The main driver for global markets risks becoming the political situation in the United States, directly related to the November elections. Against the background of the inevitable economic slowdown, Trump's election rating is declining, forcing him to look for ways to get the US out of quarantine, while most governors do not intend to give the solution to this issue at the federal level and threaten with open defiance.
The lifting of quarantine measures will most likely begin on May 1, as a result of which the risk appetite will begin to grow, but simultaneously with hasty steps, the risk of a second wave of the epidemic will increase, and as a result of which Trump will get the opposite effect and lose the election in November.
On the other hand, South Korea followed China to a plateau on infections, European countries also noted a slowdown in the growth rate of new infections, so there are still some reasons for optimism.
Data on new applications for unemployment is expected to be published on Thursday and Friday, as well as PMI in industry and orders for durable goods. Failing data, combined with a slowdown in the spread of coronavirus, will help lift quarantine measures and increase demand for risky assets by the end of the week.
USD/CAD
The Canadian dollar, like any commodity currency, is under double pressure due to both the pandemic crisis and the oil price war. Data on the spread of the virus are similar to the United States and there have been signs of improvement in recent days, but risks of a purely economic nature are not reduced.
The Bank of Canada has lowered the rate to the level at which it will stop for a long time. The launch of a bond buyback program from municipalities and provinces contributes to economic stabilization in the short-term, but at the same time indicates a high degree of despair in the longer term. CAD prospects depend both on the recovery of oil prices and on the restoration of world trade and the forecast is negative for both parameters.
Moreover, CAD sales in the futures market continue, the CFTC report confirmed the selling course, the fair estimated price is higher than the spot price and has a tendency to increase.
The probability of resumption of growth is high. The nearest target is 1.4180, a stronger resistance zone is 1.4270/4310, and it is also the goal for the short-term. The movement may trigger a report on consumer inflation for March, which will be published on Wednesday.
USD/JPY
Japan's macroeconomic indicators continue to deteriorate. Exports in March declined by 11.7%, imports by 5%, and the trade balance was much worse than forecasted. The current account surplus disappeared slowly, and as a result, the Nikkei index did not support Friday's enthusiasm during the opening of trading on Monday and went into the red zone.
The yen is influenced by several factors that have the opposite direction. Risk aversion and falling commodity prices help strengthen the yen, while the weakness of the domestic economy and large-scale government program weaken it.
The CFTC report showed that the demand for the yen is kept at a high level and it still has a strong potential for strengthening, speculators are not in a hurry to abandon the yen to hedge risks. The estimated fair value of USD/JPY is around the level of 104.50 as of Monday morning.
The stabilization of the business cycle and positive expectations for the global economy to overcome the crisis associated with the pandemic can send the yen to 110. On the contrary, lower commodity prices and a further drop in world trade can send it to 104. While it cannot be said which trend looks stronger, from a technical point of view, an attempt to test support for 106.85 has already taken place twice. Taking into account the consistent decline in local peaks, a third and successful attempt can be expected.
The probability of USD/JPY moving down is high, sales are trying to increase to 108, stop is near 108.10/20, and the target is at 106.80,, With a successful break down, a short position with the target at 105.20 (the estimated middle of the emerging downward short-term channel) can be build up. The impulse that can send the yen down to 104.50 may be the publication on Friday of the report on consumer prices for March.
The material has been provided by InstaForex Company - www.instaforex.com