The Week Ahead: Additional Aid Could Weigh on USD

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GBPCAD Awaits Brexit News Breakout


While the nine-month-long consolidation has offered substantial range-trading opportunities, all good things come to an end.

A breakout might be imminent as a Brexit deal or a lack of it beyond the end of the transition period is a new price catalyst.

A final agreement or even a not-so-surprising extension could help London maintain the status quo, which would put the Sterling in a trajectory of recovery.

Strong momentum would be expected as investors who have been waiting on the sidelines jump in. A bullish breakout above 1.7500 could propel the price towards 1.8.

On the downside, 1.6800 is a critical support for buyers.

USDJPY Tanks on New Liquidity

Global markets went on another buying spree after the US Congress looked into the final details of a $900 billion COVID-19 aid package.

Investors continue to dispose of their US dollar in exchange for high-yielding assets, knowing that public funds would back their bets.

The Federal Reserve has reiterated its pledge to keep the liquidity tap open until the economic recovery is in sight.

This promise of long-term help could keep the greenback muted for an extended period of time.

The dollar is sinking towards the March low of 101.20. Any rebound is likely to meet stiff selling pressure from trend followers at around 105.

EURJPY Rallies on Risk Demand

A combination of growing risk appetite and a dovish Bank of Japan is certainly not the best cocktail for buyers of the Japanese yen.

Investor sentiment surged to a new high after a momentary hiatus as seen in commodity markets and related currencies.

The low-yielding yen would stay subdued as long as asset prices keep inflating. On the domestic front, Japan’s central bank will extend its aid package to cash-strapped firms to weather the hit from the third wave of infections.

The side-effect of this prolonged liquidity is a weaker currency. The euro is testing the August top of 126.90 and a bullish breakout could trigger an extended rally.

AUDCHF Rises to 12-Month High

Bullish global sentiment and encouraging domestic data have put the Australian back on the launchpad.

Australia’s unemployment rate fell to 6.8% in November, against a consensus of 7.0%.

Improvement in the labor market would reduce the likelihood of additional easing by the RBA.

Meanwhile, news of an incoming stimulus package in the US boosted the demand for risky assets at the expense of safe-havens.

As a result, a flamboyant Aussie would be in sharp contrast to a retreating Swissie. The pair is heading towards its twelve-month high near 0.6850.

On the downside, 0.6580 is a major support to maintain the uptrend.

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