The Week Ahead: The Art Of A Deal

October 26, 2020

USDJPY Stalls as Massive Stimulus Looms

Markets see the US stimulus package as a done deal, the only question is whether it will be a $1.9 or $2.2 trillion dollar check. Either way, money printing of this magnitude would only make the greenback cheaper. Market’s jitters are more a result of traders’ positioning ahead of the US election, and the latest rebound is a sign of short-covering rather than fresh buying.

On the other side of the Pacific, the Bank of Japan is expected to be dovish and cut its growth projection. This will possibly give the dollar some breathing room.

The pair is testing the support level of 104.00 and a bearish breakout could trigger a sell-off into 102s.

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GBPAUD Grinds Higher After Talks Resume

The pound has been holding well across the board despite intraday whipsaws from the Brexit stalemate a week ago. The market seems to be skewed to the upside now that trade negotiations have resumed.

Both sides are seemingly incentivized to clinch a deal and that is what keeps the hope alive. As traders start to price in a deal by the end of November, every bit of positive news could help the cause. In the meantime, the short side is likely to cover and further lift the price action.

After surging above 1.8400 the pair may have cleared the way for an extended rally. 1.7900 is a key support to retain the bullish sentiment.

EURJPY Under Pressure as Restrictions Extended

The euro is struggling to keep its lead after a four-month-long rally against the yen. While Covid-related restrictions have been ramping up across the eurozone, ECB President Christine Lagarde has warned that the recovery could lose momentum.

Nevertheless, the central bank is expected to maintain a wait-and-see approach in the upcoming policy meeting. This may mitigate the downside risk for the single currency.

The follow-up CPI and GDP data are likely to raise short-term volatility in favor of a post-ECB direction.

The euro is making an attempt to climb back to September’s high of 126.60 with 122.50 as major support.

CADCHF Eases off Ahead of BoC Decision

The Canadian dollar stays in a tight range against the Swiss franc as markets await guidance from the Bank of Canada this week.

The latest retail sales figure came out below expectations. To address weakness in the economic recovery, the central bank could be forced into further support measures.

The lack of negative rates in their vocabulary, for now, is what has kept a floor under the loonie. This is why markets will pay particular attention to policymakers’ willingness to leave the cash rate at 0.25%.

The pair is testing the immediate support of 0.6840. A rebound could challenge the supply zone between 0.6970 and 0.7000.

By Orbex