20.09.201909:40 Forex Analysis & Reviews: Unstable equilibrium in the markets, USDCAD tends to grow, USD JPY loses momentum

Oil prices are stable after the shocks of September 14. The threat of rising risks in the Middle East remains hypothetical and does not have a noticeable effect on quotes. On the other hand, gold is trading in the range, while there is no news about changes in the positions of the USA and China before the October meeting, there are no reasons to leave the range either. The stock indices of the Asia-Pacific countries and Europe are in the green zone, however, the growth is minimal and indicates more likely an unstable balance than the growth of positive.

USD CAD

Canada's inflation rate remains high, but recent data are worse than expected. The basic index fell by 0.1% in August, year-on-year the index fell from 2.0% to 1.9%. The decline primarily relates to commodity prices, which is quite correlated with worsening expectations for the manufacturing sector.

The attack on the refining capacities of Saudi Arabia and the subsequent surge in oil prices did not have a noticeable effect on the Canadian dollar. Such calmness of the "loonie" indirectly indicates that oil is close to its peak, and to support the growth of quotations against the backdrop of a global slowdown can only be the threat of a total deficit, which is unlikely in current realities. Neither OPEC, nor even the United States is ready to cut production so that quotes resume growth.

Loonie is still holding onto due to lowering trade tensions and supply stability, but trends remain negative. PMI reports are also weak, the trade balance is slipping down, and although there are no clear signs of an approaching recession, there is no impulse that can support the growth of the Canadian dollar.

USDCAD has formed a local minimum 1.3129 and resumes the movement to resistance 1.3383 with an eye to the next target 1.3440 / 50. The momentum is weak, and there is no reason to expect rapid growth.

USDJPY

The basic consumer price index rose in August by 0.5% y / y, which is slightly more than the forecasted 0.6%,

Starting October 1, the consumption tax rate will increase from 8% to 10%. However, it should be noted that raising the rate does not encourage people to raise inflationary expectations, that is, they do not consider it obvious that suppliers of goods and services will also consistently and proportionally raise prices. The Japanese government raises the tax, guided by the results of studies that a tax increase of 1% will lead to the expectation of higher prices, but practice does not yet confirm this conclusion.

In the foreground for the Japanese consumers are completely different criteria - the lack of growth in nominal wages and concerns about income after retirement. These are consequences of decades of dominant deflationary ideology, which the financial authorities of Japan have not been able to break since at least 2014, when a large-scale stimulus plan was launched and the consumption tax increased from 5% to 8%.

The Bank of Japan left monetary policy unchanged during the meeting on Thursday, although the market was inclined to believe that some measures would be taken. Perhaps, the Bank of Japan intends to wait for the results of the increase in the consumption tax, but in any case, the absence of inflation before the increase in the consumption tax increases the chances that BoJ will decide on stimulus measures at the meeting in October.

In the long run, the yen is thus influenced by the low inflation factor, the low income factor and, as a consequence, the need for stimulation. These factors are in favor of lowering the yen, as the chances of a full-fledged trade agreement between the US and China. However, all these calculations will fly into the pipe, if the threat of global slowdown dominates. In this case, raw materials will go down, and the yen will go up.

In the short term, the yen has no direction. The factors pushing USDJPY up have been worked out. The yen will most likely form a peak, after which the movement towards strong support 104.40 / 60 will begin.