CFTC Report: Dollar sell-off resumes. Overview of USD, EUR, GBP
April 18, 2023 3:22 am
The net short speculative position on the US dollar increased by 3.4 billion during the reporting week, reaching 10.5 billion, which is the largest bearish bet on the US dollar in the past 2 months. Market participants are increasingly inclined to believe that the Federal Reserve’s rate cycle is nearing its end, meaning the main factor that pushed the dollar upward is losing its influence.
European currencies, primarily the euro and the pound, as well as the Swiss franc, look the best in the report. Gold saw a slight correction, with the net long position shrinking by $823 million to $38.619 billion, while the yen and commodity currencies saw minimal changes.
The dollar managed to recoup some of its losses on Friday, as stronger-than-expected data pushed US yields higher. Retail sales showed a 1.0% month-on-month decline in spending in March, which is significantly below the consensus forecast of -0.5%, but excluding automobiles and gasoline, sales only fell by 0.3%. Capacity utilization rose to 79.8% (forecast 79%), industrial production increased by 0.4% compared to the forecast of 0.2%, and the University of Michigan’s consumer confidence index rose from 62 points to 63.5 points (no changes were expected). The Atlanta Fed raised its Q1 GDP forecast to 2.5% YoY.
Fed data shows reduced stress in the banking system last week: banks’ demand for liquidity in the context of the Fed’s funds declined for the fourth week in a row, and both deposits and commercial bank loans grew for the week ending April 5th. On Sunday, Treasury Secretary Janet Yellen stated, “At this point, I don’t see anything dramatic or significant enough, in my view, to significantly change the outlook,” but she suggested that banks would likely become more cautious, and this could be “a substitute for further interest rate hikes that the Fed needs to make.” Yellen’s statement is likely to be seen as a bearish factor for the dollar by the markets.
EURUSD
The forecast for the ECB’s May meeting has tightened; if last week the average increase was 22 basis points, by Monday morning, it had already risen to 32 basis points. Late last week, several ECB representatives mentioned the possibility of considering a 50 basis point hike in May, which adds confidence to euro bulls.
The key event this week is the consumer inflation report for March, which will be released on Thursday, April 19th. Forecasts regarding a slowdown in inflation in the eurozone remain very cautious, forcing the ECB to maintain hawkish rhetoric, and compared to the Fed, the European Central Bank appears significantly more aggressive. From a yield spread perspective, expectations are skewed in favor of the euro; therefore, if the report does not show a slowdown in inflation, the euro may respond with another wave of growth.
After several weeks of relative stability, the net long position on the euro increased by $2.647 billion, a significant increase, although the overall balance (+$22.3 billion) is still below mid-February levels. Nevertheless, growing expectations that the ECB will act more aggressively than the Fed are pushing the European currency upward, with the calculated price remaining stable with a slight bullish bias.
The euro made another attempt at growth, reaching the target of 1.1032, which was identified as probable in the previous review, but failed to consolidate above this level. We expect that after a shallow correction, growth will resume, with the nearest resistances at 1.1180 and 1.1270.
GBPUSD
This week, several important macroeconomic reports are expected from the United Kingdom. On Tuesday, the labor market report for March will be published, with a significant increase in jobs and a slowdown in wage growth expected. On Wednesday, the inflation report for March is due, with price growth still noticeably higher than in key European countries and the US. However, forecasts are positive, expecting a decrease in core inflation from 6.2% to 6%, and overall inflation from 10.4% to 9.8%.
The Bank of England’s next meeting is on May 11th, and before announcing another rate hike, the BoE intends to take some urgent measures to prevent a banking crisis. The total debt of British borrowers has already exceeded the £2 trillion mark, and further tightening would increase risks to the banking system. To prevent a situation similar to the bankruptcy of several regional banks in the US and Swiss giant Credit Suisse, the Bank of England is preparing a reform of the deposit guarantee system. It seems that the reassuring statements regarding the avoidance of a large-scale banking system crisis do not entirely correspond to reality.
The short position on the pound has almost been liquidated, as per the CFTC report, with a reduction of £970 million over the week. At present, the bearish bias is only £186 million, meaning positioning has shifted from bearish to neutral. The calculated price is above the long-term average and is trending upward.
GBPUSD made another attempt to move above the resistance at 1.2440, with a local maximum updated, but failed to consolidate above this level. We expect that the correction will be shallow, with the pound holding above 1.2340. If it declines towards this support, there is a basis for buying with a target of the recent local high of 1.2545, and the technical level of 1.2750 remains relevant as a medium-term target.
