21.04.202110:40 Forex Analysis & Reviews: Worse-than-forecasted reports of American companies, rising demand for protective assets, and Bank of Canada meeting. Overview of USD, CAD, JPY

The fall in US stock indices continued on Tuesday, which led to a decrease in the demand for risk and a drop in bond yields. The catalyst for the decline was Netflix, which had less than 4 million users in Q1 instead of the expected 6 million. Netflix shares plunged by more than 10%. The company is expected to blame COVID-19, although the connection here is more than temporary, given that content subscriptions should just grow during the period of quarantine restrictions. In any case, the negativity overwhelmed world markets. Asian exchanges lost an average of 1 to 2%, but as usual, it is not only about the American reporting.

Two events at once can surprise the oil market. Today, the Bank of Canada is holding a monetary policy meeting and it is expected to announce the beginning of an exit from a soft monetary policy, which can put pressure on oil. The second event is larger – the US House of Representatives Judiciary Committee has put forward a bill that will allow the Justice Department to enforce antitrust laws against OPEC members. The adoption of the law will mean another attempt to extend the jurisdiction of the United States to the whole world. The result may be the most unexpected.

USD/CAD

Today, the meeting of the Bank of Canada will take place, at which it is expected to announce the start of withdrawal from stimulus programs. This is the consensus opinion of the market, but there are factors both in favor of such a decision and against it.

First, Canada has a much more balanced budget than most G10 countries. The government is capping the debt-to-GDP ratio at 51.2% this fiscal year, despite huge new spending, and expects the debt-to-GDP ratio to decline next year. Secondly, inflation data will be published just before the meeting. Its annual price growth is expected to show 2.3% in March, which is already higher than the BOC target. Third, the labor market is recovering faster than in the US, and the outlook for consumer demand growth is generally very positive.

The weekly data on futures/options on CAD is in favor of further selling the Canadian dollar. The net long position slightly slipped by 22 million, reporting to 192 million, but there is a minimal margin. We have a negative trend. The target price is above the long-term average, which suggests further growth.

We still hold the position that the base of 1.2364 was formed on March 18, and the trend turned up. If the Bank of Canada plays its role in accordance with the scenario, the price may go to 1.2460/70, but after that it will still start to increase. If the Bank of Canada is cautious and does not announce the beginning of the exit from the stimulus programs, the USD/CAD will rise, consolidate above the level of 1.2646 and attempt to move to 1.2730/40.

USD/JPY

Japan's foreign trade report for March was better than expected, with imports up 5.7% y/y and exports up 16.1 y/y. Such high numbers are far from the effect of a low base, but still positive. The industrial production is gradually recovering, but instead of opening up the economy and removing stimulus measures, Japan is facing the opposite consequences.

The reason lies in the vaccination rate. The Japanese government fails to provide everyone with vaccines despite the fact that only about 4% refuses to do so. The purchase of the necessary volumes of vaccines is not expected until September, and the coverage of the population, which allows the formation of collective immunity, is not expected until a year later. As a result, there is a growing threat that the government will impose a third state of emergency, which will set back foreign trade, industrial production, and consumer demand.

Japanese yen futures continue to sell off a weekly decline of 79 million, while net short position reached -6.683 billion. At the same time, the estimated price is declining.

The probability of a further decline in USD/JPY pair has become slightly higher, with the nearest support levels located at 107.80 and 106.80. This decline should be considered as a correction, which can only develop in the event of a further decline in US Treasury yields and an increase in demand for risk. The US dollar is a clear favorite in the long term, so the probability of an upward reversal and a test of 112.23 is significantly higher than a decline to a low of 102.60.