The US dollar makes an attempt to go on the offensive on Wednesday morning. This attempt is justified given the fact that the yields are rising, which indicates the dominant expectations of investors in favor of normalizing the Fed's monetary policy. Most stocks are trading in the red, with the exception of the Japanese Nikkei, which is in the positive zone. The explanation is simple – on Friday, the head of the Cabinet of Ministers Yoshihide Suga announced that he would not run for a new term, and so, traders are waiting for his successor to announce his readiness to expand economic stimulus.

Today, we expect the US dollar to further increase. Defensive assets will be the first to suffer, while demand for raw materials and commodity currencies is likely to remain stable.

USD/CAD

Today, the Bank of Canada will hold a regular meeting on monetary policy. As expected, no significant changes will be announced, since bullish sentiment was suppressed after the publication of an unexpectedly weak GDP report in Q2, which automatically calls into question the pace of recovery in Q3. So far, the forecasts are in favor of the fact that the first statistically stable results of the recovery will be received no earlier than the 4th quarter, and therefore bullish signals are not expected at the end of the meeting. On Thursday, the BoC's position will most likely be clarified in more detail by Macklem, who will deliver an extensive report to the Quebec Chamber of Commerce at an event called "QE and the reinvestment phase".

According to the CFTC report, the weekly change in the volume of contracts for CAD amounted to -693 million, which is quite a lot (only the euro has more). The Canadian dollar has a bearish advantage, and this is after the Fed meeting. A similar picture is for all commodity currencies. The settlement price is sharply inclined upward, which gives reason to count on the continued growth of the USD/CAD pair.

The weak Nonfarm data made it possible to correct to the level of 1.2492. This is somewhat deeper than we expected, but the overall picture remained the same. We assume continued growth, the nearest resistance is 1.2665, then the target is the resistance zone of 1.2710/20 with an attempt to consolidate above this zone.

USD/JPY

Despite the fact that the updated data on Japan's GDP in Q2 turned out to be better than expected (+1.9% against + 1.6%), the situation in the economy does not look stable at all. The forecasts of Eco Watchers from the Cabinet of Ministers have sharply decreased, as well as leading indicators. Household spending in July shows an increase of only 0.7% (forecast 2/9%), the PMI index in the service sector declined to 42.9 p, which is the lowest since May 2020, that is, it actually returned to the levels of the height of the pandemic.

At the same time, the number of new cases of COVID-19 reached a new high in August, which is explained by the slow pace of vaccination. The government extended the state of emergency until September 12 for Tokyo and 12 other prefectures and added eight more prefectures. Private consumption remains low. All this will most likely require not a reduction, but an expansion of stimulus measures. In any case, the probability of additional liquidity appearing on the market remains high, which will put pressure on the yen.

The yen's net-short position has slightly decreased, but the advantage of the bears is still significant. The total volume is -7.173 billion. This advantage was formed at a time when the probability of the US Federal Reserve starting to reduce QE in September was quite high. Most likely, we will see the opposite process in the upcoming weeks, since the pace of global economic recovery has been greatly overestimated.

In the meantime, the estimated price continues to be near the long-term average. There is a minimal bearish advantage as of Wednesday morning, but there are still no reasons to leave the range.

The USD/JPY pair rose to the upper border of the range of 110.35/40, indicated a week earlier. An attempt to break up should be accompanied by a strong increase in demand for risk, which is unlikely. Thus, a downward pullback to the lower border of the 109.00/10 range seems more likely.