The ISM Services PMI stood at 55.3% in February, which is slightly worse than expected but is in line with the overall positive background. The employment sub-index turned out to be higher than forecast, which can be regarded as a positive signal before the publication of non-farms on Friday. At the same time, the ADP report on employment in the private sector showed an increase of only 117,000, which is noticeably worse than the forecast of 177,000, that is, the situation on the labor market remains ambiguous, and in these conditions, the dollar does not receive an incentive to grow at least until Friday.

As a result, trading on world markets is currently going in different directions, investors are waiting for clearer signals.

USD/CAD

In a week, the Bank of Canada will hold its next meeting on monetary policy. Changes are not expected yet, however, a strong deviation of the rhetoric in a hawkish direction is not excluded, which will lead to an increase in demand for the Canadian dollar. There are prerequisites for such a scenario, and they are very striking.

GDP growth in Canada in Q4 2020 significantly exceeded the January forecast of the Bank of Canada, which roughly corresponds to an acceleration of growth rates by 6 times relative to the forecast. Business activity in the manufacturing sector has consolidated at the level of multi-year highs, it is expected that the issue will pull up to the level of activity in the next quarter.

In favor of the growth of the Canadian economy, there are also expectations for the implementation of the Biden administration's fiscal stimulus, which will add several points to the US GDP and have a positive impact on the growth of Canadian exports. If later this year, the Biden administration adds another infrastructure bill that uses a budget harmonization method, then the stimulus effects on Canada should be expected to expand.

Large-scale incentives, which were introduced a year ago as a response to the covid pandemic, played a positive role, but now, given the development of the situation, their preservation, and even more so, the expansion looks clearly excessive. Accordingly, next week, the Bank of Canada may either announce the reduction of some of the previously introduced measures or at least tell when and at what rate they will be reduced later. In any case, it can be expected that the loonie will receive additional impetus for growth following the meeting.

The accumulated long position in CAD rose again, reaching 726 million, the advantage is still not significant, but the trend is obvious.

We assume that in the days remaining before the meeting of the Bank of Canada, the above expectations will be won back. The optimistic scenario is the acceleration of movement to the 2017 minimum at 1.2057. If the players are not satisfied with the results of the meeting, a rollback to resistance 1.2779 with subsequent consolidation is likely.

USD/JPY

Unlike Canada, the recovery of the Japanese economy is facing significant difficulties. Many large banks predict that in Q1, GDP growth will turn negative again, this will happen due to a decrease in consumer spending, and a decrease in income in the service sector. For the first time in 7 months, Japan showed a trade deficit in January, and the chances of economic growth will remain weak even if the Cabinet Ministers take new measures to stimulate the economy.

Mizuho Bank predicts that real GDP will not recover to 18 levels even before 2022.

In the current conditions, the trend of growth in demand for risk and, as a consequence, a decrease in interest in defensive assets plays into the hands of the Japanese Cabinet, which is interested in the depreciation of the yen to reduce the negative consequences for the economy.

The accumulated long position on the Japanese yen continues to decline at a rapid pace, according to the CFTC, for the reporting week, it fell by 984 million to 3.399 billion. Investors are getting rid of the yen as a defensive asset. The target price is firmly heading upward, capital flows indicate a trend, so the main scenario for the yen is unchanged.