Last Friday's CFTC report showed that the dollar has been consistently increasing its combined long position against major currencies. The growth amounted to 1.6 billion and the advantage reached 10 billion.
On the other hand, several currencies have lost their positions. The long position on the Canadian dollar declined, the franc, the yen, the euro and the New Zealand dollar increased their aggregate short positions. In turn, the British pound was the best per week and, oddly enough, the Australian dollar, which markedly reduced the predominance of short contracts.
In general, the changes reflect a decrease in global risk. Short positions in oil have decreased, which gives a chance for continued recovery, gold remains stable, while changes by the end of the week are insignificant.
The main stock indices of the Asia-Pacific region on Monday morning traded in different directions and there is no uniform dynamics. The Shanghai Composite is gaining 1.6% as of 5.30 Universal time, while the Nikkei 225 is losing 0.6% after a negative 4Q GDP report in 2019
At the same time, recent statistics from the United States should be recognized as weakly positive, which also supports the dollar. Import and export prices finally resumed growth after a protracted declined, which generally plays into the hands of inflation expectations.
The University of Michigan's consumer confidence index increased to 100.9p with a forecast of 99.5p, but there was a spoiler in the situation - retail sales in January turned out to be weaker than expected, and industrial production declined again, by 0.3% this time, which is worse than the forecast of -0.2%.
The dollar is also supported by the development of the political situation in the United States in the light of the upcoming presidential elections in autumn. Donald Trump's chances of retaining his post for another 4 years are considered high, which has a beneficial effect on both stock indices and the dollar.
Today, US exchanges are closed due to the holiday, so volatility is likely to be low in the afternoon.
USD/CAD
The lack of significant macroeconomic data last week led to the fact that the Canadian currency reacted mainly to global factors, such as the slowdown of the distribution rate of Covid-19, a marked correlation with oil prices can also be noted.
According to CFTC, Loonie has been holding the lead for long positions for 33 consecutive weeks since July 2019, which ultimately led to a decrease in USD/CAD from the peak of 1.3663 reached on December 31, 2018. However, the aggregate short position has been growing rapidly in recent weeks, which may indicate completion trend and resumption of growth of the dollar.
The key day for the Canadian currency will be on Wednesday this week. The consumer inflation data will be published in January, and a retail sales report will be released on Friday. In addition, the meeting of the Bank of Canada will be held on March 4, data on inflation and GDP for the 4th quarter. (will be published next week, forecasts are negative) will serve as the basis for expectations on the rate, which will determine the direction of USD/CAD.
After five weeks of growth, USD/CAD slowed down strictly at the resistance of 1.3327, but the rollback is only 23.6% (or a little more) at the moment and looks like consolidation, not a reversal. Overbought dollar suggests that the correctional decline may reach the level of 1.3217, where support can be found for another attempt to overcome 1.3327 and go higher.
USD/JPY
Statistics on Japan's GDP and industrial production in December, published on Monday morning, were a failure. The decline in GDP was 1.6% against the forecast of -0.9%, on an annualized basis, GDP is reduced by 6.3%, this is the maximum decline in 5.5 years, and directly indicates a recession has begun.
Moreover, industrial production growth in December was 1.2%, but year-on-year decline was -3.1%. USD/JPY continues to trade in a narrow range and taking into account the CFTC data, the general decrease in tension and the strengthening of the dollar as well as the chances to exit the range up are still preferred.
Growth is constrained by market uncertainty that this risk demand trend will not end as suddenly as it started.