After opening in the green zone, the S&P 500 index fell for the second day in a row, as banking problems outweigh higher-than-expected earnings from technology companies. First Republic Bank shares fell another 30% after reports that the government is currently unwilling to intervene in the bank's affairs, and the yield on 10-year UST rose to 3.456%.
The US stock market is experiencing pressure from two opposing trends. Technology company shares are growing due to more positive than expected reports, while the banking sector, on the contrary, is declining due to the growing threat of another wave of crisis.
Durable goods orders in March increased by 3.2%, significantly exceeding forecasts, and the balance of trade in goods also improved noticeably. Preliminary data on US GDP for Q1 will be published today, and it is possible that the figures will be higher than forecasts, supporting the dollar.
A decline in oil prices (-3.7% Brent, -3.5% WTI) occurred despite a noticeable reduction in crude oil inventories in the US, putting pressure on commodity-linked currencies, largely reflecting concerns about an impending slowdown in global growth. Commodity currencies responded with a decline, which is not surprising, but the trend towards a decline in oil is unlikely to be formed, as prices are largely controlled by OPEC+'s firm position, which is ready to reduce supply at any moment.
There are 6 days left until the FOMC meeting, and markets are likely to take a break with no strong movements expected. Rate futures suggest a 25 basis point increase, and starting from September - the beginning of a rate-cutting cycle.
If the forecast is confirmed by the meeting results, the main bullish factor for the dollar will end its effect, and the dollar will continue to weaken against major world currencies.
USDCAD
On Friday, Canadian GDP data for February will be published, with a slowdown in the pace of economic growth expected from 0.5% to 0.2%, and this is the only macroeconomic publication this week.
Yesterday, the Bank of Canada presented the minutes from the latest meeting, which indicate that the BoC planned to raise the rate in April due to a slow response to sustained inflation and stable economic growth. However, the decision was not made, and according to the minutes, the main reason was a higher-than-forecasted GDP growth. The rate remained at 4.5%, and the Bank of Canada will wait for new data to gain more clear arguments.
The net short position for CAD decreased by 749 million during the reporting week to -3.453 billion. Positioning for the Canadian dollar is still bearish, but the short position is shrinking for the second week in a row, and the settlement price is going down.
USDCAD continues to consolidate in a wide range of 1.3220/3980, with a higher probability of breaking out of the range upwards. The corrective growth is directed towards the trendline resistance at 1.3790/3810, still expecting exhaustion of the short-term bullish impulse and a reversal of USDCAD downwards towards the support at 1.3260/70.
USDJPY
On Thursday evening, a large package of macroeconomic data will be published, including the unemployment rate, industrial production, and consumer inflation. Inflation is forecasted to decrease from 3.4% YoY to 2.9% YoY, but excluding food, inflation is expected to remain at the previous level of 3.2%.
The inflation issue remains key. Bank of Japan Governor Kazuo Ueda said during a speech to the Lower House Audit and Administrative Oversight Subcommittee on April 24 that normalizing YCC (yield curve control) would be possible when the Bank of Japan's price forecast matches the 2% inflation target over a 6, 12, and 18-month range.
This is an important adjustment. If in late February Ueda stated that the criterion would be an improvement in trend inflation, now just before the Bank of Japan's monetary policy meeting tomorrow morning, he voiced a different, more specific position. Since returning the forecast to 2% in the short term is impossible, a review of the stimulus policy tomorrow morning will not happen either.
The yen has strengthened over the past 2 months on these expectations, but if the BoJ confirms Ueda's position tomorrow, a reversal of USDJPY upwards will become very likely.
The net short position for the yen has barely changed and amounts to -5.3 billion at the end of the reporting week. The bearish bias is strong, with the settlement price below the long-term average, but it has lost momentum and further declines are in question.
The yen failed to move higher within the middle of the corrective bullish channel. As long as the settlement price remains below the long-term average, the option of further USDJPY decline is prioritized. The target is the channel boundary at 130.90/131.10, but there are no grounds for strong movements yet. Much can change after tomorrow's Bank of Japan meeting, as markets await more clarity regarding BoJ plans. If it becomes clear tomorrow that there is no need to expect adjustments or cancellations of YCC, the trend may reverse, and the long-term target will shift to the 140 level.