The Week Ahead: Reassuring Message

Markets in search of comfort in Fed’s promise

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USDJPY hits 9-month high ahead of FOMC

usdjpy

The spike in bond yields has helped the US dollar rally to a nine-month high against the Japanese yen. As the US economy bottoms out, the fear of reflation is taking root in investors’ mind.

In an attempt to soothe the market the Fed is likely to stress its inflation target and its commitment to low rates for the foreseeable future.

A dovish enough stance may cap the dollar’s advance, but if the market is left half-convinced, the rally could be extended.

109.80 is the next resistance and a bullish breakout could send the pair towards 112. In the case of a pullback, 107.00 along the 30-day moving averages is the first support.

AUDUSD recovers as sentiment stabilizes

audusd

Risk assets bounced back after strong demand for Treasuries drove yields down. As the safe-haven US dollar recedes from its recent spike, the Aussie has been picked up by bargain hunters.

The latest inflation fear is just a reminder of how the valuation has gone wild across asset classes. Worries of monetary tightening even if it would take two years down the road keep investors on their toes.

Perhaps solid labor and sales data out of Australia could maintain the floor on the exchange rate. The pair saw buying interest at the daily support of 0.7580. The uptrend may only continue if offers around 0.7840 can be successfully lifted.

GBPCHF grinds higher as economy reopens soon

gbpchf

The UK’s swift vaccination rate and expected reopening have been reflected in the currency’s appreciation. Now the pound has reached a fifteen-month high against the swiss, traders will need a fresh new catalyst to push higher or may start to cash out.

All eyes will be on this week’s BoE meeting. If the central bank puts too much emphasis on the inflation risk, it would raise expectations of higher interest rates next year, sending the price even higher.

The pair may see stiff selling pressure in the area between 1.3000 and 1.3190. In case of a retracement, 1.2600 near the 20 and 30-day moving averages is the closest support.

UKOIL tests pre-Covid high

ukoil

The latest drop in oil prices could be a combination of rising inventory and traders’ profit-taking. These factors seem temporary compared to the underlying imbalance between supply and demand.

Unless global consumption starts to normalize with restrictions lifted and travels resumed, probably in late summer, OPEC’s tightening would carry the bullish sentiment. The Brent crude is grinding along a rising trendline since last October.

A breakout above January 2020’s high of 71.00 would confirm the market’s optimism and send the price towards 75. On the downside, 62.00 is likely to see buying from trend followers.

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