According to the CFTC report, the US dollar's cumulative long position declined for the fourth week in a row to $ 19.8 billion. At first, this factor looks bearish, since the overall decline in four weeks barely exceeded a third of the growth in just one week in early October. Most likely, the bullish orientation of the US dollar remains, except that there is more uncertainty.
The demand for most commodity currencies has increased, which reflects a steady interest in risk so far. The Fed insists that inflation is a temporary phenomenon, except it is slightly prolonged. This position is regarded by the markets as an indication that the pace of return to normal monetary policy will not be fast, which supports the demand for risky assets.
The labor market report should be recognized as positive, which also contributes to the growth of demand for risk. However, it is not so positive that we could talk about a confident recovery. 531 thousand new jobs were created (forecast +450 thousand) – the previous two months were revised by +235 thousand, which led to an increase in stock indices and an increase in yields, and if stocks held at the next record levels by the close, then yields will decline after a pause, which means an increase in demand for bonds. This is actually an increase in demand for protective assets.
On Wednesday, the US inflation report will be released. This will be the key event of the week, which is likely to help shape the direction. And while it is necessary to proceed from the fact that the upward momentum of the US dollar has become weaker, the demand for commodity currencies dominates, but it is also losing strength.
EURUSD
As follows from the CFTC report, the euro's weekly change turned out to be the largest among the G10 currencies. The short position decreased by 743 million, reporting to -888 million. In fact, the changes are minimal, reflecting some changes in sentiment after the ECB decision. The calculated price is trying to turn up, but the momentum is very weak.
The EUR/USD pair did not reach the target of 1.15 by only 12 points. On Monday morning, the probability of an upward correction became slightly higher. It can be assumed that the breakdown of 1.15 is slightly postponed, but not canceled, after which the target will shift to 1.1290/1310. The corrective growth is limited by the trend line 1.1610/20, so there are no reasons to further rise yet.
GBP/USD
The Bank of England did not meet expectations and did not raise the rate, which led to a certain disappointment of the bulls for the pound, and the point here is not so much in expectations as in the discrepancy between the decision and the hawkish rhetoric of the BoE head Bailey. Bailey justified himself by saying that his comments depended on inflation, which stopped growing in October, and therefore there was no need to force events.
There is a certain reason for Bailey's excuses, especially if we compare inflation with data for 15 years. The values from 2012 and 2018 were already higher than the current values, which did not lead to an increase in the rate, that is, the Bank of England has a room for maneuver.
In any case, the markets reacted quite sharply. The yield of 10-year T-bills fell from 1.08% before the meeting to 0.830% on Monday morning, and this fact affect market expectations for the pound. Despite the growing interest in risk, the settlement price is declining. In the futures market, the formed long position decreased by 6 million after several weeks of growth, which, is not much, but the tendency to stop is obvious.
The GBP/USD forecast for the continuation of growth did not come true, which is logical, but the further decline does not look obvious. The support level of 1.3310 has resisted, which is in favor of resuming the upward movement. It is logical to buy with a stop just below 1.3310 and a target of 1.3550/70 when trying to decline, and when the support is broken, the target will shift to the range of 1.3260/80.