The Week Ahead: Implied Volatility
Markets jitter as Brexit and US election in final stretch
GBPJPY Inches Up on Deal Optimism
The pound sterling could continue to strengthen against the yen. This is as long as hopes of a limited trade deal keep sellers at bay. Markets have shrugged off August’s slower-than-expected GDP recovery, a sign than traders are more tuned into Brexit headlines.
With hints of progress towards a potential consensus ahead of this week’s European Council meeting, the pound may stay on its upward trajectory. Along with UK’s jobs data to be released, the latest chapter in negotiations would stir up volatility.
A rally above 138 could send the price towards 142.00. Failing that, 132.00 is a critical floor to keep the boat afloat.
USDCAD Weakens as US Election Nears
The US dollar’s four-week-long rally may have come to an end as investors start to position themselves ahead of the US election on 3 November.
The greenback’s fate seems to be tied to the name of the next president. A Democrat victory is likely to give the green light to the much-anticipated fiscal stimulus, and add downside pressure to the currency.
While Trump’s re-election could dilute the aid package and put a floor under the exchange rate.
The pair is dropping to the previous low of 1.3000, and a bearish breakout could incite more sellers to join. To the upside, 1.3420 is a key resistance in case of a rebound.
AUDUSD Awaits Jobs Catalyst
The Australian dollar is making its way back after markets shifted their expectations of an interest rate cut to November.
The Reserve Bank of Australia has stated that it will pay particular attention to the performance of the labor market. Needless to say, this week’s unemployment rate will be a special eye-catcher. Indeed, a disappointing reading would reinforce the central bank’s conviction to intervene, thus capping the currency’s advance.
The pair has found strong buying interest around the psychological level of 0.7000. The current rebound will need to go above the resistance of 0.7350 to not be labeled as a dead cat bounce.
NZDCAD Retreats Against Buoyant Loonie
The New Zealand dollar has given up its September’s gains against its Canadian peer as sentiment shifted in favor of the latter.
A potential compromise on the massive fiscal stimulus in the US, Canada’s largest trading partner by far, would bring a positive trickle-down effect to the Canadian economy. Lingering hopes of such a deal are likely to support the loonie in the days leading up to the US election.
Last Friday’s data showing a drop in unemployment came out as the icing on the cake. The pair is heading towards the key support of 0.8600. On the upside, 0.8950 is a major hurdle before any extended rally.
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