The Week Ahead: New Hope

How long will risk assets rally last?

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USDJPY Tanks Over Improved Sentiment

If the new year comes with new hopes, then the US dollar could remain depressed compared to its riskier counterparts.

Markets are currently driven by a recovery mood even if it is barely over the horizon. As long as global sentiment is skewed towards growth-oriented assets, the US dollar will be the least preferred holding.

Democratic President-elect Joe Biden takes office in a few weeks and investors would expect bigger stimulus cheques down the road, reinforcing the greenback’s bearish tunnel.

The pair is still on its way to the March low of 101.20. On the upside, one may expect strong selling pressure around 104.60.

EURGBP Drifts Lower After EU-UK Deal

The pound Sterling might be seeing the light at the end of the tunnel after the UK parliament gave the nod to the deal. Getting Brexit done at last was certainly the kind of news markets needed in these times of uncertainty.

While the pound has rallied across the board, the momentum has been modest, because it was a modest ‘win’. The UK’s financial services, a major contributor to its economy, were excluded from the trade deal.

The euro is retreating towards 0.8860, the lower band of a 7-month trading range. A bearish breakout could trigger a sell-off into 0.86s. A rebound, however, is likely to be challenged by 0.9200.

AUDJPY Rises to 20-Month High

Who would have believed six months ago that the Australian dollar would end the year near a twenty-month high? The Aussie’s relentless surge has pointed out a dichotomy between uncertainty in the West and recovery in the East where Australia can rely on its major trading partners.

News of upcoming immunization campaigns has definitely injected a strong dose of confidence in investor sentiment. Sustainable price action above the March level is a sign that markets have looked past the pandemic.

A break above April 2019’s high of 80.50 may lead to 82. On the downside, 77.50 is the immediate support for bulls to watch for.

CADCHF Grinds Higher Despite Struggling US Neighbour

While risk appetite has propelled antipodean commodity currencies like the Aussie to new highs, the Canadian dollar’s movement pales in comparison. The lackluster performance might be due to its proximity to the US pandemic epicenter, as the latter’s economic struggle could have a lasting impact on Canadian exports.

The loonie may find consolation from the fact that oil prices have rallied back to March’s level, which offers an effective floor to the exchange rate.

The pair has been on a recovery trajectory from 0.6600. 0.7020 is a critical resistance to break if buyers want to turn the tide once for all.

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