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The Week Ahead: Short Straw

US dollar makes a comeback as sellers cover

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USDJPY Rises on Cautious Sentiment

As bearish bets on the greenback reach a decade-high, would this be the start of the short squeeze? The Fed kept its policy intact as expected in its latest meeting, but the caution about the pace of the recovery has put investors in a risk-off mood.

Regained appetite for the dollar goes hand in hand with high volatility in risk currencies and assets. A better-than-expected jobs data may reinforce its safe haven attribute.

The US dollar has rallied above the seven-month-long bearish trendline, a sign of rising demand. As the short side begins to cover, the pair could gain momentum as long as it stays above the new support of 103.40.

CADCHF Inches up on Technical Trades

With all the attention elsewhere, the Canadian dollar lacks the catalyst to get out of its long-range. The price of oil, one of Canada’s major exports, has gone sideways as travel restrictions remain in place.

The consolidation is mirrored in the loonie’s price action. Friday’s labor data may pop up the exchange rate should it show improvement. But for now, this is a playground for range traders who thrive within the clearly defined supply and demand zones.

The pair is about to test the first support level of 0.6890. A rebound from there would give buyers enough confidence to challenge 0.7110, the upper band of the rising channel.

AUDJPY Retreats as Markets Overheat

Risk currencies took a hit last week as global markets rushed into profit-taking mode. It would be too soon to call the top though as markets have not been particularly kind to the sell-side lately.

A healthy correction is needed in a heavily crowded directional market, liquidation of leveraged positions usually leads to deeper pullbacks. As long as Australia’s fundamentals stay on the right track, the Aussie will find strong support when the longs rotate their positions.

The pair has come under stiff selling pressure at 80.60, a high from April 2019. 79.00 is the short-term support while 77.50 is a major level to test the uptrend’s resilience.

EURGBP Slides Ahead of BoE Meeting

The euro continues to lose ground to the pound after a breakout from a seven-month-long consolidation. On the surface, it is because the UK is rolling out its vaccine campaign faster than its neighbors, implying a sooner recovery down the road.

The real deal, however, happens to be the Bank of England’s distance from a negative rates policy, even though the vaccine could be a contributing factor. Should the central bank shrug off negative rates in its vocabulary this week, the pound may see more demand.

Following a drop below 0.8870, the pair is heading towards 0.8700. 0.9000 is the immediate resistance in case of a rebound.

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