The Week Ahead: Risk On, Risk Off
Risk-sensitive assets at a crossroads as markets assess the pace of recovery
EURCHF Holds Steady Ahead of ECB Rate Decision
The common currency has given away its early June’s gains in the wake of the ECB’s massive stimulus of €1.35 trillion. The optimism-led surge has prompted short sides to cover their positions, which could give the euro much room to wiggle in post-pandemic FX markets. With the latest inflation above 0%, the central bank is expected to maintain its interest policy this week. Without the risk of deflation, the ECB has greater leeway to let the stimulus effects kick in.
This could support the euro in its turnaround. The pair is hovering above the major support level of 1.0580. 1.0700 is the immediate resistance lying ahead.
EURGBP Drops on UK Stimulus
The pound sterling strengthened against its European peer after the UK government rolled out new fiscal stimulus measures to heal the economy. An additional £30 billion check on consumer spending and tax breaks was welcomed by the market while the country continues to scale down its lockdown.
Markets will focus on the economic outlook for lack of substance in the Brexit negotiations. UK’s better-than-expected growth and inflation figures could help the Sterling break its bearish trend against the euro this week.
The pair is sliding below the rising trend line, and 0.8880 is a key support to keep the rate afloat.
USDCAD Rebounds as Risk Volatility Rises
The US dollar seems to be the preferred hedge against rising infection rates in the US. Record viral surges across states lately have instilled doubt about the speed of economic revival in the country. The high unemployment rate could take longer than expected before being absorbed by the reopening.
As markets shift to trade risk-off, the greenback has held well against commodity currencies like its Canadian neighbor. The US dollar may also benefit from tumbling oil prices which would add further pressure on the Loonie.
The pair bounced off the support level of 1.3500, and a new high above 1.3700 may lead to a stronger rally towards 1.4000.
AUDJPY Grinds Higher on Asia’s Rally
The Australian dollar is still riding the bullish wave as optimism about a gradual recovery settles in. The recent surge in China’s equity markets is a sign that the country is able to deal with its pandemic situation even in the case of a feared second wave. Rallies in Asian equities could well reflect on risk-sensitive Aussie as investors buy into the V-shaped recovery.
In the meantime, the Bank of Japan is likely to adopt a wait-and-see attitude and hold its monetary policy steady, which may give the Australian dollar enough room to climb back to its previous high.
The 30-day moving average has so far supported AUDJPY’s rally. June’s high of 76.70 is a major resistance level to lift.