The Week Ahead: In Full Swing

Markets reposition ahead of US election

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USDCHF Faces Highly Volatile Week

There is rarely any week like this one with triple risk events where extreme volatility in the US dollar is expected. Short-coverings over the past few days suggest investors’ positioning in anticipation of a new catalyst.

While the US election may produce wild whipsaws overnight, the Fed’s policy meeting and ensuing jobs data are more likely to weigh in on the next direction. Dovish guidance and poor labor performance could keep the greenback subdued as they would hint at more easing down the road.

The pair has bounced back from the psychological level of 0.9000. A rally above 0.9300 could push the price towards 0.94s.

EURGBP Drifts Lower Ahead of BoE Easing

With little chance of a breakthrough in the trade negotiations, markets have turned their attention to the Bank of England’s upcoming policy decision. The UK is on the brink of following its European peers into a second lockdown.

Policymakers may issue a rather gloomy outlook of the British economy. We expect additional QE measures to roll out this week, though the absence of negative interest rates in the near term may provide a robust floor to the Sterling.

The rally in the pound is pushing the pair towards 0.8900. On the upside, 0.9100 is the immediate resistance in case of a rebound from the single currency.

AUDJPY Falls as Sentiment Grows Wary

In times of the second wave of Covid infections sweeping across Europe, the contrast could not be starker between the risk-sensitive Australian dollar and the safe-haven Japanese yen.

While the former has stalled from speculations of a rate cut and QE expansion from the Reserve Bank of Australia this week, the latter merely mirrors the collapse in global equity markets as investors reassess the elusive recovery.

Growing risk-averse sentiment may keep the pair underwater for the time being.

The Aussie is testing the critical support of 72.50. The correction may turn into a bearish reversal should the exchange rate venture below it.

CADCHF Tanks on Slower Recovery Projection

The combination of a dovish Bank of Canada and plunging oil prices has put the Canadian dollar on the defensive. The central bank adjusted its QE program by targeting long-term bonds, effectively keeping the interest rate low probably until 2023.

A downgrade of the pace of the economic recovery next year from 5.2% to 4.2% has also put the loonie under pressure. In the meantime, the sell-off in the oil markets is like adding insult to injury.

The pair has dropped below the recent trading range of 0.6850-0.7000. 0.6750 from last July is the immediate target and a bearish breakout could send the price towards 0.6600.

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