The Week Ahead: New Reference

EURUSD subdued as dovish ECB expected

The euro treads water near a twelve-week low as traders await the ECB meeting. The central bank is likely to stress on its recent shift to a less aggressive strategy.

By tolerating inflation levels above instead of ‘close and below’ 2%, policymakers give room for what could be a transitory jump in prices. Sounds familiar from across the Atlantic, doesn’t it? The difference, however, is that the US dollar has already been priced in for tapering.

Policy divergence may play against the euro in the medium term. The pair is hovering above the key support at 1.1710.

Lifting the resistance at 1.1970 is the first step towards recovery.

AUDUSD weakens amid lockdowns

The Australian dollar softens as a new lockdown in Melbourne threatens the recovery. Along with Sydney, restrictions in the country’s two economic centers would cost over A$1 billion each week.

Growth may face its first contraction since June 2020, which could dampen hopes of monetary tightening. The RBA may think twice before closing the tap for fear of detailing the fragile bounce.

The prospect of delaying the first hike in interest rates could render the Aussie vulnerable to a deeper correction.

The pair is sliding towards 0.7270, a resistance-turned-support from last November. 0.7600 is the closest resistance.

SPX 500 climbs on earnings expectations

The S&P 500 inches up as market sentiment remains upbeat. Fed Chairman Jerome Powell’s assurance that inflation would moderate is the rally’s backbone.

There is no shortage of record highs if the flow of cheap money is intact.

Meanwhile, the Q2 earnings season has kicked off, and markets are eager to justify high valuations. As long as earnings meet expectations, investors would be willing to pay up for fear of missing out.

Bullish momentum could carry on and those who cry for bubbles may be left on the sideline for a while. 4500 would be the next target, and 4245 the first support in case of a pullback.

XAUUSD rebounds on Fed’s dovish pledge

Bullions continue to recover as traders buy the Fed’s pledge to maintain its accommodative policy for a while.

During his hearing before the Senate Banking Committee, Fed Chair Jerome Powell stated that rising prices mainly come from sectors related to the pandemic reopening. Hence there is no rush to lift the stimulus despite an overshoot in inflation.

The central bank’s dovish commitment has sent US Treasury yields to a one-week low, boosting the appeal of the non-yielding metal.

Gold has bounced off the support at 1760 around the 61.8% Fibonacci level. The psychological level of 1900 would be the next target.

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