The volatility of global markets remains low, which is typical for the week when US employment data is published. Stock indexes are growing slightly, yields stopped near the reached levels a few months ago, and the comments of the Fed members are traditionally cautious and do not give reasons to revise forecasts.
OPEC+ countries have agreed on a common approach to gradually increase production, but the volume of growth will be low – the total production in June will be increased by 350 thousand barrels, and by 441 thousand per day in July. Moreover, Saudi Arabia will raise production in comparable volumes since it voluntarily reduced production above the quota in February-April, but such an increase may not be enough to compensate for the increase in demand. Hence, it is likely that oil prices will continue to rise, supporting commodity currencies.
The Fed's Beige Book, published on Wednesday, points to growing inflationary pressures, but does not generally provide any clarity on the Fed's position on this issue. There is an increase in production costs and the overall recovery of the US economy at a good pace, which gives reason to expect both the growth of the global economy as a whole and the growth of risky assets.
USD/CAD
The growth of the Canadian economy slightly slowed down in the 1st quarter, but it remains confident. Since the data for March looks stronger than January-February, the forecasts for the second quarter are worse, but the assessment of all these dynamics indicates a resumption of high GDP growth in June.
Canada is supported by the rapid recovery of the US economy as the main importer and the rise in oil prices due to the excess of demand over supply. The labor market and inflation have good dynamics, which suggests that the Bank of Canada will enter the period of normalization of monetary policy one of the first.
During the reporting week, the net long position in CAD slightly fell to 3.714 billion. Although the advantage remains for the Canadian dollar, the target price is directed downward. There is still a high probability of renewed decline in the USD/CAD pair after the end of consolidation.
The Canadian dollar is gradually declining near the middle of the downward trend channel. The nearest target is the support zone of 1.1860/1910.
USD/JPY
News will be released from Japan that is likely to shock the currency market despite the fact that the yen continues to trade in a narrow range.
The Bank of Japan has completed a multi-year program of ETF purchases, which actually began in December 2010, and has become the official BoJ program since April 2013. The main goal of this program, which began at the same time as the sales tax increase, was to reach the 2% inflation and get out of years of deflation. Such a target completely failed, which means that the Bank of Japan's unconventional approach has worked out and a change, of course, is required. At the same time, previously purchased ETFs will remain on the BoJ's balance sheet indefinitely, as there is no way to sell them on the market. It is still unclear how the end of support for the stock market will affect investment flows, but there will certainly be changes.
On May 30, Nikkei released the results of its annual survey of payroll calculations for large employers. According to the study, the growth of wages in the current year will be only 1.82%, which is even less than a year ago, while the volume of summer bonuses will fall by 3.64%. The growth of the salary in the current year is the lowest since 2014, that is, since the start of the policy of Shinzo Abe, who stated that slow wage growth is the culprit of low inflation. Here, it shows a complete collapse.
None of the components of inflation has returned to pre-pandemic levels, which was not surprising.
The net-short position of the Japanese yen for the reporting week remained practically unchanged at -5.763 billion. There is a clear bearish advantage, but weak dynamics and a number of other criteria do not allow the yen to form a direction to exit the range. If a week ago, the upside was the priority direction, then as of Thursday morning, the target price is moving slightly below the long-term average, which slightly shifts expectations to the bearish side.
