On Tuesday, the main driver of the market was the EU's inflation data, which turned out to be significantly better than forecasts. The HICP inflation index increased to 3% in August, which is the highest level since November 2011, while core inflation immediately rose to 1.6% against 0.71% a month earlier. The mood provoked by speeches of the ECB members, two of the governing council at once, Uzle and Holzman, advocated a decline in the rate of bond purchases. The first call from the ECB, which took an obviously wait-and-see attitude until recently, may lead to an increase in demand for the euro, especially after the dovish comments of Fed Chairman J. Powell.
Today, the market's attention will be focused on the ADP report on private-sector employment, which traditionally serves as a benchmark before the publication of Nonfarms and the ISM report in the manufacturing sector. China released PMIs a day earlier, which showed a noticeable slowdown in business activity in August, especially in the services sector.
The US dollar is unlikely to regain its leadership today. The most likely scenario for the day is the continuation of demand for risk, but strong movements until Friday should not be expected. A possible negative ISM report may provoke an increase in anti-risk sentiment and actually neutralizes the growth in demand for commodity currencies, which was provoked by J. By Powell.
USD/CAD
The report on Canada's GDP in the 2nd quarter was unexpectedly weak. There is a significant decline in home sales and a slowdown in exports after three consecutive quarters of growth, which led to a decrease in GDP by 0.7% q/q.
The lack of GDP growth may have a significant impact on the position of the Bank of Canada, which may postpone further reduction in bond purchases. The next BoC meeting will be held in a week.
The Canadian dollar's long position slightly increased during the reporting week to 467 million after several weeks of decline. The advantage is insignificant, and the speculative disposition can be considered rather neutral. The estimated price is directed upwards, and financial flows indicate a growing demand for the US dollar.
There are no reasons yet to expect the USD/CAD pair to make a reversal down. The downward movement is corrective and is due to the general pullback in the US dollar after the dovish speech of J.Powell's in Jackson Hole. The low of 1.2568 is highly likely to stand, and the nearest resistances are 1.2712 and 1.2757. They will become relevant if the expectations for Nonfarm data are confirmed on Friday.
USD/JPY
The latest economic data for Japan looks quite optimistic. Retail sales in June rose above forecasts, which gives reason to hope, if not for an increase in inflation, then at least for a reduction in deflationary fears. Housing construction costs are growing, capital investment in Q2 is noticeably higher than forecasts, and the PMI in the manufacturing sector is growing, as the Japanese industry has found the strength to significantly increase the supply of semiconductors amid a suddenly revealed global deficit.
According to Mizuho Bank analysts, and Jibun Bank fully agrees with them, there is an "institutional fear" of a strengthening of the yen in Japan, and the government and the Central Bank will not take any steps that the market can interpret as an exit from a super-soft policy, since this will lead to a sharp rise in the yen against the dollar and a decline in the stock market. Therefore, the movement of interest rates in any direction is practically excluded, which means that the probability of maintaining trade in the sideways range, where the yen has been since April, remains high.
The net-short position on the yen reached 7.6 billion. The estimated price is slightly higher than the long-term average, but the advantage is insignificant.
In general, the USD/JPY pair remains technically neutral. The support zone is set at 109.00/10, while the resistance zone is at 110.35/40. Trading in the range should still be regarded as the most likely scenario. The probability of leaving the range upwards remains, as expectations for the US dollar are gradually becoming bullish. This may happen as early as Friday if Nonfarm data come out significantly better than forecasted.
