The CFTC report turned out to be negative for the US dollar again. The trend is quite clear – investors are gradually increasing the total short position on the dollar, counting on its further fall. The short position increased by 2.952 billion and reached -15,504 billion, which is the minimum since the beginning of March.
At the same time, it is worth noting that along with the US dollar, the reduction affected the yen and franc, traditionally protective currencies, despite the fact that all commodity currencies are increasing long positions. This trend reflects the market's confidence that lifting COVID-19 restrictions and large-scale stimulus measures taken by the world's central banks have a positive effect and lead to a rapid recovery of the global economy.
Gold, in turn, is in favor of a further decline in the dollar and the resumption of growth in a long position, since it is the natural antagonist of the national currency. Gold partially plays the role of a protective asset, so its decline would be understandable, but its growth on the wave of rising demand for risk initially means the weakness of the US dollar as a world currency.
Oil also has positive dynamics, but less strong. Sharp growth is not observed, which cannot be said about industrial metals, in particular about copper. Its demand is growing exponentially.
Copper is traditionally an indicator of demand for risk, because it has two important qualities – technological efficiency and scale of use. The dynamics of demand for copper are such that it can be said that the recovery boom is still starting.
Mixed data published on Friday also contributed to the US dollar's decline. The University of Michigan consumer confidence index fell in May from 88.3 p to 82.8 p, which may mean a weakening of consumer demand. Moreover, the pace of recovery in industrial production also declined. The retail sales did not increase in April, but there was a strong increase in import and export prices. In conclusion, these indicators increase the risk of inflation amid a slowdown in the recovery, or to stagflation – the most negative scenario for the dollar.
The forecast for the beginning of the week is an increase in demand for risk, the strengthening of commodity currencies and raw materials, and a decline in the dollar index. The stock indexes will be stable with a slight upward trend.
EUR/USD
The minutes of the ECB's April meeting showed that there was no deep discussion among ECB members on monetary policy issues. All decisions are postponed until June, when updated staff forecasts will be available. In the meantime, it is necessary to note a few theses – the ECB assumes that the yield of eurozone government bonds is not related to the US yield that is, investors are guided by the ECB's policy, and not by external factors. The regulator is also not concerned about inflation and assumes that inflation expectations are tied to economic growth.
Over the reporting week, euro's net long position rose by 1.521 billion, reporting to 14.260 billion. The growth is confident and the target price is directed upwards, that is, capital flows favor the further strengthening of the euro.
The euro is in an ascending channel. The middle of which is the nearest target, which is around the level of 1.23, then the next target is 1.2350. The risk is that yields will rise faster than previously, together with the euro, which will create the need for an ECB reaction to slow down the currency's growth.
GBP/USD
Some of the COVID-19 restrictions are being reduced in the UK starting today, which will have a positive impact on the pound. There is a threat of a new wave of coronavirus, primarily associated with the Indian strain, but the government does not plan to introduce additional measures, and does not plan to cancel the full lifting of restrictions scheduled for June 21, hoping that the current level of vaccination will reduce the threat of severe or fatal outcomes of the disease. In other words, the coronavirus pandemic has fulfilled its function and now, the threat will be ignored as insignificant.
The net long position on the pound reached 2.49 billion, rising by 768 million over the week. The target price is above the long-term average, so the most likely scenario is continued growth.
The first target is the level of 1.4222, which is expected to break through in the near future. The breakdown of the resistance zone 1.4340/80 will technically secure the long-term upward reversal of the pound.
