The Week Ahead – Central Banks Wait to See Through the Pandemic

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GBPUSD rises as recovery goes on

GBPUSD

As a top performer among G10 currencies, the pound climbs higher as the UK’s reopening gains traction.

While concerns over the more contagious variant may not dissipate any time soon, and even if Prime Minister Boris Johnson remains cautiously optimistic, a low hospitalization rate could be the key to prevent another lockdown.

Threadneedle Street will need to juggle between patience and decisiveness to navigate through the pandemic. The former is expected as far as this week’s meeting is concerned.

The pair has bounced off 1.3570. The rally above 1.3900 has opened the door to the previous high at 1.4250.

AUDUSD falls as taper table turns

AUDUSD

Weakness in the US dollar has given the Aussie an opportunity to claw back some losses. However, the rebound could be short-lived as prolonged Covid restrictions erode confidence in the currency.

The RBA is meeting this week as Sydney goes into its sixth week of lockdown amid new outbreaks.

Facing the prospect of an economic contraction in the third quarter, the central bank may reverse gears on its decision to taper later this year. If so, the bulls may abandon the ship and the Australian dollar would plunge towards the psychological level of 0.7000.

On the upside, 0.7600 still acts as a firm resistance.

XAUUSD recovers on dovish Fed

XAUUSD

Gold bounces higher as Fed Chairman Jerome Powell again poured cold water on taper enthusiasts.

A drowsy US dollar helps lift the metal back on its feet after the June sell-off. Considering inflation risk, stock volatility, and general uncertainty around the pandemic, gold can still benefit from its safe appeal.

Additionally, as major central banks kick the interest rate can further down the road, non-yielding bullions may retain their attractiveness for the foreseeable future.

The price is consolidating its gains above 1760. A sustainable recovery will need to break above the hurdle at 1910.

SPX 500 finds support from robust earnings

SP500

US stock markets grind up as the Fed reiterated its pledge to keep the stimulus tap open.

The latest economic data seem to have hit the sweet spot; not too bad to cast doubt on the recovery, yet not too good to raise the hike pressure.

Judging by the upward trajectory of the S&P 500, this is the comfort zone that investors have settled in despite short-term jitters. Solid earnings also help cement the market’s optimism.

Half of the companies have reported their bottom lines with over 90% of them beating estimates. The index is aiming at 4500 as the next target. A pullback may cross buying interest at 4250.

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