The Week Ahead: Double or Nothing

Will the US Fed again raise the stakes to save the economy?

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USDCHF Tanks as Contagion Spreads

USDCHF

When the US sneezes, the dollar catches a cold as the country is having a hard time containing the coronavirus. Recent spikes in infection rates and unemployment claims have heightened speculations that the Fed may need to double down on its rescue package.

An ultra-loose monetary policy with massive liquidity would continue to restrain the greenback. With the US economic recovery now in question, investors may turn to a flamboyant euro or a safer asset like the Swisse.

The buck is testing the March low of 0.9200. Should the rate rebound, 0.9400 is major resistance on its way.

EURJPY Gains on Recovery Hope

EURJPY

The euro has gained more traction after the EU leaders struck a deal on the recovery fund. The €750 billion package is a milestone in European integration. It allows commonly-issued debts to be distributed to member states, which would mitigate default risk from weaker economies. The market welcomed this historic move as the single currency renewed momentum across the board.

The pair is testing last June’s high of 124.40. A bullish breakout could trigger a broader rally in the weeks to come. In case of a retracement, 121.80 is a key support level to monitor.

CADJPY Struggles as US-China Ties Sour

CADJPY

Escalation of Sino-US tensions could set a divergence play in motion in this commodity-linked versus safe-haven currency pair.

China has ordered the US to shut its consulate in the city of Chengdu in retaliation of Washington’s closure of the Chinese consulate in Houston. Amid the pandemic, Hong Kong protests, and Beijing’s territorial claims in the South China Sea, there are concerns that the trade deal could be on thin ice.

As uncertainty grows, oil prices could take a toll while the yen may appreciate against a riskier loonie.

The pair is in the 78.00-81.80 consolidation range, a bearish breakout could send the price towards 75.

AUDUSD at 15-Month High on Hawkish RBA

AUDUSD

Despite a resurgence of COVID-19 cases in the country, the Australian dollar is trying to keep its high ground across the board.

The RBA’s latest comments reaffirmed its rejection of negative interest rates and ruled out any intervention to cap the exchange rate. The central bank’s optimistic outlook may continue to support its currency.

In contrast, the US Fed is expected to keep flooding the market with cheap dollars, giving the Aussie a chance to stay ahead.

The exchange rate is reaching highs from April 2019 right under the psychological level of 0.7200. 0.6950 is the immediate support in case of a pullback.

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