The Week Ahead: The Weakest Link

Trade of the Week

EURJPY Plummets as Sentiment Worsens

The euro deepened its losses as investors fret that the Eurozone is inching toward a recession. The bloc’s weakest growth since 2013 is a sign that major economies are yet to stabilize. While the ECB is depleting its ammunition, there is no fiscal effort insight to turn the tide. Instead, a political crisis in Germany poured oil into the fire after Chancellor Merkel’s potential successor stepped down amid divisions within the ruling CDU. The single currency has broken below the major support of 119.40. October’s low of 117.20 becomes closer as sentiment deteriorates.

EURGBP Falls after Britain’s Political Reshuffle

The pound rallied across the board after PM Boris Johnson replaced Sajid Javid with Rishi Sunak as the Chancellor of the Exchequer. Market participants see in this political shift a move toward a fiscal stimulus to support post-Brexit growth. This week’s CPI, along with unemployment and PMI data, will stir up short-term volatility. Positive readings could add fuel to the pound’s recovery. The pair has fallen back to the December low of 0.8280. A pause in the pound’s rally may lead to a temporary pullback near 0.8440.

AUDUSD Struggles to Rebound

The Australian dollar is still feeling the weight of the China situation. As the Australian economy is highly sensitive to supplying China with its commodities such as copper and iron ores, slowdown in the second-largest economy can only put the Aussie under pressure. While the RBA minutes may not offer any surprises from the previous meeting, optimistic job data could help the currency rebound. The Australian dollar is making an attempt at the 20-day moving average (0.6760). A bullish breakout could trigger a rally towards 0.6850.

CADCHF Surges on Economic Silver Lining

The Canadian dollar has shown surprising resilience in a world full of uncertainties. Even though concerns over the coronavirus have slashed the demand for oil, one of Canada’s major exports, the loonie keeps climbing higher. Positive data and the receding prospect of a rate cut helped markets regain confidence in the Canadian dollar. Wednesday’s CPI figure would be a critical addition to support the rally if it comes out above the consensus. The pair has broken above the psychological level of 0.7400. An extended rally could push the loonie to 0.7500.