In the currency markets, the US dollar is better bid against its major counterparts. The latest US dollar rebound is more of a correction of past week’s sharp losses than a trade for safety.
The EURUSD consolidates gains above the 1.12 mark after having rallied above its 100-week moving average (1.1220) on cheaper dollar and prospects of more monetary stimulus at today’s European Central Bank (ECB) meeting.
The ECB is expected to maintain the interest rates unchanged at today’s monetary policy meeting and to extend the Pandemic Emergency Purchases Program (PEPP) by 500 billion euros to give a further relief to the European economies ravaged by the coronavirus shutdowns. However, there is a risk of the ECB adopting a cautious tone regarding the extension of its asset purchases before getting things straight with the German court. Certainly, the European Council’s proposal of 750-billion-euro fiscal rescue package could take some pressure off the ECB’s shoulders, but Christine Lagarde will likely show teeth to soothe investors that the bank is ready to do what’s necessary to reach their mandate goal – boosting inflation toward 2%. Now that investors have massively bought the expectation of further bond purchases, even the announcement of a 500-billion-euro extension in PEPP could trigger a ‘sell-the-fact’ reaction and encourage a short-term downside correction in EURUSD, which has hit the overbought market conditions following last week’s sharp gains. A correction toward 1.1130 (minor 23.6% Fibonacci retracement on April – June rebound) should be healthy. The key support to the latest rally stands at 1.1050, the major 38.2% retracement which should distinguish between the consolidation of the actual positive trend and a medium-term bearish reversal.
Cable’s upside potential was capped near 1.26, the ceiling of the three-month slightly down-trending channel. A further correction in the dollar could pull the pair down to its 100-day moving average (1.2480). Pound bears have certainly little scruple reversing their short-term long positions as the UK remains firm on its decision to quit the EU by the end of this year. The decision deadline is June 30. There is one rising hope, however, that the Covid-19 crisis could tilt the balance in favour of a deadline extension as Scotland, Wales and Norther Ireland are pushing for a two-year extension to give British politicians more time for finding a plausible exit deal with its European counterparts.
Elsewhere, gold attracts buyers below $1700 per oz, the USDJPY is set to test the 110 mark on the back of a resilient global risk appetite and a positive correction in the US dollar.
The USDCAD sees decent support near its 200-day moving average (1.3465) and could rebound to 1.3750/1.3800 on softer oil.
By Ipek Ozkardeskaya
