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Confidence in the continuation of the victorious growth of the dollar fell significantly on Friday after the publication of a number of reports. The index of business activity in the manufacturing sector of New York fell to 2.9p, which was significantly lower than forecasts, retail sales growth in October was 0.3%, which is also lower than forecasts, and import and export prices in the negative zone, which puts pressure on the commodity component of the consumer inflation.
The situation is worse with industrial production. In October, the decline in the sector amounted to 0.8% while capacity utilization fell to 76.6%, which is the minimum since September 2017.
Despite the fact that the Fed maintains a cheerful look and assures that the situation is under control, the yield curves have been in negative territory, which is a serious signal of an approaching recession. Since September, the Fed launched a program to restore the balance at a rate of $ 60 billion / month, which allowed stock indices to renew historic highs, but the federal budget deficit increased to 984 billion in fiscal year 2019, which is almost 27% in just a year, gives the true reason for the resumption of the asset buyback program - large-scale stimulation of the economy in order to prevent a repeat of 2008.
On Monday morning, the dollar lost momentum against most currencies, Thus, there is no reason to resume growth in the short term.
USD/CAD
On Thursday, the head of the Bank of Canada, Poloz held a planned meeting after the price dynamics were published. As a result of which, the market rate expectations fell to 16% of the probability that the Bank of Canada would lower the rate by a quarter point at the next meeting on December 4. On the other hand, inflation remains close to the target; data for October will be published on Wednesday. The forecasts are positive, if retail sales will show growth on Friday, then the chances of lowering rates will become even lower.
In addition, Poloz confirmed his position at a speech at the Fed on Friday. In his opinion, current data indicate a steady increase in wages and a generally healthy labor market. Spreads have moved slightly in favor of CAD, however, USD/CAD maintains a weak upward momentum, because from the market point of view, all of the above factors are secondary to seasonal ones - the last third of the year, as a rule, passes with USD dominance.
The coming week will be somewhat more informative. USD/CAD growth was stopped near the technical level of 1.3275 (76.4% of the fall in October) and on Monday morning, the kiwi is close to the short-term support of 1.3220. The balance of risks is shifting in favor of protective assets, but the dollar looks rather weak, so the chances of passing 1.3220 and moving to 1.3140 / 50 look a little higher.
USD/JPY
On November 5, the head of the Bank of Japan's Kuroda said that "the Bank's forecast for foreign economies does not imply a further slowdown. The bank expects Japan's economy to not significantly slow down." A week passed, and GDP data for the 3rd quarter showed that growth was only 0.2% y / y with a forecast of 0.8%, that is, a slowdown in the manufacturing sector is beginning to spread to the services sector.
On Friday, the negative was somewhat eased by good reports on industrial production, which turned out to be the best in 10 months. Any positivity contributes to the weakening of the yen, as it reduces overall tension.
Moreover, the Bank of Japan is taking carefully calibrated steps to weaken the yen, as it has no real ability to cut rates. If complacency prevails in the markets, investors are more likely to buy more profitable assets, because even after three Fed rate cuts, the yield on 10-year treasures remains above 1.5%.
At the same time, BoJ has no immediate need to fulfill its threats. The market sees the Fed's rate cut, but so far, not as a full-scale response to the threat of a recession, but as a kind of insurance process, and therefore, the probability of a further rate cut is currently low. Accordingly, the yield spread works in favor of the dollar, and the chances of the continuation of growth of USD/JPY remain high.
As a result, an attempt to go below the support of 108.45 failed. This level is good for purchases with the goal of passing the resistance zone of 109.30 / 50 and further to 110.40 / 55.
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