The Week Ahead: All In

Markets put faith in central banks’ unwavering commitment

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EURJPY Surges as ECB Props up Economy

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The euro rose to a 13-month high against the Japanese yen as markets unwind their safe-haven bets. Broad optimism has found support from the ECB’s latest effort to stimulate the bloc’s economy.

The central bank raised its emergency bond purchase by 600 billion euros last week, higher than the 500 billion that markets had expected. The tide is turning in favor of the common currency thanks to a combination of political and monetary commitment.

The euro is approaching the May 2019 high of 125.20. In case of a retracement, 121.00 would be the first line of defense.

GBPCHF Softens as Brexit Talks Drag on

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The pound’s latest advance has come to a halt as Brexit negotiations resumed. A post-Brexit trade agreement between the UK and EU is seen unlikely to be achieved anytime soon considering thorny fishing rights and application of EU regulations. Market expectations of protracted talks could depress the pound for the time being.

Furthermore, speculations of the Bank of England dipping a toe into negative interest rates argue for a gradual weakening of the currency.

The pound is in a consolidation range between 1.1730 and 1.2200. A breakout on either side could dictate the course of action in the weeks to come.

USDCHF Buoyed by Jobs Recovery

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The US dollar was having a hard time until last Friday’s surprising nonfarm payrolls data came to its rescue. While some of the benefits of the reopening has been offset by the ravage of the civil unrest, a 2.5 million job addition instead of a negative reading was enough to put the greenback back on track, as least for now.

This would offer the Fed enough confidence to maintain the current ultra-accommodative policy in its next meeting.

The US dollar is bouncing off of the support area near 0.9500. Offers around 0.9800 will need to be lifted before any meaningful rally.

AUDNZD Hits 7-Month High

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Regained risk appetite has pushed risky currencies to new highs this year. The Australian dollar has come ahead of its neighbor despite a plunge in retail and trade figures. Optimism would continue to fuel the Aussie’s recovery with China’s ‘back to normal’ as a contributor.

Most importantly, as a sign that the worst may be behind, the Reserve Bank of Australia’s decision to hold its interest rates at 0.25% offers solid support to the currency.

The pair has come off last November’s high of 1.0860 which acts as a major resistance level. 1.0670 near the 30-day moving average is the immediate support.

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