The Week Ahead: Safe Haven Paradox
Despite global uncertainty, domestic issues are holding Japan’s yen back.
USDJPY Rises on Potential Japanese Stimulus
The Japanese yen fell sharply last week amid renewed concern that Japan could be on the brink of a recession. Speculations run high that the Bank of Japan may roll out further monetary stimulus in conjunction with the government’s fiscal package.
The yen could depreciate further if this week’s CPI confirms that economic weakness has outweighed its safe-haven status. The pair has met stiff resistance near the previous top of 112.30. A short-term consolidation is likely before the US dollar resumes its uptrend.
GBPUSD Finds Support Near November’s Low
The pound sterling has been in a sideways consolidation since last December’s election. Despite uncertainty around trade negotiations with its European partners, the UK seems to have enjoyed an economic recovery as business and consumer confidence have improved post-election.
Positive notes from Tuesday’s inflation hearings could heighten bets that rate cuts could be off the table, giving strong support to the currency. A breakout above 1.3050 could trigger a broader rally. On the downside, 1.2830 is a major support to maintain the bullish trend.
NZDCAD Slides as Sentiment Sours
In tandem with its trans-Tasman neighbor, the New Zealand dollar lost ground as investors flew to safety. Concerns over the economic impact from the coronavirus have put high-yield currencies like the NZ dollar under pressure.
Since China is the largest recipient of the country’s exports, absorbing 29% in 2019, its slowdown can only be detrimental to the kiwi.
Positive retail data next week may provide temporary salvation. As the pair grinds lower, the November low of 0.8350 is a key support. On the upside, a rebound could be challenged by the psychological price tag of 0.8500.
WTI Crude Struggles Amid Weak Demand
The US oil price recoups some losses from January’s heavy selling. The recovery is mostly technical-driven and could be short-lived. Market participants stay on their guard as reports of new cases of the epidemic are yet to recede.
In the meantime, contraction in factory activity from China and Japan is likely to curb demand. But oil producers have shown no rush to cut output.
This imbalance could continue to depress the crude price in the medium term. The price saw strong resistance at the 30-day moving average. 45.50 is the immediate target, while any meaningful rebound will need to break above 55.00.