The inauguration of the 46th US president was held without problem, which led to a decline in tension. Biden immediately canceled 15 decrees of Trump, while never mentioning him in his speech. In view of this, the markets reacted with growth. They are also expecting the relationship between the United States and China to normalize, aside from the obvious steps of the new administration to support the economy. This can give an impulse to global economic growth.

Treasury yields are declining and stock indices are growing, but the trend is unlikely to be deep and stable. On the other hand, oil is under pressure again, while the demand for gold has resumed. It can be assumed that tensions will return in the near future, which will be reflected in the growth in demand for protective assets.

USD/CAD

Canadian dollar's reaction to the results of the Bank of Canada meeting was slightly more hawkish than expected. The monetary policy remained unchanged, but the GDP forecast was revised upward. This is justified by the earlier start of vaccination, which makes a safer recovery of the Canadian economy. In terms of inflation, the forecast is negative. It is unlikely to reach 2% by 2023. The quantitative easing program, in turn, is maintained and may be lowered starting in April.

And although the USD/CAD has updated its two and a half year low (1.2605), the dynamics of the target price has slightly changed, indicating a weak bearish impulse.

It can be assumed that the formation of the base is still more likely than the continuation of the decline. Despite the hawkish outcome of the BoC meeting, macroeconomic indicators lack strength and December inflation is noticeably worse than expected. Today, the USD/CAD may rise if ADP reports weak employment growth for the private sector.

Cautious buys from the current levels are justified. The stop is just below the low of 1.2605, and the nearest target is located at 1.2680/90. The next one is the channel border around the area of 1.2740/60.

USD/JPY

The Bank of Japan released its forecast for economic activity and inflation this morning. The baseline scenario expresses the hope that the Japanese economy will likely follow an improving trend, supported by a recovery in external demand, favorable financial conditions, and government economic measures.

However, there are fears that the growth rate will be average and the pandemic pressure will persist for some time, which will lead to weak consumption.

It is worth noting that there was a direct link to the recovery in external demand compared to the previous report. For the yen, an increase in external demand usually means a depreciation, since external demand is an increase in exports, which indicates a decline in tensions.

The median forecast for real GDP is lowered for 2020, but raised for 2021 and 2022. And since 2020 has already ended, it can be considered that its effect on the strengthening of the yen is also over. In any case, it can be concluded that the BoJ would like to see the yen slightly weaker, and gave a theoretical justification on its future depreciation.

At the same time, inflation is not expected to rise to the 2% target by 2022. Mizuho Bank is sarcastic about this – in its opinion, QQE has failed even if the Bank of Japan refuses to admit it.

In short, BoJ's position should be based on the fact that a gradual rise in the USD/JPY rate is likely. In any case, there was an attempt to draw a fundamental basis for this growth. The estimated price has still no direction and is moving around the long-term average. In the previous review, it was mentioned that a decline is possible to 102.60. Technically, this target remains relevant, but financial flows do not give such confidence, as the estimated price tried to reverse up.

It seems that we need to wait for the market to react to Biden's first economic plans. The expansion of fiscal stimulus will cause money to flow into the stock markets, which will contribute to the US dollar's weakening and reduce overall tensions. However, such calculations are too uncertain with no clear outlook. We can assume that an attempt will be made in the area of 103.20 to find the base and rise.