The dollar reacted with growth to the publication of the FOMC's final statement, in which the Committee announced progress in achieving the goals. Such a reaction corresponded to the expected scenario, but a little later, Fed Chairman Jerome Powell spoiled everything, saying during a press conference that the progress made was insufficient and that "the Fed is not even close to considering the possibility of raising rates."
The likelihood of an early start of QE reduction amounting to $120 billion per month has dropped sharply. The Fed will look forward to "substantial further progress towards the goals of maximum employment and price stability." However, when will this happen, and will it happen at all?
Expectations are postponed to the end of September, or at least until Jackson Hole, which will take place at the end of August. In any case, the expectation of "significant further progress" is a bearish factor for the dollar, which will be recouped in the next few weeks.
Meanwhile, the balance of trade in goods declined in June from $-89.2 billion to $-91.2 billion, the dynamics are unchanged, and there is no doubt that the overall balance of trade (to be published in a week) will show a further decline.
The budget deficit cannot be brought under control. Until August 2, it is necessary to raise the ceiling of the national debt. Treasury Secretary Janet Yellen has already warned of the danger of taking emergency measures, if Congress does not resolve this issue, Republicans will use the situation to put pressure on Democrats on a number of other issues. News broke Wednesday night that a group of senators had reached an agreement on a proposed $600 billion infrastructure bill, followed by an immediate Senate vote, with a full vote expected over the weekend, after which the bill would be signed by Biden.
Until this news (positive for the dollar) has not received practical implementation, the dollar will look weak, which will provide an opportunity for further correction, but by the beginning of next week, we expect that the demand for the dollar will start to dominate again.
The consumer price index in Canada rose by 0.3% in June, an annual growth of 3.1%, which is worse than 3.6% a month earlier and reduces the chances of an early exit of the Bank of Canada from stimulus programs. At the same time, the focus on inflation may be erroneous, since Statistics Canada is changing the accounting methodology, that is, the weighting factors in the overall index are changing, and therefore the information content of the index is reduced during this transition period.
The net long position on CAD decreased by more than half during the reporting week, from 2.108 billion to 1.018 billion, this is primarily a reflection of the confidence of speculators in the imminent growth of demand for the dollar. However, taking into account the results of the FOMC meeting, serious doubts appeared in this outcome.
In the meantime, we assume that the settlement price is steadily going up, that is, capital flows are not in favor of the Canadian dollar, and after a corrective decline, the USD/CAD growth is likely to resume.
We assume that at the level of 1/24, the bears will meet resistance, overcoming which will meet significant difficulties. Taking into account the dynamics of the estimated price, we use the pullback to find an opportunity to buy in the expectation of a resumption of growth, the target is 1.3010/20.
There is nothing that could take the yen out of the range, internal reasons do not contribute to its strengthening in any way, and external reasons do not contribute to the strengthening of the dollar. Since the rumors about a possible reduction in the Fed's stimulus turned out to be premature, the chances of leaving above 100 decreased.
The target price is still below the long-term average, heading downward. Weekly changes in yen futures/options are minimal, the spot price is almost equal to the calculated one, and weak bearish pressure remains.
We assume that in the near future, the recent low of 109.07 will be updated, which will open the way to the support at 108.20.