The Week Ahead: The Viral Catalyst
Markets go risk-off as the epidemic may trigger the much-talked about recession.
EURUSD Rises Back on Speculation of US Rate Cut
The euro recouped most of February’s losses after the greenback retreated across the board last week. The first confirmed coronavirus case with unknown origins in the US raised concern that the largest economy could face a larger outbreak. Bets for a Federal Reserve rate cut to prevent a recession have risen, which hammered the US dollar. This week’s ISM and jobs data in particular will stir up short-term volatility. While positive figures may put a brake on the dollar’s demise, a disappointment could help the euro reverse its bearish course. 1.1095 is a major resistance level ahead, and a breakout may lead to an extended rally.
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GBPUSD Looks to Break out of Post-Election Range
Cable has been stuck in a narrowing trading range for over two months. Between a possible Fed easing and UK’s trade uncertainty, markets have yet decided which currency is the weakest link. With official talks kicking off on Monday, market participants have already been expecting tough if not protracted negotiations with the EU. While Britain has threatened to walk away, the pound sterling could come under pressure if news headlines point to another stalemate. The pair is hovering above the key support of 1.2780. A bearish close could trigger a larger sell-off.
AUDJPY Sinks to 11-Year Low
The Aussie-yen pair might be one of the most interesting divergence plays in the current risk-off mode. Indeed, as the odds of a coronavirus pandemic doubled, the risk-sensitive Australian dollar came under fire as investors still struggle to assess the extent of its economic impact. In contrast, the yen surged after renewed confidence in its safe-haven status. This Tuesday’s RBA rate statement could drive up the overnight volatility. Cautious rhetoric in regard to global risk could further add pressure on the Aussie. AUDJPY has broken the psychological level of 70.00 and is poised to drift lower after a brief rebound.
NZDCAD Retreats to Four-Month Low
Sell-offs in the commodity markets have taken a toll on the oil-related Canadian dollar. The loonie could see large spikes this week when both Bank of Canada’s rate decision and jobs data hit the wires. While the consensus expects the central bank to stand still this time, speculations of at least one rate cut later this year have risen. The performance of the labor market will be a key piece of the puzzle, and a robust figure could help lift the Canadian dollar. The October’s low of 0.8250 is the immediate target on the downside, while 0.8440 is a key resistance in case of a bounce.
