Tonight in Pittsburgh, US President J. Biden will be talking about his ideas for a 10-year infrastructure development plan that should be partly funded by raising taxes. It is not yet clear how this will affect the market, but their reaction to the $ 4 trillion incentives will definitely happen.
According to yesterday's events, it is very possible that the demand for risk will dominate during the day. China will be setting the tone, as its PMI for March came out better than expected. The services sector rose to 56.3, against the forecast of 52.0. The manufacturing sector also rose to 51.9, compared to the expected 51.2. Today, European inflation data will be released, but it is already noticeable that there is an increased in global profitability due to the growth of inflation.
The ADP's employment report in the private sector is also expected today – 550 thousand new jobs are forecasted, which is positive. In turn, the Nonfarm data, which will be released on Friday, is forecast to rise by +639 thousand. However, if we consider the comment last Friday of the CEO of Fed Atlanta Raphael Bostic, where he said that a million jobs a month can become a standard during the summer, then there might be a surprise.
The US dollar is still in favor. There will be a high demand for risk during the day, but commodity currencies will have positive dynamics in crosses, primarily against the yen, and not against the dollar. Its position will continue to strengthen until Biden's speech.
USD/CAD
This week is not very informative for the Canadian dollar due to the lack of important publications. The primary concern is still related to COVID-19 and vaccination. According to the government of Canada, a second wave of morbidity has begun to form in all provinces without exception, which has not yet been prevented by the ongoing vaccination.
Canadian dollar's net long position resumes falling. During the reporting week, it halved from 824 million to 405 million. The target price also moved above the long-term average for the first time in a long time.
The reversal of cash flows is still happening, although the USD/CAD pair technically remains in a downward trend channel. Perhaps, this indicates that the Canadian dollar has already formed the low of 1.2364, which will not be updated yet. The nearest resistance level is 1.2684. If the CAD consolidates above on Friday, then there will become higher chances to move to the area of 1.2880/2900. After that, the first signal for a technical reversal will emerge.
USD/JPY
The annual growth of retail sales in Japan is -1.5%, while industrial production is -2.6% y/y. Here, the pace of economic recovery remains low, and the threat of a new COVID-19 wave is high. Both the Bank of Japan and the government are contributing to the Japanese yen's weakening, which will help to level the economic indicators.
The Bank of Japan continues to sharply buy up public debt. The government has no plans to correct budget discipline, and even if it is possible to completely solve the problem with the coronavirus, public spending will grow at the same pace. This means that there is no chance for the monetary policy to normalize.
Japanese yen's net short position increased by 1.647 billion. This is clearly less than a week earlier, but still a lot. In fact, no currency in the futures market is selling off as fast as the yen. As a result, a downward reversal is not expected.
The channel was broken upwards, which was forecasted during the previous week. Now, the yen is moving towards the closest target 112.10/20, from which there might be a temporary consolidation. Any downward pullback should be considered only as technical and used for purchases.
