BFL Insight: Forex Focus – Spotlight on CNY, GBP, EUR and JPY

April 14, 2022 | Author:Bullseye Financial

In our last article on Foreign Exchange markets here, we explained the factors that can influence the Forex markets and the nature of some of the major global currencies. We also took a broad look at what has been impacting the currency markets in Q1 2022 and wider prospects for Q2 2022.

In this article, we will look at some specific currencies and currency pairs, focusing on what factors may influence each, focusing on:

  • Chinese Yuan (CNY)
  • US Dollar (USD)
  • Pound (GBP)
  • Euro (EUR)
  • Japanese Yen (JPY)

We will also analyse the charts for the following currency pairs

  • USDCNY
  • GBPCNY
  • GBPUSD
  • EURGBP

Factors that may impact all Forex markets (and all global financial markets) into Q2 2022

  • The conflict in Ukraine
  • The impact of Russian sanctions on global growth
  • Supply chain issues
  • Global commodity price increases
  • Global inflationary pressures

Factors that may impact the Chinese Yuan (CNY) into Q2 2022

  • The seriousness of the Shanghai covid outbreak and the lockdown, and how long it lasts
  • Commodity prices, particularly energy and metals
  • Global interest rates (particularly for the US and Euro area)
  • Global growth slowdowns from global inflationary pressures and global interest rate increases

Factors that may impact the US Dollar (USD) into Q2 2022

  • US interest rates changes
  • Global interest rates changes (particularly for China, the Euro area, Japan, and the US)
  • Commodity prices, particularly energy and notably Oil
  • The likely US and global growth slowdowns from global inflationary pressures and global interest rate increases

Factors that may impact the Pound (GBP) into Q2 2022

  • Commodity prices, particularly energy
  • UK inflationary pressures
  • UK interest rates changes (plus those for the US and Euro area)
  • UK growth slowdown from domestic and global inflationary pressures and UK interest rate increases

Factors that may impact the Euro (EUR) into Q2 2022

  • Commodity prices, particularly energy as a significant, net importer and the relationship with Russia regarding Oil and Gas
  • Pan-European inflationary pressures
  • ECB interest rates changes (plus those for the US)
  • European and global growth slowdown from EU and global inflationary pressures and ECB interest rate increases

Factors that may impact the Japanese Yen (JPY) into Q2 2022

  • Commodity prices, particularly oil as a significant, net importer
  • Growing Japanese inflationary pressures
  • Bank of Japan defence of the zero-rate policy and keeping Japanese Government Bond yield capped
  • Bank of Japan possible concerns of a weakening Japanese Yen and potential for “imported” inflation.
  • Japanese and global growth slowdown from global inflationary pressures and global interest rate increases

 

Technical Charts Analysis

 

The bigger trend for USDCNY is lower, having been in a bear market since May 2020.

So the risk for Q2 is back to the 2022 low at 6.3035, then maybe for the 2018 low at 6.2420, even down towards 6.2000 and 6.1000.

BUT a push above the down trend line from March 20221 (currently at 6.3870), reinforced above 6.4070, would signal a possible base and favour a move then towards 6.4750 and maybe 6.5110.

 

The bigger trend for GBPCNY is lower, having been in a bear market since May 2021.So the risk for Q2 is through the 2022 low at 8.2570 for the 2020 secular low at 8.0985, then maybe for 8.000.

Only above 8.4655 would signal a base and reversal pattern to aim higher for 8.6665, possibly even 8.7435.

The bigger trend for GBPUSD a wide range, but with the intermediate-term trend lower, having been in a bear market since May 2021.

So the risk for Q2 is for 1.2676, then maybe for 1.2252 and even towards 1.2077.

Only above 1.3300 would signal a base and reversal pattern for a consolidation. The risk would then be to possibly aim higher for the 1.3645/1.3750 area.

The bigger trend for EURGBP is lower, having been in a bear market since December 2020.

So, the risk for Q2 is back to the 2022 low at 0.8203, then maybe for targets at 0.8000 and .7850/00.

BUT a push above the down trend line from September 2021 and the resistance high at 0.8513, would signal a possible base and favour a move then towards the 0.8573 and 0.8720 peaks.

In summary

The Chinese Yuan remains strong against the US Dollar, and particularly against the Pound and the Euro. However, USDCNY is showing signs of a basing pattern, so needs to be watched, as this could tigger a weakening of the Chinese Yuan against the Pound and Euro as well.

As stated, from a fundamental basis, the key factors to monitor into Q2 will be:

  • The conflict in Ukraine
  • The impact of Russian sanctions on global growth
  • The seriousness of the Shanghai covid outbreak and the lockdown, and how long it lasts
  • Supply chain issues
  • Global commodity price increases, particularly energy and metals
  • Global inflationary pressures
  • Global interest rates (particularly for the US)
  • Global growth slowdowns from global inflationary pressures and global interest rate increases

 

Author: Mr. Steve Miley – BFL Sr. Investment Consultant