The material has been provided by InstaForex Company – www.instaforex.com
The net short speculative position on the US dollar increased by 3.4 billion during the reporting week, reaching 10.5 billion, which is the largest bearish bet on the US dollar in the past 2 months. Market participants are increasingly inclined to believe that the Federal Reserve’s rate cycle is nearing its end, meaning the main factor that pushed the dollar upward is losing its influence.
European currencies, primarily the euro and the pound, as well as the Swiss franc, look the best in the report. Gold saw a slight correction, with the net long position shrinking by $823 million to $38.619 billion, while the yen and commodity currencies saw minimal changes.
The dollar managed to recoup some of its losses on Friday, as stronger-than-expected data pushed US yields higher. Retail sales showed a 1.0% month-on-month decline in spending in March, which is significantly below the consensus forecast of -0.5%, but excluding automobiles and gasoline, sales only fell by 0.3%. Capacity utilization rose to 79.8% (forecast 79%), industrial production increased by 0.4% compared to the forecast of 0.2%, and the University of Michigan’s consumer confidence index rose from 62 points to 63.5 points (no changes were expected). The Atlanta Fed raised its Q1 GDP forecast to 2.5% YoY.
Fed data shows reduced stress in the banking system last week: banks’ demand for liquidity in the context of the Fed’s funds declined for the fourth week in a row, and both deposits and commercial bank loans grew for the week ending April 5th. On Sunday, Treasury Secretary Janet Yellen stated, “At this point, I don’t see anything dramatic or significant enough, in my view, to significantly change the outlook,” but she suggested that banks would likely become more cautious, and this could be “a substitute for further interest rate hikes that the Fed needs to make.” Yellen’s statement is likely to be seen as a bearish factor for the dollar by the markets.
EURUSD
The forecast for the ECB’s May meeting has tightened; if last week the average increase was 22 basis points, by Monday morning, it had already risen to 32 basis points. Late last week, several ECB representatives mentioned the possibility of considering a 50 basis point hike in May, which adds confidence to euro bulls.
The key event this week is the consumer inflation report for March, which will be released on Thursday, April 19th. Forecasts regarding a slowdown in inflation in the eurozone remain very cautious, forcing the ECB to maintain hawkish rhetoric, and compared to the Fed, the European Central Bank appears significantly more aggressive. From a yield spread perspective, expectations are skewed in favor of the euro; therefore, if the report does not show a slowdown in inflation, the euro may respond with another wave of growth.
After several weeks of relative stability, the net long position on the euro increased by $2.647 billion, a significant increase, although the overall balance (+$22.3 billion) is still below mid-February levels. Nevertheless, growing expectations that the ECB will act more aggressively than the Fed are pushing the European currency upward, with the calculated price remaining stable with a slight bullish bias.
The euro made another attempt at growth, reaching the target of 1.1032, which was identified as probable in the previous review, but failed to consolidate above this level. We expect that after a shallow correction, growth will resume, with the nearest resistances at 1.1180 and 1.1270.
GBPUSD
This week, several important macroeconomic reports are expected from the United Kingdom. On Tuesday, the labor market report for March will be published, with a significant increase in jobs and a slowdown in wage growth expected. On Wednesday, the inflation report for March is due, with price growth still noticeably higher than in key European countries and the US. However, forecasts are positive, expecting a decrease in core inflation from 6.2% to 6%, and overall inflation from 10.4% to 9.8%.
The Bank of England’s next meeting is on May 11th, and before announcing another rate hike, the BoE intends to take some urgent measures to prevent a banking crisis. The total debt of British borrowers has already exceeded the £2 trillion mark, and further tightening would increase risks to the banking system. To prevent a situation similar to the bankruptcy of several regional banks in the US and Swiss giant Credit Suisse, the Bank of England is preparing a reform of the deposit guarantee system. It seems that the reassuring statements regarding the avoidance of a large-scale banking system crisis do not entirely correspond to reality.
The short position on the pound has almost been liquidated, as per the CFTC report, with a reduction of £970 million over the week. At present, the bearish bias is only £186 million, meaning positioning has shifted from bearish to neutral. The calculated price is above the long-term average and is trending upward.
GBPUSD made another attempt to move above the resistance at 1.2440, with a local maximum updated, but failed to consolidate above this level. We expect that the correction will be shallow, with the pound holding above 1.2340. If it declines towards this support, there is a basis for buying with a target of the recent local high of 1.2545, and the technical level of 1.2750 remains relevant as a medium-term target.
The material has been provided by InstaForex Company – www.instaforex.com
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