The results of the FOMC meeting last night, as well as the subsequent press conference of the Fed Chairman J. Powell, were generally in line with market expectations and did not lead to radical changes in exchange rates. The monetary policy has been left unchanged, but at the same time, the intention to reduce incentives is already shown this year. This will most likely happen at the November meeting.
At the same time, it is necessary to note some changes in the Fed's position. As stated by J. Powell, the inflation threshold for the start of the reduction stage has already been reached. It is only a question of employment, according to which there is no unity within the Committee, and personally, it will be enough for him to see just a good report to consider the employment target achieved. Bloomberg and ING suggest that the reduction of QE may be announced in November and will actually begin in December, which will take 8 months (15 billion monthly cuts from the current 120 billion).
As for the updated forecasts, we should consider the Fed's readiness to raise rates in 2022 more aggressively than expected in June, and the decline in the forecast for GDP this year (apparently due to delta strain), followed by stronger growth in 2022/23. The forecasts generally explain well the Fed's position.
What do the Fed's results mean for the US dollar? There is no reason to strengthen it in the short term, while in the long term, the Fed seems to see it stronger than at the moment. Most likely, we will see a more aggressive build-up of a long position in the dollar in the futures market in the next 2-3 weeks, which will mean preparation for a trend towards its long-term strengthening.
The Canadian dollar looks quite confident, which is supported by rising oil and metal prices, as well as a fairly stable demand for risk in general. The results of the FOMC meeting did not have a noticeable impact on the quotes, since there were no grounds for strengthening the dollar in the short term, and long-term forecasts were already viewed quite well even before the meeting.
The estimated price is higher than the long-term average, so the trend as a whole indicates the preferred chances for USD/CAD growth. As reported by the CFTC, the CAD's net short position for the reporting week increased by 256 million and reached -731 million. The advantage can not be called significant, but the trend is quite clearly visible.
It can be assumed that the growth of USD/CAD will continue. The resistance 1.2710/20 has been broken. The test of 1.2760/60 led to a downward pullback, which can be used to look for an opportunity to buy. We assume that any attempt to go above the high (1.2894) of September 20 will be made in the coming days, after which the target will move to the wide zone of 1.2950/3030.
The Bank of Japan left all parameters of the monetary policy unchanged at the meeting that ended on Wednesday morning. As expected, BoJ's head Kuroda confirmed its readiness to continue easing if circumstances require it.
Japan is now in a "positive growth cycle" (quote from Kuroda). The Bank of Japan is to publish its Tankan consolidated forecast for September on October 1, with preliminary data indicating a growing likelihood of a worsening business environment due to delta and severe chip shortages.
The Bank of Japan is interested in stopping the slow strengthening of the Japanese yen, since there is a tendency to reduce the short position on the yen on futures. As follows from the latest CFTC report, the net short position decreased to -6.871 billion against 7.064 billion a week earlier. The settlement price is slowly going down, which means that the USD/JPY pair may most likely decline.
The support zone of 109.00/10 has resisted, but let's assume that we are waiting for another attempt to go below this level further to 108.74. At the moment, a downward exit from the range is more likely than moving upward.