Last Friday's sell-off of the US dollar was stimulated by the weak consumer confidence index from the University of Michigan, which declined to the level of 76.2p, instead of the forecasted growth of 80.8p. Thus, it returned to the levels from mid-summer.
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The US dollar received a strong blow from a number of fundamental indicators at the end of the previous week – inflation growth is below forecasts, weekly unemployment data does not show a confident pace of recovery, and consumers are waiting for decline.
Since the US banks are closed today due to the holiday, active movement will not begin until Wednesday, when reports on producer prices, manufacturing and retail are released. In addition, the minutes of the Fed meeting will also be published, from which there will be no expected revelations.
The dynamics in the markets will undoubtedly strengthen after the new incentives become clear. The House of Representatives is expected to pass the $ 1.9 trillion bill by the end of February, and it is likely that the budget agreement will be submitted to the Senate with approval by early-mid-March. On Friday, Treasury Secretary Yellen called on the G-7 countries to go for more financial support. The US dollar remains under pressure in the current conditions, but there is no single dynamics. This makes the fundamental picture contradictory.
EUR/USD
Euro's net long position rose by 616 million over the reporting week and reached 21.242 billion, after a massive sell-off a week earlier. And although this is far from the high, there is no clear reversal in favor of the USD. The estimated price is lower than the long-term average, which gives reason to expect the continuation of decline.
Germany's intention to lift some of the restrictions from March 7, if the incidence rate drops to less than 35 per 100,000 population, favors the euro's growth. However, the EU is dangerously lagging behind its competitors in terms of vaccination rates, so both the US and the UK may start lifting COVID-19 restrictions earlier.
The single currency has currently no direction. If the EUR/USD pair manages to break through the resistance level of 1.2188, the bullish mood will rise, and buying with a target in the area of the recent high of 1.2349 will be considered. However, the formation of a local high is still more likely to be slightly below 1.2188, so sales with a stop above 1.2188 and a nearest target of 1.1951 are justified.
GBP/USD
The pound's estimated fair price surged after the publication of the weekly CFTC report. The net long position rapidly increased by 1.002 billion and reached the value of 1.824 billion. This is not much, but still the high for the last year.
Markets do not want to consider the long-term issues associated with Brexit. This is because Europe takes a rather tough position in a number of key issues related to trade and licensing activities of financial institutions in the EU. According to which, the UK should lose a significant part of the preferences, because it is no longer part of the EU. The EU also remains firm on the issue of Northern Ireland, which is both part of the UK and remains part of the EU. This is a potential strong problem under the unity of the UK.
Analyzing January's GDP growth rate, NIESR notes that the UK has experienced the largest recession in its history and is likely to show the worst performance among the G7 countries.
However, all these issues have currently faded into the background. The main one is the economic preferences, which will receive the countries that most quickly and successfully completed the vaccination process. The UK is among the leaders, on which a stake is apparently being made. At the same time, markets expect that next Monday, February 22, Johnson will announce a plan to lift quarantine restrictions. This will give the pound an additional boost in view of the clearly lagging Europe, which does not dare to approve the totalitarian, albeit effective, COVID-19 vaccine Sputnik V.
Technically, the pound is not restrained by anything until the high of 1.4375 is tested, and the unexpectedly strong growth of the speculative long position in the futures market provides fundamental support. A weak labor market report, which will be released tomorrow, may calm the bulls. However, the impulse should be considered strong enough to expect growth to resume.
