On Monday, there will be no important releases apart from Germany's IFO data for May. On Friday, a correction of the dollar, which dropped along with a plunge in stock indices, ended. The S&P 500 lost more than 20% from its 2021 high. Stock indices descended amid a decrease in free liquidity.
James Bullard, the president of the Federal Reserve Bank of St. Louis, shared his view on the Fed's monetary policy on Friday. He believes the regulator should raise the interest rate to 3.5% by the end of the year (the futures market sees the interest rate in the range of 2.75-3%, which is below Mr. Bullard's target). He thinks this could help slow inflation and get back to reducing rates already in 2023. His position on the matter actually makes sense. If a recession cannot be avoided, the focus should be entirely on inflation. In such a case, the period of stagflation will be shorter.
According to the CFTC report, the net long position on USD has barely changed over the reporting week. The greenback was mainly bullish against the basket of main currencies, except for the euro and the yen.
This week may well be less volatile than the previous one. Since the reading merely changed, as the CFTC report shows, there could be light speculative pressure on the currency. The commodity market is stable. There has been neither an unexpected pullback nor steep growth. However, at some point, there were fears that oil could fall below $100 per barrel amid the strengthening of the dollar. The central banks have announced their plans, and markets have priced them in.
Strategically, the dollar is still the most demanded currency.
EUR/USD
Based on President Lagarde's comments, the ECB might start raising rates already in July. In an interview on Dutch television, she hinted that a rate hike could take place a few weeks after the end of the bond-buying program, that is, in early June. Ignazio Visco, a member of the Governing Council, also shared this point of view. "We can move gradually, raising interest rates in the coming months," Visco said in an interview with Bloomberg Television on Friday.
The net long position on EUR rose slightly again. The price is trying to go above the long-term moving average, and the likelihood of corrective growth of EUR/USD has increased.
The euro has broken resistance at 1.0470, so the bullish move may extend. So far, there are still signs of a correction. That is why it is too early to talk about a reversal. The resistance zone is seen at 1.0470. Bulls failed to break it on the first attempt but they are likely to try one more time. The target stands at 1.0800/30. So far, it is the most probable scenario.
GBP/USD
The pound sterling encountered additional support on Friday as retail sales in April came in above the market forecast. The reading rose by 1.4% instead of the expected 0.3% fall. The market anticipates a 0.25% rate hike by the Bank of England in June. At the same time, the possibility of a 0.5% increase is about 30%.
Although the pair has retraced up, there are no reasons for steady growth in GBP/USD. The BoE hikes rates at a slower pace than the Federal Reserve. Accordingly, the yield spread will widen in favor of the dollar.
The net short position on GBP decreased last week. Anyway, the price is trying to reverse up, which is mainly due to the higher possibility of a weaker dollar rather than the strengthening of the pound.
The resistance zone is seen at 1.2635/50. Should this zone be broken, there could be a bullish correction to 1.2950/3000. In any case, such a steep rise is highly unlikely. Instead, the price could trade in a sideways range.
