very volatile and choppy, but it also looks as if it is going to continue to favor the upside in general. I do not know whether or not we can break out during the month of March, but clearly it looks as if we will probably make some type of an attempt to do so.
this is a market that I think will continue to see a lot of noise, which is typical for the EUR/USD pair anyway, but I do think that as time goes on people will continue to focus on the idea of stimulus and the easing monetary policy that is coming out of the United States. That should continue to work against the value of the dollar, but there are economic concerns out there and interest rate differentials that could throw a wrench into the situation going forward. We have clearly defined boundaries that we need to pay attention to.
USD/ZAR Forecast
I think March is probably going to be more about the US dollar bouncing a bit against the South African rand.
The US dollar has spent most of the month of February bouncing around between the 15.13 ZAR level and the 14.50 ZAR level. This is an area where we had seen an impulsive spike higher in the past and have been drifting lower from for some time. There are questions about the interest rate differential going forward, as the yields in the bond market in America continue to climb. As they climb, that does make the possibility of yield differential between the dollar and the rand throw this market into disarray. After all, South Africa offers 3.5%, which is relatively attractive, but if the greenback continues to offer more in the way of yield, you are likely to see people willing to jump in the US assets quicker. In a way, you should be paying more attention to the bond market than the currency market if you are going to trade the South African rand.
As we have rising interest rates in the United States, that has people buying bonds, and they need to use US dollars to do so. That drives up demand for the greenback against the rand, especially as South African investors pile into the US.
I think March is probably going to be more about the US dollar bouncing a bit against the South African rand, perhaps trying to reach towards the 15.65 rand level, as we had reached that general vicinity during the month of January. We are still very much in an uptrend from a longer-term perspective, so it will be interesting to see if we can break above there. If we do, then the greenback could really start to rally at that point and go looking towards 16.50 next.
CAD/JPY Forecast
The Canadian dollar skyrocketed against the Japanese yen during the trading week to reach towards the ¥85 level, but then pulled back quite drastically. The fact that we formed a shooting star suggests that we could see a bit of a pullback from here, but you need to follow the oil market. If oil does in fact continue to go higher, then it is likely that we could see this market turn around and go back towards that high. However, if we were to break down below the bottom of the candlestick, then we could drop as low as ¥82.
USD/MXN Forecast
The US dollar rallied significantly against the Mexican peso during the course of the week, reaching towards the 21 pesos level. It is very possible that we may have bottomed, especially if yields continue to strengthen in the United States. I believe that we may get a short-term pullback in this market, but it certainly seems as if the Mexican peso may continue to get hit, and that this market may continue to try to grind to the upside. However, if we were to break down below the 19.75 MXN level, that could send this market back to the 18.55 MXN region.
USD/JPY Forecast
The US dollar has strengthened significantly against the Japanese yen during the course of the week, breaking the back of the shooting star from the previous week. That is a very bullish sign, and we are closing at the very top of the range. I believe at this point, any time this pair pulls back there will be buyers underneath looking to pick up the US dollar. This will be especially true if 10 year note yields continue to strengthen.
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