The Week Ahead: Inflation-Focused
Major economies’ inflation data will drive this week’s volatility
Trade of the Week
GBPCAD Struggles to Rally Higher
The British pound is in a recovery mode after Bank of England Governor Carney’s dovish comment last week. Speculations run rife that the central bank will cut rates this year, even sooner than expected as Carney hinted.
Brexit uncertainty still looms as both parties concerned have yet to negotiate on the terms of transition.
Wednesday’s UK CPI will surely have its say on the pound’s direction. A less-than-optimistic figure could deepen the correction. After the 20-day moving average crossed below the 30-day one, sentiment has turned bearish.
A meaningful rally needs to break above the key resistance of 1.7200.
USDJPY Rises Back to December’s High
Last Friday’s US jobs report came out off the mark as both average earnings and new jobs were below market participants’ expectations. The US dollar’s week-long rally came to a halt as a result. As the pair hovers under a major daily resistance level, this week’s US inflation data could tip the balance.
A positive number could help the dollar lift the offers near 109.70 and trigger a broader rally. A disappointing figure, however, may lead to a retracement below 109.
AUDUSD Looks for Critical Support
The Australian dollar swiftly gave up all its gains from the late December rally amid expectations that the Reserve Bank of Australia (RBA) may roll out another rate cut next month.
The latest upbeat retail sales struggled to lift sentiment as widespread bushfires have darkened the economic outlook. As the pair dropped to the major support level of 0.6850, a failure to rebound could add extra pressure on the technical side.
A break below may trigger a new round of sell-off towards 0.6800.
Gold Peaks as Markets Calm Down
The precious metal came off its highs after tensions appeared to ease in the Middle East. Both the US and Iran have backed away from further escalation. The US has chosen to step up sanctions instead of military action.
Gold, which is typically sought after during geopolitical turmoil as a safe-haven asset, has seen its price drifting lower as markets calm their nerves and reassess the risk.
The spike at 1610 is a strong sign of rejection and we could expect the metal to continue to pull back. 1520 around the 20-day moving average is the immediate support level in sight.
