One of the main questions that arise when tracking the trends for this week is whether the speculative approach to the balance of demand for risk has changed. The answer is the same as before – no, it hasn't changed. Major players are still selling the US dollar, which is confirmed by the next CFTC report. It also said that the rate on the further weakening of the US dollar increased again, or to put it simply, speculators see no reason for a possible strengthening of the dollar in the coming weeks. The total short position rose by 1.33 billion to -16.76 billion. Another manifestation of the bearish sentiment on the dollar was the strong growth of the long position on gold, which rose by 3.6 billion and reached the volume of 40.77 billion, which is the highest since February.
In terms of the ratio of commodity and protective currencies, it practically did not change during the reporting week. A significant preponderance of commodity currencies remains, which means that the trend of demand for risk remains. The sentiment remains the same – the recovery of the global economy after the COVID-19 collapse, which means an increase in demand for raw materials and a reduction in risks.
More attention is paid to the upcoming Fed meeting on June 16, at which there will be a number of important statements. The Fed's current position is that the observed increase in inflation is temporary since the labor market has not yet recovered from the pandemic and consumer demand remains volatile. On Friday, the employment report will be published. The report should be impressively strong in order for the Fed to receive grounds for statements about its readiness to cut QE. If the report turns out to be weak or neutral, there will be no reason to suspend the wave of US dollar weakening, and the Fed will avoid any statements about its readiness to curtail QE as much as possible at its meeting on June 16.
This week, a number of important releases will be published. The key data re the ADP report on employment in the private sector, ISM in the service sector, and in the industry. A surge in volatility is likely on Friday after the release of the employment report.
EUR/USD
The European Commission notes strong growth in all the components of the index in its monthly survey of economic and consumer sentiment, which indicates a steady recovery.
The Euro currency continues to be optimistic, with the total long position rising by 669 million to reach 15.925 billion, returning to the levels of the beginning of March. The estimated price is higher than the long-term average, and the bullish sentiment for the euro remains.
The ECB meeting will be held on June 10. The ECB's position in assessing inflation is identical to the Fed's position – "inflation is temporary, it is too early to discuss rate hikes". There is only a small risk of any surprises at the meeting, so the euro will not come under pressure in the next 10 days due to concerns about the ECB's position change.
The euro has not yet managed to consolidate above the resistance level of 1.22, but since the trend remains the same, we use temporary declines for purchases. The target is set at 1.2350.
GBP/USD
The previous week was practically empty for the pound. There were no important macroeconomic publications, and there was a bank holiday on Monday. Accordingly, any strong movements are not expected today.
Moreover, fears of the relatively rapid spread of the Indian strain of the coronavirus, which could lead to a later opening of the economy, are holding back the pound's growth. However, expectations for an increase in the BoE rate in 2022, supported by the comments of the BoE member Vlieghe, allow maintaining a positive attitude on the pound.
The pound's long position increased again, with growth amounting to 504 million. It was almost entirely provided by the coverage of short positions. The target price has slightly slowed down the growth but remains above the long-term average. The bullish sentiment for the pound remains.
The pound cannot gather its strength and break through the February high of 1.4224, but the consolidation before the breakdown is almost done. The next target is located at 1.4375. The reason for a breakout can be any suitable event since the steady growth of a long speculative position significantly lowers the probability of alternative scenarios.
