This morning, widespread sales continued. The Asia-Pacific markets are declining, although not as rapidly as the day before. Moreover, oil prices are trying to correct after yesterday's collapse, but the volume of the pullback is insignificant. After the correction, gold continues to grow.
A high level of uncertainty will be the main reason why it is not possible to build a long-term strategy before the Fed reveals the mechanism for targeting the average level of inflation. According to the BEA quarterly report published on Friday, the current account deficit in Q2 fell sharply to 170.5 billion. And as historical experience shows, deficit reduction is possible when the dollar's liquidity increases, but in contrast, the deficit begins to grow again as soon as the liquidity decreases.
At the same time, the decline in liquidity leads to the dollar's strengthening. Since the Fed has started to reduce the provision of liquidity, this is expected to affect the dollar's strength, which we see from the CFTC reports. In this regard, the net short position has recently begun to decline.
However, a stronger dollar will not help in targeting inflation; apparently, the Fed needs to see the dollar weaken, which means, provide more liquidity to the markets, or in short, start a new QE program. The situation is complicated by the fact that the Fed initially wants to see the fiscal measures by which the Republicans and Democrats entered the clinch in Congress. As a result, if tax incentives are not adopted, and the Fed does not announce a new QE, then the dollar will begin to strengthen rapidly, which will overturn the new Fed program. If Congress reaches an agreement and gives the Fed the opportunity to launch its program in conjunction with tax incentives, then this, on the contrary, will lead to a strong decline in the dollar.
This uncertainty dominates the markets and makes it impossible to make long-term forecasts.
USD/CAD
The Canadian dollar is negatively affected by both general sales, primarily in raw materials, and unconvincing macroeconomic data. The CAD sale was triggered by a weak ADP report last week, which showed a 205.4 thousand job cut in the private sector in August, while an increase of 900 thousand was expected. And on Friday, it was revealed that retail sales fell in July.
The net short position of the Canadian dollar has not changed significantly. The TP remains above the spot price, which puts pressure on the "loonie" and pushes USD/CAD to rise.
The Canadian currency broke through both the resistances of 1.3250 and 1.3310, which changed the technical picture and is now becoming more bullish. Thus, we should expect the growth to continue at least to the border of the 1.3370/80 channel, and if the panic grows, the growth of this currency may continue without a serious correction up to 1.3650.
USD/JPY
Japan's core consumer price index fell 0.4% y/y in August. This is the first decline in 3 months and the largest since November 2016.
Deflationary pressure is growing, which is putting strong bullish pressure on the yen, along with the growing demand for defensive assets.
The net long position of the yen rose to 2.714 billion over the reporting week. The target price is still above the spot price, but went below the average and most likely, the correction after the fall in February is over.
The lower limit of the channel is 102.30/50, and if the panic sales continue, nothing will prevent the yen from declining to this level. Moreover, a local top can be formed in the middle of the 106.70/80 channel, from where the price will decline. To cancel this scenario, important and positive global news should be released.