The report on the April US labor market was shocking – only 266 thousand new jobs were created, against the forecasted 970 thousand. It should be noted that many experts expected no less than a million. This negativity was stimulated by the downward revision of the data by 78 thousand for the previous 2 months. At the same time, unemployment increased to 6.1% instead of the expected decline to 5.8%.
It is clear that there is an early speculation about the overheating of the US economy, despite the fact that the report was still positive on other indicators. The growth of average wages and the length of the working week was higher than forecasted. Obviously, the Fed received the necessary arguments in order not to tighten monetary policy, and accordingly, the dollar lost the incentive to strengthen, since there is no reason for an increase in yields.
According to the CFTC, the net short position in the USD is rising for three consecutive weeks – there is currently an increase of 1.66 billion to -12.451 billion. The dollar could not get out of the negative zone, that is, the rapid reduction of the short position for about two months did not lead to the formation of a long position. For the dollar bulls, this is an alarming signal – long-term speculators continue to expect the US currency to decline.
Therefore, there are practically no reasons for the dollar's continuation of growth on Monday morning. The Fed received a powerful argument "to leave everything as it is," which means that the declared overheating of the economy will not lead to a tightening of policy. So, speculators regard this factor as bearish correction and resume the sale of futures.
EUR/USD
The Euro's total long position continued its growth. The weekly change amounted to 502 million, and now, the long position has a volume of 12.74 billion, which is noticeably less than the maximum of 31.3 billion in August last year. Nevertheless, what's important is the trend and it is in favor of the Euro currency.
The growth of the euro was supported by economic data – retail sales in March increased by 2.7%, the growth of production orders in Germany in March also rose by 3% m/m and 27.8% y/y, which is higher than expected growth in production and exports.
The European currency maintains its upside potential. The nearest target level is set at 1.2243, followed by the local high of 1.2350. Given the dollar's weakness, there is a high probability that growth will continue. The border of the channel, where the euro is heading, is in the range of 1.2750/2800. This is the long-term bullish target.
GBP/USD
The pound sterling is the only currency that failed to build up a long position during the reporting week, but experienced a correction, declining by 818 million to 1.723 billion. As a result, the estimated price turned down, although it remained above the long-term average, that is, the trend should still be considered bullish.
As a result of the Bank of England's meeting on May 6, there were no changes in the monetary policy. The QE program has been maintained in the same volumes, although the first signal was already made – Haldane, Chief Economist at BoE, voted to cut QE, since he expects hyperinflation to approach, but no one supported him. The Governor of BoE, A. Bailey, said that inflation growth will be temporary, so the threat of hyperinflation is exaggerated. In this case, there is no need to reduce QE.
As economic forecasts have become much more optimistic, the pound received a positive boost at the end of the meeting and it should be recouped by growth, unless politics intervenes.
Over the weekend, the risks of Scotland leaving the UK increased. The ruling party, the main supporter of the exit, was exactly one vote short of an absolute victory – the party took 64 of the 129 seats, but 8 deputies from the Green Party, which is also a supporter of independence, were elected to the Scottish Parliament. Thus, a separatist majority has been formed, which will try to hold a second referendum, which will clearly be hindered as much as possible by London.
At the moment, it can be assumed that the bullish trend remains strong. The resistance 1.3980/4010 has been broken through and turned into a support. Here, the nearest target is 1.4140/50. The impulse is expected to continue up to the level of 1.4370 due to the US dollar's weakening.
