The Week Ahead – UK Celebrates End of Lockdown Amid Rising Cases

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GBPUSD slides on cautious sentiment

GBPUSD

The pound slowly recovers while traders remain wary of the UK’s end of Covid-related restrictions.

The sterling has weakened across the board as Delta cases surged in recent days. The combination of ‘Freedom day’ and summer holidays may be a hotbed for infection.

A slowdown in economic activity and consumer spending would be detrimental to the pound. However, lower rates of death and hospitalization may limit the impact on the economy.

As a result, caution prevails as the pair climbs back to 1.3900. A bullish breakout may send the pound back to 1.4200. A drop below 1.3600 may trigger another round of sell-off.

EURUSD falls as ECB stays dovish

EURUSD

The euro retreats as the ECB keeps its policy loose. This week’s Fed meeting is likely to be uneventful as well.

Markets would expect the central bank to mirror Chairman Powell’s pledge to stay patient during his Senate hearing. With the highly contagious Delta variant now spreading across the US, the Fed will need to ride the wave before it could change its course anyway.

In the meantime, the greenback still benefits from the safe haven attribute, as investors load up dollar-denominated assets.

The pair is testing the key support at 1.1700. A rebound will need to clear 1.1970 to convince more buyers to join in.

US 30 rallies on strong corporate earnings

US30

Major US indices recouped last week’s losses on strong earnings reports.

Investors seem to be unfazed by the noise around the new Covid strain and instead pay more attention to companies’ bottom lines, which after all, are more tangible.

Economically sensitive industries like energy, banking, materials, and industrials are beating consensus left and right. This is a strong sign that the economic backbone is healing.

However, it would take harsher restrictions to derail the recovery, and that is unthinkable for now.

The Dow Jones has found buying interest at 33700. A close above 35100 would send the index to new record highs.

USOIL rises back as supply is under control

US oil

Oil prices recovered after OPEC+ reached an agreement to boost output.

The standoff between Saudi Arabia and the United Arab Emirates has come to an end after the latter was granted a higher quota.

Markets cheered as this suggests that the cartel retains its ability to control supply and that the cloud of a price war has dissipated. In fact, producers will pump out extra 400,000 barrels a day each month from August to meet demand.

Unless demand collapses with a new series of stringent restrictions, the price may have found a floor near 66, the top of a previous consolidation range. A break above 77 would further extend the rally.

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