After yesterday's publication of the Fed's minutes from their November meeting, it is very likely that there will be major changes in the asset purchase program during next month's meeting. Traditionally, the Fed uses the so-called "turn" when it intends to influence the dynamics of real interest rates, for example, to direct the proceeds from the use of short-term securities to buy long-term ones, and vice versa. Therefore, they indirectly adjust Treasury yields without changing the scale of purchases.
It is clear that the Fed awaits the results of the US elections. In this regard, the Republicans remain in the Senate, while the procedure for transferring power to Biden may be delayed. Due to the current condition, it is not necessary to count on the rapid passage of the tax incentive bill, so it is likely that the Fed will begin its own decisive actions.
Most banks expect the US dollar to weaken as a result of the expected action. Credit Suisse Group believes that the global recovery from COVID-19 will continue, which can lead to the dollar's further decline. At the same time, Bank of America is confident in rising commodity prices, while Nordea believes that a steady upward trend will be observed next year and is waiting for the expansion of Fed's QE.
The downward trend of the US dollar will strengthen, since new data on the success of COVID-19 vaccines becomes available and the demand for risk increases.
The United States is celebrating Thanksgiving today. Therefore, there is low activity in the market and strong movements are not expected.
USD/CAD
We have a general downward trend, despite the fact that CAD's short position slightly declined (by 85 million) to -1.554 billion. Since April, the Canadian dollar has gone significantly below the target price, but the US dollar has not found any reasons for a correctional growth. Now, the calculated price is inclined downwards, that is, the development of a decline is becoming more and more likely.
The recovery in commodity prices makes the Canadian dollar's long-term prospects more optimistic. It is clear that the growth of oil plays a primary role, but prices for non-ferrous metals have also reached a maximum for two and a half years.
There is no important macroeconomic data expected in Canada this week. In addition, BoC members are not scheduled to make speeches, so the CAD will continue to follow the general market trend.
Technically, the USD/CAD pair is near a strong support zone of 1.2920/50, and it is very likely that there will be attempts to reach this zone. The next goal is 1.2770/90, wherein selling on a breakout can be considered. A pullback to 1.3140/50 is also possible, from which you can add to a short position.
USDJPY
Yen's net long position declined by 1.414 billion, which is quite a lot. But at the same time, the advantage for the yen is still significant (+3.559 billion). Moreover, the reduction did not cover the growth of the previous week.
The head of the Bank of Japan, Kuroda, spoke at the IMF conference last Tuesday regarding his vision on the necessary measures to fight the threat of COVID-19. However, he did not say anything interesting, but only noted the more coordinated work of the central banks compared to the 2008 crisis, which made it possible to flood the markets with liquidity and not allow the global negative feedback to be created.
Since it is hard to see when this crisis will end, the provision of liquidity is likely to grow, while the central banks will coordinate their actions. This is perhaps the main rhetoric of Kuroda's speech. Governments and central banks will increasingly coordinate measures, and unconventional monetary policy is becoming the norm.
Tokyo's inflation data will be released tomorrow, while October retail sales are due on Monday. The outlook is negative for both releases. Thus, if the data comes out in line with forecasts, it will increase the chances of expanding the stimulus package from the Yoshihide Suga government.
The rising optimism gives reason to rely on the growth of the USD/JPY pair, but expectations for the dollar are getting worse, so the driving force is essentially disappearing. There are few reasons to leave the range, and the chances of a decline to the zone of 103.20/40 are slightly higher.
