Last Friday's data on personal spending and income for March did not have much impact on the market, despite the fact that they were significantly better than forecasts, which confirmed once again that investors are much more responsive to changes in the Fed's policy than to real macroeconomic data.
It can be recalled that following the FOMC meeting, Fed Chairman, J. Powell said at a press conference that inflation growth is temporary due to a low base. In this case, there are no reasons for curtailing QE. The Fed will focus on the labor market, and therefore, there is no reason to revise the policy.
That is what is important for the US dollar – the continuation of QE and the absence of any hints on the timing of when QE will begin to wind down. To weaken means to weaken, and who is interested about the fact that inflation expectations are growing much faster than forecasts?
Meanwhile, it turned out that March personal spending soared by 4.2%, and income by as much as 21.1%, or $ 4.21 trillion.
According to the report, income growth was influenced by payments under antiquated federal programs. If it were not for payments, income growth would have been comparable to pre-pandemic levels. It should also be noted that even after the failure of 2008, when revenues fell below zero, government involvement was significantly weaker.
What follows from this? The Fed's position is extremely precise – all inflationary effects should be considered temporary and ignored until the labor market is normalized.
Speculators' mood regarding the prospects of the dollar continues to deteriorate. During the reporting week, the total short position on the dollar increased by 2.45 billion, reaching the highest in 6 weeks. The sentiment of investors is well illustrated by the fact that the sell-off of the dollar occurred against all G10 currencies, both commodity and defensive.
The US dollar looks weak in the short term. This week, the trend is likely to develop. Based on the Fed's position, the publication of the employment report on Friday will be extremely important for the markets. So far, an increase of 950 thousand new jobs is expected, and if the data is near the forecasts, the USD may continue to decline. But if numbers are closer to 2 million, it will continue to rise.
EUR/USD
According to the CFTC report, euro's net long position rose by 80 million, namely to 12.237 million during the reporting week. The advantage remains significant, but in addition to futures, in favor of the euro, there is also a yield spread, which stopped the negative trend after the UST stopped growing. The estimated price is turned up and the euro looks stronger this week.
At the same time, the euro's position cannot be considered strong. Eurozone GDP in Q1 fell by 0.6 and inflation lags behind the US. It can be noted that euro's growth is due to pressure on the dollar, not the strength of the European economy. It can be assumed that EUR/USD pair decline will end around the support level of 1.1950 and resume its growth with the aim of entering the zone of 1.2240/2340, where the formation of the top may begin.
GBP/USD
Over the week, the pound's long position increased by 348 million, that is, 2.511 billion. This is the second largest long position after the dollar. The indicated currency is still feeling confident, so there are higher chances of continuation of growth than a decline.
On May 6, an election will take place in Scotland that could mark the beginning of the resignation of the Johnson government. According to opinion polls, the ruling party is leading and has already announced that if it wins, it will raise the question of holding a referendum on Scotland's secession from Great Britain. If the probability of this scenario rises, the pound may get additional pressure.
A decline to the support level of 1.3664 is unlikely. The exit from the range is expected upwards and so, the goal is to break through the resistance zone of 1.3980/4010 and get to 1.4140/50, where the pound will need to find new reasons to assault the local top.
