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The Week Ahead: The Commitment

May 11 2020, 07:48 PM (BDT) | Orbex.com

EURAUD Sinks as Rescue Drags On

The euro is under pressure as Europe’s unity is again in question. While most major central banks opened their balance sheets to revive their economies, the clash between Germany’s constitutional court and the European Central Bank has added a layer of uncertainty.

The ECB will have to justify its overly stretched asset purchase program or may lose Bundesbank’s support. Perhaps this week’s GDP number will do Lagarde a favor. A low reading may inject a sense of urgency and put the single currency back on track.

The pair is heading towards 1.6110, while 1.7100 around the 30-day moving average is key resistance.

USDJPY Weakens on Negative Rates Rumours

The US dollar continues to drift lower against the Japanese yen despite businesses reopening across states. Markets are wary of a worse-than-expected downturn, which could force the Fed into uncharted territory.

Speculations of negative rates by the end of the year are weighing on the greenback. With the unemployment rate nearing 15%, a rebound in the real economy is on everyone’s wish list. Otherwise, the dollar may continue to suffer from the pricing of a protracted recession.

USDJPY has retraced more than half of its March rally. The 61.8% (105.10) Fibonacci level is the next target, and 108.00 is the immediate resistance.

USDCAD Struggles as Oil Recovers

The Canadian dollar has shown some strength lately as oil prices rallied back from the abyss. Investors are betting on a gradual recovery in oil demand, and in conjunction with production cuts, Canada’s trade-dependent economy could be the main beneficiary.

Despite a surge in Friday’s unemployment figure, the loonie may find support from hopes that fiscal and monetary policies would start to ease economic strains.

The pair remains in sideways actions between 1.3850 and 1.4250 until a breakout chooses the next direction.

GBPJPY Falls Amid Economy’s Darkest Times

The Bank of England pledged a ‘total and unwavering commitment’ last Thursday as the economy is facing the sharpest decline in over 300 years. The central bank forecasts a 25% drop in GDP in the second quarter and this week’s Q1 data will define the baseline from the start of the crisis.

A serious contraction from March may raise voice in favor of further stimulus. The pound sterling could continue to grind lower against the safe-haven currency.

The pound has started to head lower near the 50% (134.50) Fibonacci retracement level. A drop below 128.00 could lead to a sell-off into 124s.

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