The situation around Brexit continues to be the main driver of the markets. US stock markets traded in the green zone all day, but went negative by the end of the day after the British Parliament refused to consider the agreement within a three-day period, which puts the Johnson government in a time pressure mode. In addition, discussion of the deal with the EU have been suspended, so even in the case of a favorable outcome of the vote, Britain's exit from the EU on October 31 becomes extremely unlikely.
Thus, the increase in uncertainty contributes to the growth of demand for protective assets.The yen and gold get a chance to grow, the pound is falling, as well as commodity currencies, oil quotes are also under pressure, despite a positive API report.
The dollar slows the fall and is able to develop corrective growth.
USD/CAD
The quarterly review of business prospects by the Bank of Canada looks quite confident, but a number of parameters show a negative trend, which indicates a weak stability of the Canadian economy. First of all, these are inflation expectations, companies assume that price growth will slow down, and these fears have objective reasons - sales growth has been declining for the third month in a row.
The retail sales report in August also showed a decline, although a slight increase was projected. Despite the fact that the labor market is quite stable, a decline in retail sales may be a harbinger of an approaching fall in real incomes.
It is becoming increasingly apparent that the strengthening of the loonie in the past two weeks is the result of a weakening dollar, and relies little on internal factors. Until the end of the week, important macroeconomic data is not expected. Therefore, the probability that a local minimum has formed at 1.3070 is high. Technically, the dollar may go into correction, which will allow USD/CAD to rise to 1.3130 / 35, but in general, the current trend will dominate, that is, after the correctional growth of the pair, it will resume decline.
USD/JPY
Despite the favorable background, the yen could not get to resistance at 109.30, which is clearly hindered by the general weakness of the dollar. Slowing inflation in September to 0.2% y / y poses a difficult choice for the Bank of Japan, since inflation is falling at the same time as the industrial sector.
At a meeting on September 19, BoJ maintained its policy based on controlling the yield curve, but now, external factors need to be taken into account, as a slowdown in industry indicates growing problems of the global economy, which is a serious problem for Japan's export-oriented economy.
As predicted, rising VAT and global uncertainty create upward pressure on the yen. However, in October, these trends were unrealized. The postponement was provided by both an increase in positives regarding US-China trade negotiations and the resumption of "technical" buybacks of short-term Fed bills, which contributed to a strong weakening dollar and a drop in demand for defensive assets. As could be expected, the overall growth in positiveness will ease pressure on Japan's manufacturing sector, but these expectations have not yet been met.
Moreover, the next meeting of the Bank of Japan will be held on October 31. To assess the effectiveness of increasing VAT from 8 to 10%, very little time has passed, and thus, quick reaction from BoJ should not be expected. At the same time, Kuroda warned in the summer that measures to support the economy would be taken without hesitation as soon as the need was ripened.
Most large banks proceed from the assumption that a slight weakening of the yen will allow BoJ to not yet realize its threat, and therefore, there is no impulse to exit the range at the current stage. Until the end of the week, the yen will not be able to overcome the resistance zone 109.00 / 32, which is formed by a 200-day SMA and the previous local maximum. Due to this, it is more logical to use growth attempts for sales. Support is 107.60 / 65 and a decline to 106.48 / 68 is unlikely.
