On Friday, the dollar received substantial support and ended the week on a positive note. Markit PMI indexes in November, and both the service sector and the manufacturing sector showed an increase This growth was higher than expected. In addition, the University of Michigan consumer sentiment index rose in November to 96.8 points from the October level of 95.5 points, which turned out to be better than expected. Therefore, positivity was supported by US statements about the possibility of concluding the first part of the trade agreement with China before the end of the year.
The markets very quickly came to the conclusion that the "phase one" of the trade agreement is almost ready. As a result, the demand for defensive assets decreases. On the other hand, gold is trading lower. Nevertheless, on Friday evening, the US stock indices continue their growth, and thus, in general, the positivity is quite justified. However, we must not forget that the United States is demanding that China stop the weakening of the yuan, which could mean problems for the Chinese economy against the backdrop of a slowdown in production and a decline in exports. The development of the domestic market is seen as a logical way out, but here, the USA insists on abandoning the "2025 program." The goal of which is the transition to a new technological structure. In other words, the United States requires China to significantly slow down its technological development and only in this case, the probability of a deal will remain high according to the United States.
Moreover, the dollar will receive a hint on Tuesday since J. Powell is expected to make a statement. Data on orders for durable goods and personal expenses, in turn, will be released on Wednesday. If they are worse than expected, then the threat of a recession will come to the fore again, which will return the demand for defensive assets.
USD/CAD
Loonie started moving towards 1.3140 / 50, but was stopped by an unexpected comment by Wilkins Bank of Canada First Deputy Governor, stating that the Bank has the ability to manipulate rates and, if necessary, revise inflation target and labor market conditions. Her speech raised doubts about financial stability, with the result that the loonie rose to 1.3325.
At the same time, BoC CEO Poloz corrected his impression a little on Thursday, saying that monetary policy is now "fully adapted" and has mitigated the risks of further easing.
This week, the main event for Canada is the publication of GDP data. Christmas sales have begun, the dangers of a decline in consumer activity have not yet been seen,and in any case, the latest retail reports are stable.
The report on CFTC last Friday showed that speculators mostly stay in long positions on CAD. The fundamental data do not give directions, so loonie is likely to remain in a wide range between 1.3190 and 1.3380. The technical picture is also mixed. On the one hand, the sharp growth of USDCAD on Tuesday restored the chances of an upward trend, while on the other hand, another local maximum has formed, which is again slightly lower than the previous one, and most likely, the level of 1.33 should be considered as an opportunity to sell. The immediate target is 1.3250 / 70, then 1.3230.
USD/JPY
Despite the fact that business activity in Japan is slowing down, forecasts for the general state of the economy are still positive.
Retail sales have increased in the last 2 months, with September growth being highest since March 2014. (9.2% y / y), which is caused by the introduction of the increased consumption tax rate. Inflation is also stable and the forecast for the labor market remains bullish. Meanwhile, the consumer confidence index rose in September for the first time in 23 months.
The demand for the yen is directly dependent on speculation on trade negotiations between the US and China. USD/JPY and USD/CNY are trading with a pronounced negative correlation, thus, any weakening of the yuan will automatically lead to the strengthening of the yen and vice versa. The end of last week was marked by positive expectations, but on Monday, demand for defensive assets is likely to increase. USD/JPY will form a local peak below the previous maximum of 109.06, after which it is likely to resume decline to the support zone of 108.20 / 25.
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