The Week Ahead: A Friendly Reminder

GBPCAD Drops on Brexit Uncertainty

Encouraging signs are emerging at the end of Britain’s lockdown with retail sales jumping by 12% in May. Nevertheless, the pound sterling drifts lower as markets have shifted their attention to Brexit talks.

With only six months left before the end of the transition period, both London and Brussels seem to be kicking the can down the road unless one side blinks. The threat of a ‘no deal’ is again on the table in an attempt to put pressure on the negotiating parties. As a result, the pound may remain the collateral damage.

The pair has met stiff selling pressure near 1.7150. Last March’s low of 1.6600 would be the next target in sight.

EURAUD Struggles as Rescue Details Diverge

Following the European Commission’s 750 billion euro recovery proposal, initial optimism in regard to the common currency has faded away across markets. The euro is still struggling against a flamboyant Australian dollar as markets await the plan’s adoption by the 27 states. The battle between proponents of loans i.e. Netherlands, Denmark, Sweden, and Austria and grants is likely to wage on for the next few weeks.

The euro could stay under pressure as long as there is no unanimous approval. The pair is about to test last February’s low of 1.6100 for a second time. On the upside, 1.6800 is a major resistance.

USDJPY Near Breakout as Risk-off Bets Mount

After spending a week moving sideways amidst cautiousness across markets, the US dollar may break out of its range soon. The re-emergence of coronavirus hotspots has raised the fear of a second wave, undermining markets’ latest optimism. Doubts about the foundation of the V-shaped rebound have triggered profit-taking in risky assets like equity and commodities.

USDJPY’s consolidation is a sign of flight for safety as both strive for the status of a safer haven. 106.00 is a major support from last May. On the upside, bulls will need to push through 109.90 to extend the rally.

NZDJPY Retreats on Risk Aversion

Riskier currencies like the New Zealand dollar has had a bumpy ride lately as investors tempered their risk appetite. A surge in new COVID-19 cases across the US and new clusters of infections in China act as a reminder that the global health risk is still omnipresent.

As the first major economy to reopen, New Zealand is yet to stand the test of time. The GDP shrank 1.6% in the first three months, the largest quarterly contraction since 1991. The RBNZ is expected to hold its interest rates at the upcoming policy meeting, and markets will look into its guidance on how to relaunch the economy.

The pair is hovering above 68.00 near the 20 and 30-day MAs. The previous high of 71.50 is the next target should bulls retain their momentum.