The Week Ahead: Fear Spreads Faster Than Virus

Trade of the week

EURUSD Recoups January Losses

The single currency bounced back after having erased all of December’s gains. Last week, the Fed reaffirmed its commitment to raise inflation to the elusive 2% and showed optimism in economic growth. More volatility is expected this week with the release of US jobs data. Traders will focus on the average earnings as a proxy of inflation. Its improvement would lift the dollar, whereas a miss could fuel the euro’s recovery. A breakout above 1.1110 may lead to 1.1160, and 1.0990 is a major daily support to monitor.

GBPCAD Continues to Recover

The pound sterling received strong support after the Bank of England chose to keep the interest rate untouched, despite speculations of a cut last week. Nevertheless, the central bank downgraded its long-term growth forecasts due to Brexit disruption. How sustainable is the current rally after the UK waved goodbye to the EU on Friday? We could expect technical buying as the pound goes higher until we get a clearer picture of the terms of the transition. As the 20 and 30-day moving averages make a bullish cross, the pair is aiming for 1.7700. In the meantime, 1.7120 is a key support to maintain optimism.

AUDUSD Dumped as Sentiment Worsens

The start of 2020 certainly has not been kind to the Land Down Under. Amid bushfires and economic challenges, the Australian dollar has the misfortune of being a proxy of Chinese growth. The spread of the coronavirus has been putting a strain on the second largest economy with businesses shut and cities locked down. Markets fear that Australia’s economy, with strong reliance on Chinese commodity demand, could near the brink of a recession. The Aussie is testing the October low of 0.6670. Should the pair rebound, 0.6760 would be the immediate target.

Gold Keeps High Ground

Markets have turned on the risk-off mode as the virus outbreak raised fears of a global slowdown. As countries rush to repatriate their citizens back from China, flight to safety is also the motto across markets. Sharp sell-offs in equity markets are mirrored by rallies in safe-haven assets like bullions. We would expect gold prices to stay high so as long that nervousness spreads faster than the disease. The previous high of 1610 is within reach after more trend followers joined in. On the downside, 1545 is bulls’ line of defense in case of a pullback.