The focus on Tuesday was the collapse in the stocks of tech companies. The sell-off was driven by concerns about inflation expectations rising too fast and rapidly growing demand for raw materials. The latest Chinese data on producer prices, which rose by 6.8% (maximum since October 2017), also added negativity. As historical experience shows, the rise in producer prices will inevitably descend to the consumer sector sooner or later.
Meanwhile, the American Petroleum Institute (API) reported a reduction in oil reserves by 2.53 million barrels, against the forecasted 2.1 million. A steady decline in reserves indicates an increase in demand for fuel amid the economic recovery. The declining inventories are pushing up crude oil prices.
OPEC maintained its optimistic forecast for oil demand in a monthly report on Tuesday, saying that consumption will grow by 5.95 million barrels per day in 2021 or 6.6% yoy.
Today, the United States will publish its consumer inflation report. This is the key event of the day. The data release is expected to support the commodity assets.
USD/CAD
The report on Canadian employment in April was generally at the level of expectations, and thus, it can be regarded as boring and did not have a sharp impact on the rate of the Canadian dollar, especially when compared with a similar report in the US.
Anyhow, the Canadian dollar strengthened noticeably despite the reduction in the number of employees by 207.1 thousand. And even this month's forecasts for another reduction do not have any impact on investor sentiment. The reason is simple – traders regard the reduction as temporary, but the recovery rate is expected to be high starting in June, and that all the lost places during the time when COVID-19 was rampant in Canada will be restored long before the United States. This is the answer to the weak reaction of the market to the essentially negative report.
This week, important events are not expected. The Governor of the Bank of Canada, Macklem, will make a speech on Thursday, but he will speak in front of students and so, it is unlikely to significantly affect the markets. On Friday, the sales in the manufacturing sector for May will be released. The forecasts are positive. If the data coincides with the forecast, this will support the Canadian dollar.
The CAD reached the middle of the downward channel, which coincided with the three-year low at 1.2060. Normally, this support could be considered strong, and a corrective upward pullback could be formed here. However, the downward impulse, firstly, is very strong, and secondly, there are currently no fundamental reasons for an upturn.
All this increases the chances of a rapid breakdown of the support level, which will open the way to the lower border of the channel 1.1250/70, which will be a long-term bearish target.
USD/JPY
Japanese yen's net short position slightly fell over the reporting week. The target price is slightly above the spot, but below the long-term average. It is believed that the yen has no direction right now.
There are no internal reasons for leaving the range. This morning, the Bank of Japan published a summary of forecasts that were the result of the discussion at the meeting on April 26-27, and in this summary, there is literally nothing to cling to as a factor that can push the yen in one direction or another.
It is noted that the risks to economic activity are shifted in the opposite direction due to COVID-19 despite the fact that the Japanese economy is successfully recovering. The annual rate of inflation is expected to be negative, which means that deflationary pressure on the Japanese yen will continue. If so, this currency will continue to function as the main global safe-haven currency and will fluctuate in a narrow range, responding to an increase or decrease in demand for risk. This is currently the most likely scenario for the yen. Considering that the demand for risk is expected to rise in the next few days, the USD/JPY pair will move to the support zone of 107.49/76. The next support is set at 106.75.
