The Week Ahead: Risk Play

February 22, 2021

USDCHF remains in bearish trend

Despite the recent short covering, the US dollar would need a stronger argument to make a meaningful U-turn. Massive liquidity from the $1.9 trillion stimulus package, which is expected to pass sooner than later would continue to depress the greenback in favour of high-yielding currencies. A rise in jobless claims was the latest bucket of cold water poured on dip buyers, a reminder that the downtrend is still here. Even a better-than-expected GDP reading on Thursday may just help selling into strength. The outlook remains downbeat as long as the pair is below 0.9200, while 0.8840 is a key support in the current consolidation.

GBPJPY stays high as faster recovery expected

With the fastest vaccine rollout among major economies, the UK is poised to take a lead in the recovery in the western hemisphere. The pound’s strong performance, even against its riskier peers is a strong sign that the market is betting on a quicker comeback. After a surprisingly positive CPI last week, further improvement in the labour market could be the catalyst to propel the pound above its fourteen-month high. Technically however, the pair has been overbought and could use a healthy correction from 148.00. Should this happen buyers are more likely to be lurking around 144.00 near the moving averages.

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CADCHF rises as oil erases 2020 losses

As oil prices recouped all the losses sustained from early 2020, the Canadian dollar continues to benefit from this strong tailwind. Adding fuel to the loonie’s rise was an acceleration of the inflation rate to 1% in January. This enviable combination of bullish commodity markets and steady domestic recovery has put the loonie on the launchpad along with other risk assets. The pair is expected to grind up along a well-defined bullish trendline. However, a true reversal can only materialise if buyers succeed in breaking above last June’s resistance at 0.7200. On the downside, the psychological level of 0.7000 is bulls’ stronghold.

NZDJPY rallies on general optimism

Sentiment in the New Zealand dollar remains overwhelmingly positive despite a three-day flash lockdown in Auckland due to a few Covid cases. As the price action reaches a two-year high, traders seemingly have turned the page on the pandemic. Robust domestic data with the unemployment rate fallen to 4.9% have provided a backbone to the rally. The RBNZ, however, might find its currency’s appreciation inconvenient and play down its hawkishness to prevent overheat in the market. The bullish breakout above March 2019’s high of 76.76 could further extend the rally. In case of a pullback, 73.70 is the immediate support level.

By Orbex