The Week Ahead: One Step Forward, Two Steps Back

September 14, 2020

EURGBP Surges as Brexit Talks Stall

The British pound slipped into troubled waters after Brexit became the flashpoint once again.

Boris Johnson’s Internal Market Bill, which could override the withdrawal agreement in regards to Irish borders could wage another tug-of-war with the EU.

Tensions have risen as talks resume this Monday, and the pound’s sell-off is yet to end as markets anticipate significant roadblocks ahead. The hint of a no-deal by the October 15 deadline is likely to keep UK’s currency under pressure.

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The euro has broken above 0.9050 and is on its way to last March high of 0.9500. In case of a pullback 0.9000 is the immediate support.

NZDUSD Grinds Higher Ahead of FOMC

The US dollar’s latest comeback may turn out to be short-lived as markets brace for the upcoming FOMC. Rising jobless claims would argue in favor of additional stimulus measures.

As Congress failed to deliver on the fiscal front, markets have switched their attention to the Fed to tie up loose ends. Further easing would prop up riskier assets like equities and the kiwi, while the greenback falls victim of a dead cat bounce.

The pair is making another attempt at the resistance at 0.6790. The demand area between 0.6500 and the rising trend line is a major support to keep the bullish action intact.

AUDCHF Keeps High Ground Ahead of Jobs Data

The pair’s latest pullback might be temporary as markets shrugged off extended COVID restrictions in Melbourne. The Reserve Bank of Australia’s refusal to consider negative interest policy has effectively put a floor under the currency.

Thursday’s unemployment rate could heighten market volatility. An improvement would give the central bank confidence in its current wait-and-see approach. A deterioration, however, might signal “further monetary measures” down the road at the expense of the Aussie.

0.6500 is a key support to the half-year-long uptrend. A surge above 0.6740 could trigger an extended rally.

CADJPY Gathers Momentum as BoJ Meets

The Canadian dollar may benefit from a combination of a rebound in oil markets and a weaker yen this week.

Japanese Prime Minister Shinzo Abe’s likely successor Yoshihide Suga has pledged to maintain Abenomics, a nod to the loose monetary policy from the Bank of Japan.

The central bank may reiterate its willingness to take additional easing measures at this week’s meeting, should the fragile recovery show signs of stalling. As risk sentiment makes its way back, a dovish BoJ may further add pressure to the yen.

The pair is hovering under last June’s high of 81.80, and a bullish breakout may propel the rate towards 84.

By Orbex