The Week Ahead – Risk Assets Bounce as US Dollar Retreats
GBPUSD rises back as recovery gains traction
The pound bounces higher as the UK’s recovery may have gained a foothold.
Britain’s economy grew 0.4% month-on-month in August, following a 0.1% contraction in the previous period. Rising wages and a low unemployment rate would compound the bullish outlook.
If this week’s inflation reading goes beyond expectations, traders could be aggressively betting on the odds of the Bank of England starting the monetary tightening cycle soon.
The US dollar’s technical retreat would give the sterling an extra boost. The pair has found support at 1.3580. A break above 1.3900 may resume the upward movement.
USDCAD tumbles as BOC may increase tapering
The Canadian dollar surged as markets expect more tightening from the Bank of Canada. Strong job gains suggest that the labor market has returned to its pre-pandemic level.
Upbeat CPI would be a boon to the loonie bulls, as it may prompt the BOC to further trim its bond purchase program at the interest rate meeting next week. In addition, rallies in commodity markets offer support to the loonie.
As oil climbs to a seven-year high, the US dollar has an extra reason to struggle against its northern peer. The pair is pushing towards 1.2300 and a breakout would send it to 1.2020. 1.2600 is a fresh resistance in case of a rebound.
XAUUSD recovers as US yields soften
Gold rallied as a pullback in US bond yields weighed on the greenback. The buck retreated from a one-year high in what looks like a ‘buy the rumor, sell the news’ move after it surged in recent months on the tapering bet.
Solid US inflation in September may advance the agenda for the Federal Reserve’s tightening. Nonetheless, the fact that it has already been priced in leaves no more catalysts yield-wise. Instead, the non-yielding metal can shine once again while the dollar bulls bag their profits.
A rally above 1830 would open the door to the psychological level of 1900. 1750 is the first support on the downside.
US 500 rises with expected solid earnings
The S&P 500 recoups losses as the third-quarter earnings season kicks off.
US central bankers have signaled that they would start to roll back the stimulus in November. However, they remained divided over the timing of the first rate hike.
Now that the market rests assured that the low-rate environment may still last, they have turned their attention to Corporate America’s performance.
Swift rebounds across markets reflect investors’ hopes that companies will report strong bottom lines. The index has found support at 4290. A break above 4480 may attract enough momentum to rally above the peak at 4550.