During his speech in Congress, Fed's head, J. Powell, relieved concerns about the Fed's willingness to continue buying bonds, which supported the demand for risky assets. In particular, Powell said that inflation and employment are currently below the Fed's targets, price pressures remain minor, and the economic outlook is unclear.
The 10-year bond yields sharply moved above 1.4%, and the TIPS bond yields also continued its growth, indicating investors' rising confidence that the Fed will not reduce its asset-purchase program. Apparently, both the political and financial authorities of the US have the same sentiment on how to deal with the consequences of the pandemic, and there are particularly no disagreements. In particular, Treasury Secretary Yellen said that employment targets can be reached by 2022. Investors conclude that stimulus programs will not be over earlier than this date.
At the same time, the demand for risk will continue to grow. Following JPMorgan and Goldman Sachs, Bank of America forecasted that the oil's price will rise up to $ 100 per barrel. But, market consensus assumes further growth in commodity assets and a decline in protective ones.
USD/CAD
The head of the Bank of Canada, Macklem, provided a detailed explanation of how the BoC perceives the current economic situation through his speech. Primarily, the Bank of Canada is ready to slowly curtail its stimulus programs, although the Governor thinks that a full recovery is still far off.
After going through all the important parameters, such as inflation, housing market, employment, etc., Macklem never mentioned the rate of the Canadian dollar, while none of the journalists asked him about it. It is possible that this was done on purpose, so that there will be no unnecessary fluctuations in the currency. However, there is a clear result – BoC is ready to curtail the purchase of bonds ahead of the Fed. From the point of view of the market, this is a strong bullish signal for the CAD.
The settlement price goes further down and its dynamics repeats the dynamics of the spot price.
There is a strong downward impulse, with a medium-term target, namely the low of 1.2058 from 2017. The factors in favor of further decline are also strong, so corrective upward pullbacks will serve as a basis for new sales.
USD/JPY
The Japanese yen remains under strong pressure, both due to the growing risk appetite and due to the efforts of the Japanese financial authorities to stimulate the economy, which have not yet produced the expected effect.
Jibun Bank, which provides the earliest estimate for business activity, notes that Japan's private sector is showing negative momentum this month – business activity is slowing, and new orders are declining due to weak domestic demand.
Nevertheless, some positivity is also visible. For example, there is a slight growth in jobs and an obvious stabilization of export orders for the first time in 12 months. However, there are only a few positive signals to confirm this recovery.
The administration of Prime Minister Yoshihide Suga is under heavy pressure. The approval index for its activities as of mid-February is only 34%, and until recently, there was a threat of resignation, which was worsened by significant disagreements between this composition and supporters of the previous Prime Minister, Shinzo Abe.
And although the latest CFTC report showed a slight growth in the yen's long position, investment flows still indicate a decline in demand for the yen as a protective asset. The estimated fair price continues to move further above, while the growth of the spot price is fundamentally justified.
It can be assumed that the recent high of 106.24 must be tested, after which the target of 106.73 will become significant. If the demand for risk remains, which has every reason to do so, we can expect growth to continue. The resistance level is set at 107.07, and the medium-term target is 108.00/20.
