The report on the US labor market was mixed, and there were several factors at once. First, the total number of jobs created was still worse than expected, while most experts had hoped to see an excess of forecasts. Secondly, 52% of the jobs created were concentrated in the leisure sector, and if we exclude leisure, hotel business, and the near-public sectors from the report, it turns out that only 113 thousand more or fewer full-fledged jobs were created in the US economy, which is still not enough to consider the recovery sustainable. At the same time, unemployment declined to 5.8%, wages rose by 2.0% y/y, that is, the dynamics are still positive, albeit at a minimal pace.
Apparently, the Fed still has the opportunity to avoid a broad discussion of reducing the QE program, which will put pressure on the US dollar in the next few days.
The aggregate short position on the US dollar increased to -17.7 billion, the lowest since the beginning of March. Most commodity currencies, with the exception of the Canadian dollar, were sold out, but the sales volumes are insignificant and have little impact on the global balance. The positions of defensive currencies such as the yen and the franc have somewhat strengthened, which may reflect investors' nervousness about the prospects for a global economic recovery. But in general, it should be noted that the players have been relatively stable for several weeks.
This week, there are still no reasons to expect an upward reversal for the dollar.
EUR/USD
The ECB will meet on Thursday, and the bank is already signaling its readiness to reduce the pace of bond purchases. These signals are well-founded amid signs of a rapid recovery in the eurozone economy – surveys of businesses and consumers suggest that the recovery in the euro area accelerated in the middle of the second quarter. Firms also began to recruit additional staff, especially in the manufacturing industry, where capacity constraints are most acute. Last month, there were also signs of rising inflationary pressures.
The ECB is also expected to raise its forecasts for GDP and inflation, which, combined with a likely reduction in the pace of REPP purchases, will strengthen the bullish signal for the Euro currency.
According to the CFTC report, the euro's weekly changes show continued growth in the long position, which reached 16.689 billion. There was growth for the seventh consecutive week, but the slow movement to a record position of 31 billion in August last year remains. The target price has slightly slowed its growth and is near the spot level, hinting at the weakness of the bullish impulse, but it is still above the long-term average.
The nearest target is the resistance zone 1.2240/70, followed by the previous low of 1.2348, and in case of a successful breakdown, we can consider the middle of the channel 1.2400/20. If the ECB holds its meeting in accordance with expectations, then the last target will most likely be reached by the end of the week.
GBP/USD
The net long position of the pound fell by 578 million to 2.134 billion during the reporting week. The estimated price is still held above the long-term average, but the growth rate is clearly slowing down, which may indicate preparation for a bearish correction.
The pressure on the pound goes in several directions at once. First, it is the Indian strain of coronavirus, the rapid spread of which may lead to an adjustment of plans to exit the restrictive measures. Secondly, the EU is dissatisfied with the progress of the Brexit negotiations and according to media reports, it may unilaterally impose a number of restrictions against Britain or even break the agreements reached earlier, if Britain does not stop obstructing the implementation of the protocol on Northern Ireland, which is an important part of the entire treaty.
The pound made an attempt to update the February high of 1.4224, but it was unsuccessful. There are still chances for a breakthrough, but consolidation and a corrective decline before the Fed meeting are becoming more likely. The support can be found in the zone of 1.3950/60.