The attention of the markets this week will be drawn to the results of the meetings of the Fed, the ECB and the Central Bank of Japan on monetary policy. Investors will be interested in the details of the implementation of previously announced huge incentives for regulators.
On Tuesday, a two-day meeting of members of the US Federal Reserve Open Market Committee (FOMC) on monetary policy will begin. Latest announcements from the regulator are not expected. Most likely, the bank will focus already on previously adopted large-scale measures to support the US economy and take a wait-and-see position, observing how the situation in the markets develops and what actions the measures taken earlier have.
We believe that the bank will leave the key interest rate in the range from 0.0% to 0.25% and J. Powell will confirm the existing threats to the US economy from the effects of coronavirus at a press conference. He will report that the Fed will closely monitor the situation in the financial markets, as well as monitor the dynamics of the impact of the COVID-19 pandemic in the world. Against this background, the US dollar may be under local pressure, but it is unlikely to significantly change its direction in relation to the main currencies in the currency market.
On the other hand, a meeting of the Central Bank of Japan on monetary policy will also be held on Tuesday. It is assumed that the regulator will leave its interest rates unchanged, as well as the monetary policy targets. We believe that interest rate levels will remain unchanged. The key one is at -0.10%, and the yields on 10-year government bonds will remain at zero. It is expected that the Bank of Japan will discuss the removal of target levels for the purchase of government debt, thereby demonstrating determination for an unlimited number of bond purchases.
The result of the meeting of the Central Bank will not have any impact on the yen, which still demonstrates stability amid concerns about the impact of the coronavirus pandemic and the demand for it as a safe haven currency.
A meeting of the European Central Bank will take place on Thursday. It remains under strong pressure amid a decision at the EU summit last week to create an emergency fund of 1 trillion euros, although market participants hoped that it would be measured at 2 trillion euros. The lack of meeting details and the work of this fund has already put pressure on the euro, but its growth in pair with the dollar at the end of last week and today on Monday is due to an increase in demand for risky assets, which is reflected in the positive dynamics of stock indexes in Asia. We expect that Europe will also open up in a positive way, followed by the US.
Regarding the dynamics in the currency market, we note that the dollar can be in a stable position only against the background of its supporting reasons - the situation around the COVID-19. It was previously pointed out that as soon as it goes into decline or at least the number of its victims does not increase sharply, and the authorities in the USA and Europe begin to gradually weaken the strict quarantine measures, then the attractiveness of the dollar will begin to decline, and it will drop significantly major currencies in the future.
Forecast of the day:
The USD/JPY pair is trading in the range of 107.00-108.00. Maintaining positive moods in the markets and a zero decision by the Central Bank of Japan on monetary policy, can lead to a reversal of the pair up and increase to 108.00. But if the price breaks through the level of 107.00, the probability will open for the pair to decline to 106.50.
The USD/CAD pair is trading above the level of 1.4045. Positive mood in the markets and the prospective "weakness" of the dollar is unlikely to lead to an increase in the pair, despite the continuation of falling crude oil prices, which the markets are already used to. We expect the pair to continue to decline to the level of 1.4000, and then, possibly, to 1.3860, but only after breaking through the level of 1.4045.
