The Week Ahead: Concerted Effort Needed
Euro depends on how the EU orchestrates reopening
EURUSD consolidates as reopening at stake
A dovish US Fed has put the brakes on the US dollar’s advance. But for the euro to bounce back in a convincing manner, investors will need an internal catalyst.
If the EU can coordinate an approach to a gradual reopening at the meeting of its leaders this week, the euro has much to gain from the prospect of a sustainable and predictable recovery.
The pair is hovering above the daily support of 1.1750. The current consolidation will need to lift offers to around 1.2100 to resume the ten-month-long uptrend.
To the downside, 1.1600 would be a critical level to maintain optimism.
NZDUSD halts advance ahead of RBNZ meeting
A 1% contraction in New Zealand’s economy in Q4 20 versus an estimate of a 0.1% growth has poured cold water on the bullish fever.
Though support could come from the RBNZ this week in the shape of an upbeat review of the local economy. The central bank is expected to keep domestic borrowing costs low, but by reckoning the strength of the recovery could maintain bids for the kiwi.
After breaching the rising trendline, the pair has consolidated above the psychological level of 0.7100. Bulls will need to push through 0.7300 to regain the upper hand. Otherwise, a bearish breakout may extend the pullback towards 0.7000.
US 30 retreats temporarily after hitting a record high
The Federal Reserve’s commitment to keep rates near zero through 2023 is exactly what equity markets needed to keep the music playing. Combined with the latest $1.9 trillion economic aid package, ample liquidity may continue to drive markets to new highs.
In contrast to other indices, the Dow Jones has the advantage of including the biggest financial and consumer brands. These are better positioned to benefit from the reopening.
The index has come under resistance at the record high of 33000. In case of a brief pullback, strong buying interests could be found in the demand area around 31000.
XAUUSD gains traction post-FOMC
The Fed might have tamed the bond market for now by maintaining its program of $120 billion a month in asset purchases. The non-yielding metal may shine again in investors’ portfolios as bond yields retreat.
A pullback of the US dollar also comes in handy as gold attempts a rebound from the congestion area near 1675.
Unless there is a change in the fundamental story in the medium-term, the price action would stay above the recovery level (1570) from April 2020.
On the upside, 1815 is a major hurdle. A close above it could break the consolidation range and attract momentum players to extend the rally.
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