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Silver futures for March are experiencing rapid growth. They have already reached the level of $30 per ounce. Stores in North America have reported a rush in demand for physical metal. Now, it is almost impossible to buy such assets. The discrepancy between paper and physical volumes is growing, acting as a destabilizing factor for the markets, especially after the coordinated actions of a group of individual investors to pump up shares of Game Stop Corporation. Their strategy led to the colossal losses of the largest US investment funds.
The second shock, which occurred immediately after the first one, is highly likely to generate panic among traders. So far, the volatility indices are within their usual values, which supports demand for riskier assets. According to the CFTC report published on Friday, the US dollar is trying to resume an upward movement.
Taking into account the fact that market turbulence is likely to increase in the coming days, safe-haven assets will win favor with investors.
EURUSD
The euro is still able to hold in the same trading range but the probability of a resumption of the downward movement is still high. Last week, there were several reports that the ECB would study the impact of the ECB's current policy on the euro exchange rate. The central bank will discuss whether it has the necessary tools to weaken its national currency if needed.
Of course, analysts at major banks are trying to find the fundamental reasons to understand whether the ECB will take steps to weaken the euro or not. Japan's Mizuho, for example, believes that the ECB will launch an aggressive bond-buying program since the "shadow policy rate" (Mizuho's own term, which takes into account not only the rate itself but also other monetary policy measures) has fallen to -3.45%. So, the regulator will need to do something that will increase the efficiency of monetary policy. Notdea mainly agrees with these conclusions, drawing attention to the fact that the ECB has been printing new euros since the summer with "even more breakneck speed than the Fed", which is reflected in the growth of the balance sheet.
Notdea sees the actual value of EURUSD at around 1.17 and warns that the euro may decline earlier than expected.
The overall conclusion on the ECB policy is that the new stimulus measures announced by the US Congress and the Biden administration will not lead to a reduction in the value of the US dollar.
The net long position on the euro rose slightly during the reporting week to 25.132 billion but this was not enough for the estimated price to rise above its long-term average. Currently, the euro is still significantly higher than its calculated value. Therefore, its downward movement looks quote possible.
The euro is expected to break through the support level of 1.2050/60. If so, the pair will fall to 1.2000 and further to 1.1900/30 where the euro can find temporary support.
GBPUSD
The net long position on the pound sterling declined by 484 million. Apparently, the bullish trend is coming to an end. Technical signals are barely visible but the fact that the estimated price has gone sharply below the long-term average may indicate the weakness of the pound sterling. So, the pound sterling is likely to extend losses in the coming week.
At the same time, the fundamental background is quite positive on Monday, which can baffle investors who do not factor in the financial situation. The Bank of England reported on consumer and mortgage lending in December, both figures are higher than expected. It indicates the stability of consumer demand and fuels inflation expectations. The Markit reported that Manufacturing PMI for January fell to 54.1. However, the forecast values were noticeably worse as the UK tightened quarantine restrictions earlier than others.
On Thursday, February 4, the Bank of England will hold the meeting. The regulator is expected to keep its monetary policy unchanged. Nevertheless, the speech of BOE Governor Andrew Bailey could cause volatility. If Bailey changes the rhetoric, traders will close long deals on the pound sterling. The British currency may decline to the support area of 1.3480/3500. If so, it will slip to the support level of 1.3200.
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