The Week Ahead: Trade Complication

USDJPY Rises Back as Trade Talks Resumes

The US dollar has seen its sell-off stalled across the board as investors await new catalysts for the next directional move.

While bargain hunting and short covering have helped the greenback recoup some losses, the lack of fresh stimulus may offer more breathing room. Since markets won’t expect a new supply of cheap dollar soon, China-US trade talks will be the flash point as the two review their phase one deal. Any clash amid rising tensions may favor the dollar as a safer asset.

The pair is testing the major resistance of 107.40, and a bullish breakout may trigger an extended rally. 105.30 is the immediate support below.

EURNZD Extends Gains as New Zealand Under Lock-Down

The euro has gained traction against the kiwi as New Zealand grapples with a new strain of corona virus. Lock-down measures have been imposed in Auckland after the discovery of the first infection in over 100 days. Economic concerns would put the kiwi on the defensive.

The Reserve Bank of New Zealand has adopted a cautious approach and warned of a major risk following the new outbreak. The prospect of negative rates is the main factor that keeps the currency subdued.

The pair is inching up toward last May’s high of 1.8250. 1.7750 is the immediate support level in case of a limited pullback.

GBPCAD Looks for a Rebound Catalyst

The British pound came under pressure as the UK economy contracted by 20% in the second quarter. The sell-off could be limited though as this figure was in the ballpark of most estimates.

The pair is likely to see much action this week as a string of inflation and retail sales data may stir up market volatility. A positive reading of UK’s CPI could help the pound stay ahead.

Rising oil prices, however, could play in the loonie’s favor. The pound has retreated from the April high of 1.7700. As the exchange rate tests the 30-day moving average, the bullish mood is intact as long as it stays above the key support of 1.7000.

AUDCHF Keeps High Ground as RBA Optimistic

The Australian dollar has stayed resilient despite tightened restrictions to contain a surge in new COVID-19 cases. Improved general market sentiment is one factor that helps keep the risk-sensitive currency ahead.

In the meantime, the Reserve Bank of Australia (RBA) has left its monetary policy unchanged, which provides a solid floor for the Aussie. July’s upbeat jobs data may give the central bank enough leeway to stay optimistic.

The pair is hovering around the 30-day moving average with 0.6370 as a major support. On the upside, a break above 0.6680 could resume the uptrend.