The Week Ahead: Has the UK Made the Best of a Bad Situation?

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GBPJPY Rises After Brexit Agreement


2020 has not been an easy year but at least Brexit may finally materialize after protracted negotiations.

The markets will look into details as the final agreement reveals itself. Especially regarding the fate of the UK’s service sector which accounts for 80% of the country’s GDP.

That said, a sense of relief could dominate this festive season. There is reason to believe the UK might be worse off following the divorce.

However, the sky is now much clearer, which is enough for investors to load up on the pound.

The pair is testing last September’s high of 142.00, and a bullish breakout could propel the price towards this year’s top range around 147s.

USDCHF Takes a Hit as Liquidity Inflates

With investor sentiment getting a boost from the Brexit agreement, the once-mighty dollar could have a hard time turning around.

One major takeaway from this year is that central banks can print cash faster than the virus spreads. So why would investors hold on to their greenback if governments implicitly write blank checks on high yielding assets?

The new $900-billion package is another nod to asset price inflation with the US dollar as collateral damage. The buck is near its five-year lows with 0.8800 as temporary support.

An unconvincing rebound could see more sellers jumping on the bear train at around 0.9000.

EURNZD Grinds Lower as Downtrend Resumes

It would be too soon to call the bottom after the euro’s velleity to rebound lately.

If the new covid strain has not wreaked havoc across global markets, it means that optimism might actually have taken root.

Recent minor corrections could well be profit-takings to close the books and stay home for the holiday season.

Improved sentiment may continue to drive riskier assets at the expense of low-yielding ones.

In this regard, the euro has come under strong selling pressure at 1.7350, and bears are looking at 1.6800 as the next level.

Below that, momentum could extend the sell-off towards last December’s low of 1.6600.

AUDCAD Surges as Stimulus Becomes New  Normal

One might wonder where the Aussie rally is heading. It would be unwise to charge against a raging bull as the currency merely comes out of a six-month-long consolidation.

With no negative OCR from the RBA insight, and with seemingly unlimited stimulus boosters around the globe, what could prevent the Australian dollar from going north?

The surge in the cyclically-sensitive currency may actually mean that investors have looked past the temporary disarray from the pandemic, and priced in government-sponsored growth.

This suggests that after the pair broke above the major resistance of 0.9650, the next target could be 0.9900.

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