The Week Ahead: The New Normal
As countries ponder reopening their economies, investors remain cautious
EURGBP at Crossroads as UK Reopens
The euro is struggling to hold its ground against the pound sterling after a sharp retreat to the March lows.
Prime Minister Boris Johnson’s statement that Britain was past the peak of the pandemic was a signal that the country is moving closer to a ‘return to normal’. As the government outlines its plan to restart the economy this week, the pound may resume its upside push across the board.
Meanwhile, the currency could gain support should the Bank of England issue optimistic guidance later this week. 0.8600 is a key support to keep the uptrend intact. Otherwise, a bearish breakout would trigger a sell-off towards 0.8400.
USDJPY Sinks on US Tariff Threats
We might be seeing a turn in the market mood this week as geopolitical tensions start to hit the headlines. The Trump administration has threatened to impose new tariffs on China in retaliation for their supposed mishandling of the outbreak.
As we approach the year-end US election, COVID-19 and its economic price have certainly exacerbated political uncertainty. A new phase in the trade war would pump up demand for safe-haven assets like the Japanese yen.
The US dollar is sliding down towards 105.00. Any meaningful recovery will need to rally above the key resistance of 108.00.
NZDCAD Stays on Recovery Course
As one of the best performers in April, the New Zealand dollar has held the high ground against its Canadian counterpart. The recovery may last as long as investors feel confident that the world is gradually turning the page on lockdowns.
Tuesday’s jobs data would highlight the economic toll of the health crisis. A disappointing reading could hinder the kiwi’s advance as the RBNZ has not excluded cutting rates into negative territory.
The pair has been rising steadily towards the previous high of 0.8700. On the downside, 0.8400 is a major support to keep sentiment upbeat.
AUDJPY Inches up Ahead of RBA Meeting
The Australian dollar has been surfing on a bullish wave as sentiment brightens across high-yielding assets. Better-than-expected Chinese manufacturing activity and the RBA’s restraint from slashing rates have propelled the currency to a 7-week high.
The question traders are asking now is whether the central bank can afford to maintain its optimism, especially after the Fed pledged to keep rates near zero in light of lasting economic damage.
The Aussie is now approaching the resistance level of 71.40. In case of a retracement, 67.50 near the 30-day moving average would be the first line of defense.