The US labor market report for November turned out to be both strong and unusual. Despite the fact that only 210 thousand new jobs were created, which is extremely small, the unemployment rate suddenly declined from 4.6% to 4.2%, while the share of the labor force in the total population slightly rose from 61.6% to 61.8%. The stagnation in the growth of average wages, which did not change and remained at the October level of + 4.8% against the forecast of + 5%, can also be considered positive. This will give the Fed a little variability in assessing inflationary expectations.
The head of the St. Louis Fed, Bullard, immediately called on the Fed to start a tightening cycle, which is not surprising, since he is considered a hawk. But there is another thing that is surprising – Bullard insists on curtailing QE by March and then on two rate hikes by the end of 2022, but former Finance Minister Summers, who can afford to say anything, advises the Fed to signal a possible fourfold increase. Such hawkish sentiments will certainly continue to support the US dollar.
As for the CFTC report, it is quite difficult to make a mistake in interpreting the data obtained. The long position on the US dollar rose for the second week in a row, reaching 24.7 billion, which is the highest level since June 2019.
As for the other currencies, the trend is also quite clear. All commodity currencies have gone into the negative zone. Their short positions are increasing, which, together with the growth of short positions on oil, indicates a global repositioning of speculators towards exiting risky assets. Apparently, the markets have come to terms with the fact that the Fed is preparing to announce at its December 15 meeting an acceleration in the timing of the exit from the QE program, which will lead to a further decline in stock indices and a strengthening of the US dollar.
EUR/USD
Eurozone's economic data is much less convincing. The unemployment rate in October is 7.3%, the labor market recovery is noticeably slower than in the US, and the PMI indices in November are worse than in October, despite the fact that producer prices are rapidly increasing. Rising prices with simultaneous weak economic growth pose a much more difficult task for the ECB, and there is no talk of any tightening of monetary policy yet.
ECB President Lagarde is expected to speak on Wednesday. The next meeting will be held on December 16, immediately after the Fed, and the most likely scenario is a further decline in the EUR/USD, since there are no reasons for a reversal.
According to the CFTC report, the net short position on the euro increased by 981 million to -3.29 billion. The trend looks stable, and the estimated price is lower than the long-term average.
The EUR/USD pair remains within the borders of the descending channel, a test of the local low of 1.1186 is likely, and the long-term target is still 1.10.
GBP/USD
The pound did not stay away from the sales. As follows from the CFTC report, the weekly change amounted to -342 million. The net-short position increased to -3.23 billion, and the estimated price is lower than the long-term average, but attempts to turn up are noticeable. The fact that UK T-bills yields are not falling so much, as investors are waiting for some steps or at least comments from the Bank of England plays a role.
There is no noteworthy economic data from Britain. Brexit negotiations are expected to stall, and there is no progress. No new isolating anti-COVID measures have been introduced yet, despite a slight panic about Omicron, which should support the pound, but the general flight from risk seems to be putting more pressure on it.
On Friday, a large package of economic data will be published, including GDP for October inclusive. The pound will continue to be under pressure. The nearest support level is 1.3160, the decline to which looks like a done deal. The resistance zone is 1.3400/10, but even such a small pullback still looks unlikely.