The Week Ahead: Critical Support

By Orbex

USDJPY bounces as risk assets overheat

The greenback has come to the moment of truth, after rallying to a three-month high, will there be enough buyers to sustain the momentum? Lousy job market and near-zero inflation may continue to hammer the buck as the central bank is unlikely to shift from its dovish stance soon.

However, one should not disregard the power of buying the dip as the US dollar bounced back from last March’s low. Covering from a heavily loaded short side may have prompted traders to reassess the sentiment.

If the pair stays above 103.30, more buying interests could join in for a U-turn, if not, the latest rally could be a mere flag consolidation.

AUDNZD recovers on domestic resilience

The Australian dollar has recouped most of its losses against its neighbor despite the ongoing trade war between China and Australia. Investors seem to be unfazed by Beijing’s hefty tariffs and the fact that the country represents nearly 40% of Australia’s goods exports.

This would mean that their attention has shifted to Australia’s economic recovery. If the labor and inflation data continue to show resilience this week, the currency could see more upside.

The pair is heading towards the previous high of 1.0840 and a bullish breakout would resume the uptrend. Failing that 1.0540 is a key support level in case of a retracement.

CADJPY rise backed by oil rally

The loonie is grinding towards a twelve-month high as the rally in oil prices has provided the currency a strong tailwind. Canada’s weak jobs report earlier this month barely jittered the market.

It was a sign that the underlying momentum has remained robust, and it would take a lot of disappointment in the upcoming inflation figures to put a dent in the bullish sentiment, which seems unlikely according to the consensus.

The uptrend would be intact as long as price action stayed above the psychological level of 81.00. If the pair overcomes the intermediate hurdle of 83.00, the next target would be last February’s high of 84.60.

EURGBP slides to a 10-month low

The euro continues to lose ground to the pound much due to technical rather than fundamental selling. It is worthwhile to note that the UK and EU are still wrestling on trade relations, especially in regards to financial services equivalence, which accounts for 40% of service exports to the EU. Volatility is currently subdued as traders are yet to commit their chips, but news of Brexit 2.0 will surely make a comeback.

In the meantime, growth and inflation data from both sides may trigger some intraday whipsaws near April’s low of 0.8680. Should the support stand firm short coverings could help the pair rebound to 0.8900.
By Orbex