Stock markets in Asia traded neutrally on Wednesday morning, waiting for new benchmarks from the Fed and the ECB, which are preparing to hold regular meetings. The general trend is in favor of a gradual exit from the shock provoked by the COVID-19 pandemic, oil is trying to form a base after another wave of decline, and markets are forming the opinion that the worst is over.
If this point of view is strengthened, then a basis will be formed for the resumption of growth after clarifying the estimates of the decline in national economies. This base will be very low due to an extremely strong fall, however, it must be assumed that a low base will provide an excellent opportunity to continue investment in risky assets.
Today, a preliminary estimate of US GDP in the 1st quarter will be published in addition to the Fed meeting. At the end of the day, the growth of the dollar is unlikely, the main impulse will be the press conference by Fed Chairman J. Powell, at which he is expected to try to convince the markets again regarding the Fed's strength and full control over the situation.
USD/CAD
According to CFTC, the cumulative short position of the Canadian dollar has slightly changed and remains quite deep in negative territory. The estimated fair price is still significantly higher than the spot price, and there is no tendency to decrease it.
This may mean that the current pullback of the loonie from the maximum last March 19 is a reaction to a general decline in panic moods, and not to fundamental justification, since even a drop in oil prices did not have a noticeable effect on the rate of USD/CAD pair.
In general, we must proceed from the fact that the decline in oil prices caused by a sharp decline in demand will not play a decisive role in the prospects of the Canadian dollar. The decline in oil prices usually led to an increase in the US stock market before the crisis of 2008, that is, an overall strengthening of the dollar. But after the crisis, a reverse reaction is observed, and now a decline in oil prices leads to a decrease in the stock market. The prolonged shock from falling oil prices causes the depreciation of the US dollar against a wide range of currencies, but the yield on bond futures is now slightly changing. This means that oil prices are less and less affecting commodity currencies, which we can see from the paradoxical stability of the Australian dollar at current extremely low oil prices.
The current strengthening of the Canadian currency is largely due to plans to open the Canadian economy and reduce the threat from coronavirus. The short-term situation remains bearish, support at 1.3854 has become key, and testing it seems almost inevitable. Breaking through it will open the direction to 1.3745, this is the next target, which will provide an opportunity to sell when support falls. If you pull back up to 1.40, selling can be considered with a short stop and a goal of 1.3854.
USD/JPY
The Bank of Japan continues to consistently implement an economic support program. At a meeting on Monday, a decision was made on the unlimited purchase of government bonds, that is, now BoJ, following the example of the Fed, will not bind itself to any framework, but will act exclusively from the current situation. It was also decided to increase the volume of purchases of corporate bonds and commercial securities to 20 trillion yen. the rates, as expected, remained unchanged, since their further reduction may lead to an unpredictable market reaction, and the effect will be questionable.
As a result, USD/JPY finally rushed to where it was high time to go - down. The estimated fair price of the yen is significantly higher than the current one; speculators increased the total long position again, that is, they are waiting for the yen to strengthen.
Technically, the yen looks stronger than the dollar; therefore, the fall of USD/JPY may increase. Support at 106.80 could not resist, the nearest goal is 105.20 / 25, where the level of 61.8% of the March growth passes as well as the middle of the downward channel passes. A pullback may be short-term and will most likely be used for new sales, the deeper goal is located at 103.73.
The material has been provided by InstaForex Company - www.instaforex.com