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- USD to remain in focus
- Pound slump a buying opportunity
- AUD holding steady against the greenback
While Friday’s strength in the US dollar was driven by a glimmer of hope that leaders are getting closer, this seems to have waned over the weekend. House speaker John Boehner was quoted as saying he wouldn’t pass a bill to increase the US debt ceiling without addressing longer-term spending and budget challenges. This has really rattled markets and is likely to result in some near-term USD weakness.
Bank of England puts pound in focus
GBP/USD has had some of the most impressive price action over the past few weeks but now seems to have come across some resistance. There was a sharp decline in the pair after encountering resistance in the 1.626 region. This was mainly due to profit-taking near the year’s high, but we are still eyeing buying the pair at lower levels given there is still uptrend support in place from July. The line comes in at around 1.60 and we would expect to see a bounce from there. GBP/USD has already tested 1.60 early in Asia and found some buying in that region. The BoE will be on the wires this week with no changes in policy expected and potentially a more hawkish Mark Carney will prompt the pound higher again.
AUD/USD has actually been outperforming the risk space and continues to edge closer towards last week’s high of 0.946. As we stated last week, the pair is establishing itself in a new trading range between 0.93 and 0.95. The key release locally will be Thursday’s jobs numbers. However, the market is not really expecting miracles from this data as it is no secret the local economy has been hurting. In fact, we feel expectations of another rate cut have been well removed now and downside for the AUD is likely to be limited on local data. What might have an impact will be China as it returns to trade tomorrow and iron ore prices start to move again.
EUR/USD has been range bound above 1.35 and the single currency is in for a relatively quiet week, with limited data releases. The only noteworthy event will be ECB President Mario Draghi’s speech in the US. After last week’s meeting, traders will still be keen to get more clues on potential monetary easing.
Big week ahead for US dollar
The US dollar side of the equation will remain very confusing this week as investors juggle the US government shutdown and what releases will actually hit the wires. The FOMC minutes to be released on Thursday are among the biggest releases of the week as they will give a bit more clarity on the Fed’s close no-taper call from the September 18 meeting. Analysts feel any hints that tapering is still on the way could see treasuries sold off. However, we do know that the decision not to taper was due to lower than anticipated growth and fiscal uncertainty. The current shutdown will weigh on growth in the near term and as a result, this will likely prolong the prospect of tapering. This will ultimately weigh on the greenback and keep the majors well bid against it.