The Week Ahead: Not So Fast
Markets split between reopening and second wave
GBPJPY Bounces Off 4-Week Low
The pound sterling has begun a tentative recovery after giving back all its gains in June. However, its advance might not be a smooth ride as ongoing Brexit talks may stir up volatility.
The EU’s potential openings on contentious issues such as fishing rights and state subsidiaries have so far failed to convince Britain. The pound could see a jittery rally as news about the negotiation trickle down. Meanwhile, Tuesday’s GDP could offer a much-needed boost if Britain’s economy started to show signs of relief.
A rebound from 131.80 will help the rate stay afloat. On the upside, 136.00 is the immediate resistance.
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EURNZD Feels Tariffs Pressure
The euro has been stabilizing against its riskier peer over the last few days as commodity currencies retreated from their recent highs. The ECB has reckoned that the eurozone might be past the worst of the pandemic crisis, which could give the single currency a bias to the upside.
However, the path is far from being cleared for a rally as a new round of US-EU trade war looms. The US has threatened tariffs on $3.1bn worth of European goods in retaliation of Airbus subsidies. The dispute may hurt sentiment towards the euro.
1.7200 is a key support where a bearish breakout may lead to a broader sell-off.
USDJPY Lowers on Virus Concerns
The latest surge in new COVID-19 cases across the US has cast a shadow on the reopening fever. Last week’s U-turn in equity markets was a sign of profit-taking from traders who were not so sure of a speedy recovery. The same sentiment has been mirrored in forex markets where the Japanese yen saw increasing buying interests.
This week’s theme is whether the US will be going into its independence day with upbeat economic data. Positive readings could give the greenback some breathing room.
In the meantime, the dollar is holding on to the major support of 106.00. 109.80 remains a tough resistance to crack.
AUDCAD Rallies as Canada Loses its AAA Shine
The Australian dollar has seen its advance stalled against most major currencies as traders tempered their optimism about the speed of the recovery. Nevertheless, the AUDCAD pair continues to ride on the bullish wave as the loonie has turned out to be the weakest link.
Fitch has stripped Canada of its AAA rating as a result of massive spending and deteriorating finances. This can only add extra pressure on the commodity currency when oil prices start to head lower.
The pair is consolidating near the 20-day moving average above 0.9280. A bullish breakout above 0.9450 could trigger an extended rally towards 0.9600.