03 Sep

The Week Ahead – High Inflation Lifts Euro Against US Dollar

September 3, 2021

By Orbex

inflation

EURUSD climbs as price pressure rises

EURUSD

The euro inched higher supported by improved economic data.

Inflation in August overshot to a decade high by a full percentage point above the central bank’s target. This has placed policymakers in an all-familiar conundrum.

As the Powell squad seems to be kicking the can down the road, traders may shift their focus to the ECB. Transitory or not, analysts expect hawkish comments to trim the bond-buying program to be on the rise.

The monetary policy divergence could be narrowing in favor of the euro. The pair has so far found buying interest near 1.1600. A break above 1.1900 would open the door to May’s high at 1.2200.

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USDCAD holds steady over BOC uncertainty

USDCAD

The Canadian dollar weakened after growth hit a speed bump. Canada’s economy shrank in the second quarter against expectations of an annualized 2.5% uptick.

That said, the Bank of Canada may join the club of back-pedaling and reassess its optimism. Uncertainty has further increased with an upcoming snap election on the 20th of September.

Markets have scaled back bets for rate hikes and expect the central bank to ease off on the tapering schedule. Such a cautious approach may halt the loonie’s advance.

The exchange rate is hovering above the key support at 1.2500. The greenback will need to lift 1.2700 to trigger a rebound.

AUDUSD recovers ahead of RBA meeting

AUDUSD

The Australian dollar rose to a six-week high ahead of the RBA interest rate decision.

And right now the central bank is at a crossroads. Sentiment remains clouded as markets are split on whether the RBA will have the nerve to carry on tapering.

Despite upbeat Q2 GDP numbers, many analysts anticipate a weaker performance in Q3 due to an endless cycle of lockdowns. Faster rollout in vaccination seems to be the light at the end of the tunnel.

In the meantime, the Aussie’s advance could be capped should the RBA postpone the reduction in QE. 0.7600 is a key resistance while 0.7220 is fresh support.

SPX 500 rallies on continued stimulus

US 500

The S&P 500 held onto the all-time high after a downbeat jobs report.

The Labor Department’s nonfarm payrolls have become the centerpiece of monetary policies and market volatility by extension. Hopes of continued central bank support keep fueling the rally.

Compounded by strong corporate performance, it would not be surprising to see new record highs.

With the end of unemployment and stimulus benefits this month, the labor market may see an increase in hiring. Until then the index is grinding up towards 4600 along a rising trendline. 4440 is the immediate support in case of pullback.

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