19.10.2020: US dollar loses its luster: outlook for USD/JPY, AUD/USD

The new trading week started on a high note for the US dollar despite the fact it halted its growth. The greenback advanced significantly amid the strong retail sales report published on Friday. Apart from that, demand for the US currency is likely to remain high given its status of a safe haven currency. Traders refrain from buying risky assets against the backdrop of a rise in the number of new coronavirus cases in Europe and the lack of progress in Brexit talks.
The US dollar is unable to develop is rally due to investors’ waning optimism about the possible adoption of the new stimulus package. Treasury Secretary Steven Mnuchin is confident that the new relief bill is unlikely to be signed before the presidential election, while Congresswoman Nancy Pelosi is quite optimistic in this matter. Thus, the US dollar index, which measures the strength of the greenback against a basket of six major currencies, is trading near the level of 93.70.
The stock market also does not show a certain dynamic. For this reason, the dollar/yen pair is stuck in a sideways range near the 105.40 level. Taking into account high uncertainty in the market, technical analysis experts think that the pair will decline below the level of 105.20. If so, it may sink to the target level of 104.94.
The Australian dollar is also expected to continue its downward movement. It is likely to go below Thursday’s low of 0.7058 and then to the nearest target level of 0.6960 or even slightly lower. Traders have factored in a hint from the RBA Governor that the regulator may slash the interest rate to 0.1%.
The Aussie’s drop was limited by the upbeat economic statistics from China. China’s economy surged 4.9% year-on-year in the third quarter. The reading is slightly worse than economists have anticipated. It confirms the fact of a slower economic recovery in comparison with analysts’ estimates. However, industrial production and retail sales data turned out to be much better than expected. These two reports boosted market sentiment.

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