The volatility of currencies and stock indices has fallen to a minimum from pre-pandemic levels, as investors are deprived of guidance and are waiting for the outcome of the Fed meeting on June 16. It all started with Friday's US employment report, which was not strong enough to wait for the rhetoric of the Fed to change, but also not weak enough to trigger a sell-off. The lack of understanding of the prospects forces investors to take a break.
It is possible that some clarity will emerge on Thursday when US consumer inflation data for May is released. In the meantime, we need to focus on the general mood of the markets, which is still aimed at growth but may go into correction if the Fed does not show its willingness to start discussing the curtailment of stimulus policy.
Today, the Bank of Canada will announce the results of its monetary policy meeting. No changes are expected; interest is caused by a possible change in the rate forecast. The Bank of Canada is slowly coming out of the super-soft policy, and the first step was to reduce the volume of bond purchases from $ 5 to $ 4 billion in October last year, then reduce purchases to $ 3 billion a week in April. Now, it is expected that the forecasts for the rate will be clarified, the first growth is expected in the second half of next year.
If the forecast remains unchanged, the Canadian dollar will continue to be the favorite in pair with the US dollar. However, the impulse of the USD/CAD decline will weaken and the development of corrective growth is possible. If the forecast for the rate is improved, then the USD/CAD is likely to develop its downward trend.
Most likely, the BoC will remain cautious, as the latest data is clearly not in favor of improving forecasts – the labor market worsened in May, unemployment rose from 8.1% to 8.2%, 68 thousand jobs were lost, and the foreign trade report showed a sharp decline in import and export.
Apparently, the Canadian dollar remains the only commodity currency in which investors consistently increase their long positions. Following the latest CFTC report, the weekly change was +327 million. The net long position reached 4.04 billion, which shows a confident preponderance of the CAD bulls. The estimated price, the dynamics of yields, and the state of stock indices, slightly slowed down the decline, which indicates some weakening of the impulse but remains below the long-term average.
The Canadian is still in the consolidation zone and will most likely not get a reason to leave it until June 16. At the same time, an exit to the downside is still more possible, with the nearest target being the support zone of 1.1860/1910.
The Cabinet of Ministers of Japan published the second estimate of GDP for the 1st quarter. The revision was in the positive direction, but the growth is primarily due to public consumption and changes in private stocks, which not a very convincing criterion for GDP growth.
It is expected that consumer spending decreased in April-June, which will be reflected in later statistics, while external demand may be reduced, which may well lead to a technical recession in the end – this is how analysts at Mizuho Bank see the near-term prospects.
There is simply no prospect of the Bank of Japan raising interest rates in the near future, so the only thing that could boost demand for the yen is rising global tensions. A reduction in tension will inevitably weaken the yen.
The indicated currency has recovered some of the losses, reducing the net short position to -5379 million, but the bearish margin is significant. The estimated price has slightly fallen, and the dynamics are more like a correction than a full-fledged reversal.
The Japanese yen continues to consolidate within the range set in April.
On Wednesday morning, the probability of a decline has become slightly higher than a week ago. The targets are noted at 108.60 and 108.35. If tensions increase on June 16, the target will shift to 106.80/107.00