Investors are slowing down their activity ahead of the Fed's June 16 meeting, as they await answers to a number of key questions that will determine global trends at least until the end of the year. These questions are quite a lot. Since last August, the Fed has sought to raise inflation above 2% to ensure that the labor market fully recovers from the shock caused by the pandemic. In May, inflation is already 5% yoy, and the recovery of employment indicators is still far away. The number of vacancies in April rose to 9.3 million, which is the highest figure on record and more than 20% higher than the pre-crisis peak. In turn, the growth of new jobs for the past two months has clearly slowed.

Raising rates in such circumstances can further reduce the supply of vacancies from employers. The Fed is in a difficult position, a correction in short-term inflation forecasts is already inevitable, and tightening conditions at a low rate of labor market recovery is dangerous and can lead to unexpected negative effects.

Based on the CFTC report, the short position on the US dollar remained almost unchanged over the reporting week, increasing by 176 million to -17.9 billion. The general movement against commodity currencies and a significant correction to the bullish side of the Japanese yen, which may indicate an increase in risks can be noted.

The US dollar remains under pressure, but new data is needed. Any possible movement will have no justification in the market until June 16.

EUR/USD

The ECB's decision to maintain a higher pace of purchases in Q3 was a small surprise for the markets and led to sales of the euro, but the sell-off was not massive, as the ECB revised up its forecasts for GDP and inflation, which reduced the negative effect.

As the ECB President Lagarde explained at a press conference, the decision to maintain the pace of purchases was due to the risk of tightening financial conditions for households and non-financial corporations, that is, not economic conditions, but a reassessment of risks. And since the forecasts are improved, it can be concluded that the continuation of the pace of PEPP purchases is temporary, not reflecting the overall pace of recovery in the eurozone economies.

Euro's long position slightly corrected down by 378 million to 16.314 billion. The preponderance of the euro became less strong, but still. The estimated price is higher than the long-term average, and the trend remains bullish despite the correction.

It can be assumed that the correction of the euro will be shallow and will give the opportunity to enter a long position from lower levels. The support levels of 1.2050 and 1.1985 can continue to serve as buy points, unless the Fed surprises players with unexpected decisions on June 16.

GBP/USD

The macroeconomic data published on Friday did not help to reassess the prospects for the pound, as, on the one hand, they confirm the good pace of economic recovery, and on the other, they were generally slightly worse than forecasts. Industrial production in April fell by 1.3%, with an annual growth rate +27.5% (forecast 30.5%). The April GDP rose by 2.3%, against the forecast of 2.4%.

As the NIESR Institute explains in a study published yesterday, most of the economy has adapted to the pandemic, meaning that a smaller drop in GDP in the first quarter than previously forecast provides a solid foundation for the rest of the year. This will be followed by the expected re-opening of the remaining affected sectors through a successful vaccination program. In turn, this allows us to revise the forecast for GDP growth from 3.4% to 5.7% yoy, and this is clearly a bullish factor for the pound.

The net long position on the pound increased by 319 million to 2.45 billion after a slight slowdown. The settlement price confidently turned up, indicating a bullish trend.

This week will give a lot of information to reassess the prospects for the pound and the possible change in the position of the Bank of England. On Tuesday, a report on the labor market will be published, followed by consumer inflation on Wednesday, which we can expect increased volatility, and then retail sales and the dynamics of product prices on Friday. In any case, there will be information to reassess inflation expectations, which may lead to a long-expected exit from the range.

It can be assumed that the bullish impulse remains strong and the target at 1.4374 is still relevant.