The Week Ahead: A Good Problem to Have

When recovery shakes markets out of complacency

0 1,718

USDCAD rebounds as US recovery in sight

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The market did not take the Fed’s pledge to keep the monetary policy loose at face value but instead started to price in future inflation.

The turn in investor sentiment has sent ripples through global markets, with the US dollar emerging as the biggest winner.

This is why Friday’s nonfarm payrolls will be critical to the next move, as a figure above the consensus of 110k new jobs added could pave the way for reflation sooner rather than later. Anything below may temporarily calm nerves.

The greenback is bouncing back from a three-year low (1.2470). Between the bearish trendline and 1.2880 lies the key supply zone.

EURJPY surges on recovery optimism

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Upbeat outlook in the eurozone supported by improved industrial and consumer sentiment has fuelled the euro’s latest rally. The upcoming inflation data could help the euro consolidate its gains if they show an uptick.

A positive CPI reading above the consensus of 0.5% would suggest that the economic activity might be bottoming out, a bullish argument for the euro.

Coupled with a pickup in retail sales, the single currency would sail on strong tailwinds.

After breaking free from the congestion area around 127.50, the pair is rising towards 133.00. In case of a retracement, 127.40 along the bullish trendline is a major bidding zone.

GBPCHF challenges pre-Covid level

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The pound’s outperformance comes in sharp contrast to the Swiss’ demise.

As the world prepares to emerge from a year-long lockdown once and for all, traders have doubled down on risk assets at the expense of safer bets like the Swiss franc. Reflation is becoming the new trading theme in anticipation of a return to normal.

If the Bank of England asserts the underlying strength of the recovery and shifts its stance away from negative rates, it would confirm the latest rally.

The pound has pushed above the pre-pandemic level of 1.2800 with 1.3200 in sight. 1.2450 around the moving averages would be the immediate support.

AUDUSD tanks as sentiment indecisive

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After having flirted with the psychological tag of 0.8, the Australian dollar would need a stronger catalyst to push higher. But the tables might have turned as the latest turmoil across markets has put the Aussie in a vulnerable position.

Improving US economic outlook and rising bond yields may draw investors away from risk-sensitive assets. It would not be surprising to see a long-due pullback if the RBA stays passive.

The pair is testing 0.7730, an area of confluence where the moving averages meet the bullish trendline. A bearish breakout would dent the eleven-month-long uptrend and may trigger the start of a correction.

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