The CFTC report shows that the net position on the US dollar resumed growth after five weeks of contemplation, rising by $1.148 billion, and the total bullish imbalance increased to $10.548 billion. It is noteworthy that there is a decrease in the overall balance for all commodity currencies, which, with falling oil prices, implies further decline.
All currencies, except the euro, are in the negative. Also, the long position in gold decreased by $2.18 billion to $30.5 billion, which is another factor that supports the dollar. Considering that the US inflation report came out after collecting data for the CFTC's weekly report, we can assume that there will be a shift in favor of selling the dollar. However, as of the report's date, the dollar is an undisputed favorite.
Brent crude oil rose above $82 per barrel on reports that Saudi Arabia, along with other OPEC+ members, would continue with its additional voluntary oil cuts. In this case, the increase in quotes is not related to forecasts of a decrease in global consumption.
Several representatives of the Federal Reserve on Friday made cautious statements about the excessive optimism about overcoming inflation. Collins noted less progress on services inflation, Goolsbee reiterated that policymakers' top priority is returning inflation to its target, and Daly mentioned the "perils of deciding too quickly", as the path to the 2% target is still unclear. The minutes of the last FOMC meeting will be published on Tuesday evening.
EUR/USDConsumer inflation in the eurozone in October matched expectations, but industrial production continues to decline. In September, it was -1.1%, and the annual index fell to -6.9%. The eurozone economy persistently demands support rather than tightening financial conditions.
However, hawks from the European Central Bank warn against too early easing. "It would be unwise to start cutting interest rates too soon," Bundesbank President Joachim Nagel said in a speech. Austria's Robert Holzmann said on Friday, "we stand ready to raise rates again if necessary". He was even more explicit, arguing that the second quarter was simply too soon for a rate cut. Belgian central bank chief Pierre Wunsch argued that high inflation has persisted for so long, that there was a high risk of erring in not being persistent enough. Wunsch also reiterated that officials should soon discuss an end to bond reinvestments from a €1.7 trillion ($1.8 trillion) portfolio purchased during the pandemic.
The ECB kept interest rates unchanged in October, ending an unprecedented streak of 10 consecutive rate hikes, which increased expectations that the record series of tightening has already ended, and the next step will be a rate cut. In favor of this conclusion, poor economic growth indicators increase the likelihood of the bloc sliding into a recession in the future.
Overall, the situation remains too uncertain – economic slowdown is evident, but the inflation target has not been achieved. In such conditions, the euro does not have objective prerequisites for a strong and prolonged strengthening.
The net long EUR position unexpectedly increased by 2.9 billion to 14.81 billion. The correction in favor of the bullish bias is significant, and the price is going up.
The euro climbed above the resistance at 1.0810/20, which we previously identified as a reference point for corrective growth. Moreover, the chances of developing a bullish momentum have increased. Support comes from the 1.0640/80 area, where purchases are likely to resume if the euro falls within the framework of a short-term correction. The nearest resistance is at 1.1090, and if EUR/USD manages to stay above it, the chances of testing the local high of 1.1276 will be very high.
GBP/USDUK retail sales have dropped 0.3% throughout October, instead of the expected growth of 0.3%, the annual indicator fell from -1% to -2.7%, and sales excluding fuel fell by 0.1%, instead of the expected growth of 0.5%. Overall, this signals a reduction in household income, which helps slow down inflation; retail trade volumes are currently at their lowest level since COVID restrictions.
The inflation report for October, published last week, also showed results below the forecast, with a price increase of 4.6% YoY against a forecast of 4.8% and significantly lower than September's 6.7%. Overall, both the inflation report and the retail sales report suggest that the Bank of England will no longer raise rates, meaning one of the main factors for its strengthening is no longer in effect.
The net short GBP position increased by 917 million to -2.166 billion over the reporting week. The pound has negative dynamics, unlike the euro, and the direction is uncertain.
The pound reached the resistance area at 1.2470/90, which we mentioned in the previous report as a possible target if the bullish sentiment persists. It has yet to consolidate above this area, and the grounds for further growth look doubtful. Support is at 1.2410/30, it is more likely to fall than rise further.