15.10.2020: USD ready to take off: outlook for USD/JPY, AUD/USD

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Recently, market sentiment has been fairly positive, even though the epidemiological situation in countries with the strongest economies is now far worse than in spring. Stock market indexes are still holding at their highs. It appears that traders are anticipating the adoption of the new relief package by the US government. However, today investors’ mood has changed, reflecting a more realistic situation in the market.
Traders are getting tired of waiting for the adoption of the new stimulus bill. Yesterday, US Treasury Secretary Steven Mnuchin voiced his doubts that the stimulus package would be agreed upon in time for the presidential election. After this statement, the demand for safe-haven assets grew significantly. The US dollar index, which measures the strength of the greenback against a basket of six major currencies, attempted to break above the resistance level of 96.30. Market participants also factored in the upbeat US producer price index data. The reading exceeded the forecast’s value. Such an increase in the index gives hopes for a quick recovery in the economy as well as signals the upcoming acceleration of consumer prices. The US currency is sure to take advantage of the strong economic indicators.
At the same time, the demand for risky assets is sluggish amid disappointing statistics from China. Consumer prices were much lower than expected, notching the lowest value since February 2019. Such a weak indicator caused a wave of concern for the state of the world's second-largest economy.
Meanwhile, the dollar/yen pair is still dropping. However, during today's Asian session, it managed to correct upwards amid the strengthening of the US currency across the board. If it consolidates above the 105.30 level, it may rise to the 106.00 level. (*) However, technical analysis experts insist on its further weakness. They expect the pair to fall below 104.98.
At the same time, the AUD/USD pair failed to break above the level of 0.7190. It is steadily going down to the target level of 0.7055. The reason for the decline is not limited to the strengthening of the US dollar or gloomy inflation data from China.
Investors evaluated data on the Australian labor market. The indicators were better than expected. The unemployment rate rose to 6.9% instead of 7.0% expected by analysts. The Australian economy shed 29,500 jobs last month - again exceeding forecasts for a loss of 35,000 jobs. However, all these values signal a rather alarming trend and indicate a slowdown in the economic recovery. Traders recalled the RBA’s Minutes from the last meeting where the regulator said it hoped to see a higher level of social security, namely higher employment level and wages. It means that the current state of the labor market is unlikely to meet the central bank’s expectations. For this reason, traders fear the interest rate cut during the next meeting of the central bank, which is sure to adversely affect the Australian dollar.

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