The Week Ahead: Long March

Risk mode fades as markets temper recovery expectations

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USDJPY Softens on Grim Outlook

The Japanese yen continues to show resilience against the US dollar after hitting April’s low. The Federal Reserve’s dovish outlook has injected some discomfort into investor sentiment.

Meanwhile, the Bank of Japan may follow the Fed’s steps and issue guidance on how long it intends to keep its low-interest rates policy. Risk-off plays are likely to dominate the market theme this week, giving the yen an extra boost.

The greenback is heading towards the psychological level of 106.00. A bearish breakout could trigger a broader sell-off towards 103s. On the upside, buyers will need to lift 109.90 to hope to turn the mood around.

GBPAUD Consolidates Near 8-Month Low

The pound sterling is hovering above last October’s low against the Australian dollar after a lengthy rally in riskier currencies. Britain’s economy showed a 20.4% monthly contraction in April, beating the already weak consensus. In an effort to maintain the stimulus momentum, the Bank of England is expected to top up its bond-buying program by at least another 100 billion pounds on Thursday.

The pound would find buying interests as long as it stays above the key support of 1.8100. The 30-day moving average (1.8650) is the immediate resistance in case of a rebound.

USDCHF Drops Ahead of SNB Meeting

Last week’s Fed policy meeting has put a dent in the latest euphoria across financial markets. What if the V-shaped recovery only exists on paper but not in the real economy? The US central bank has decided to face the reality check and signaled to keep interest rates near zero until the end of 2022.

As the US dollar weakens, this turns out to be a headache for the Swiss National Bank, which is eager to contain its currency’s appreciation. Volatility is expected to spike as markets await potential SNB intervention. The pair has broken below the support level of 0.9500. The next target would be 0.9330 with 0.9650 as the immediate resistance.

CADJPY Tempers Advance as Oil Prices Retreat

Investors’ risk appetite took a sharp U-turn last week as the prospect of a slow and lengthy recovery looms. Oil prices came under pressure after the US Fed admitted the hardship ahead in its latest guidance. This in turn has checked the Canadian dollar’s advance against the yen.

While this week’s CPI and retail data may stir up volatility in the loonie, the underlying global sentiment is likely to dictate its direction in the days to come. A recovery in oil prices could put a floor on the loonie against the safe-haven currency.

78.00 on the 30-day moving average is a strong support to maintain the bullish momentum. Failing that, 76.60 will be a major level to keep the rate afloat.

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