According to the CFTC report last Friday, the aggregate long position on the US dollar has been shrinking for the fourth week in a row, with a weekly contraction of 2.079 billion, resulting in +8.465 billion, which is the lowest since August.
It should also be noted that the report reflects data for the week when the meetings of the ECB and the Bank of England took place, and as a reaction, the positioning changed significantly in favor of the pound and the euro. The euro added 1.355 billion during the week. The long position rose to 5.542 billion, which is high since August. As for the pound, investors reduced the short position by 1.27 billion, reporting to -723 million.
In general, the CFTC report shows that the long position on the US dollar does not increase despite the Fed's hawkish rhetoric and market confidence at the beginning of the rate hike cycle. This means that investors do not see the US dollar above current levels in the medium and long term. This is quite an unexpected result, which may be adjusted this week taking into account the data on January inflation. However, it should be considered that major players do not buy the dollar and the reasons for its growth have not yet been formed.
The Fed will meet for an emergency meeting today. Despite the possibility of a rate hike between scheduled meetings announced on Friday, markets still regard the likelihood of such a step as low. Nevertheless, attention to this meeting will be increased, since the Fed solves part of its tasks not through active actions, but verbal interventions, managing investor sentiment, and may take advantage of the opportunity to balance the markets.
EUR/USD
The euro's estimated price is steadily growing, which means that according to the set of indicators, primarily in terms of the yield spread, it is gradually catching up with the US dollar, nullifying all bearish scenarios.
The euro cannot yet implement changes in the positioning of the players. Last Friday, ECB officials tried to soften expectations about their plans, but their comments put pressure on the euro. The head of the ECB, Lagarde, also stressed that the increase in rates will be gradual and the immediate increase in rates will not solve any of the current problems. ECB Chief Economist Lane even said that inflation is a consequence of the pandemic and high energy prices. The bank cannot influence either the first or the second, so there is no need to change policy.
On Wednesday, there will be an interim meeting of the ECB, after which some news is possible.
Last week, it was assumed that the bullish impulse could end after an attempt to update the local high of 1.1485, and the EUR/USD pair would decline, but now, the chances of such a turn have become less. Amore likely scenario is now the formation of support above the level of 1.1309 and an upward impulse with the target of 1.1497 and further to 1.1590.
GBP/USD
This week, several important macroeconomic data will be released – employment data on Tuesday, inflation release on Wednesday, and retail sales on Friday. These data will help correct the forecasts for the plans of the Bank of England, which signaled its readiness at its last meeting to continue the rate hike cycle in March. It can be recalled that the biggest surprise was the vote, 4 out of 9 members of the Cabinet voted for an immediate 50p increase, almost swaying BoE to such an aggressive move. Now, the markets will receive information that will allow them to correct expectations of a possible change in the fragile balance.
The estimated price rises due to a change in the balance in positioning on the futures market and the growth of yields of British T-bills. The signal is clearly bullish to ignore.
The pound is still holding above the support level of 1.3510/25. The chances to continue growth have become noticeably higher. It can be assumed that the bulls will try to take the lead and take the pound up from the consolidation zone. The target is set at 1.3750. A consolidation above which will increase the chances of continued growth.