The Week Ahead: The Face Off

The first in-person EU summit dictates volatility

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EURJPY Awaits EU Agreement On Rescue Fund

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The euro has been striving to keep its high ground as European Union leaders discuss the EU’s 2021-27 budget in their first face-to-face meeting since the start of the pandemic. Notable rifts on the scope of the recovery plan still put northern and southern countries at odds.

The EU’s ability to ink a deal will greatly affect its political credibility and markets’ perception of its economic comeback. A failure to reach a consensus may halt the common currency’s latest advance.

The pair is inching towards the previous high of 124.30. In case of a retracement, 120.40 will be the immediate support level.

GBPCHF Drifts Lower On Weak Sentiment

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A string of weak GDP and retail data could be the harbinger of the sterling’s downfall in the days to come. Soft economic activity raises bets on the possibility of negative interest rates by the Bank of England in September.

While the upcoming PMI data may stir up intraday volatility, the main driver could be the new round of trade talks with the EU this week. However, it would not be a surprise to see the talks going nowhere once again, which would only instill bearish sentiment into the pound.

The psychological cap of 1.2 might stay put unless there is a strong catalyst. A break below 1.1650 could trigger an extended sell-off.

CADJPY Stands Firm After Optimistic BOC

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The Canadian dollar has held its ground against the safe-haven Japanese yen as the Bank of Canada pledged to keep interest rates at 0.25%. The central bank’s refusal to go extra miles with monetary easing can be seen as rather hawkish when negative rates are heavily skewed elsewhere.

The loonie has more room for gains should this week’s inflation data further support markets’ optimism. On the commodity side, rising oil prices also offer the currency a strong buffer against the downside.

The pair has found strong buying interests above 78.00. A bullish momentum may test the previous high of 81.80.

AUDUSD Tests June’s High Amid Mixed Data

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The Australian dollar is struggling to meet June’s high for lack of impetus on the fundamental side. Mixed Chinese data with disappointing retail sales hardly offered support to the Aussie proxy.

On the domestic front, a rise in unemployment to 7.4% and renewed confinement in Victoria have left investors wary of the underlying strength of the recovery. Short-term volatility may pick up as traders look to read into the Reserve Bank of Australia’s (RBA) latest meeting minutes. Too much caution could be the Aussie’s Achilles’ heel.

0.7060 is the major resistance to crack before the rally could carry on. On the downside, 0.6830 is the immediate support to monitor.

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