22.06.202009:49 Forex Analysis & Reviews: Uncertainty in the markets still highly remains and rate for a dollar's decline reaches a record; Overview of EUR and GBP

A CFTC report released on Friday showed that investors had placed the largest bid to lower the dollar since mid-March. Net short on the dollar rose by 7.305 billion and reached 16.06 billion, which is the largest total net short position in the last two years, and investors' confidence in the approaching decline in the dollar is growing.

The growth of the USD short position is accompanied by an increase in demand for gold and oil, the Asia-Pacific stock indices went into the red zone on Monday morning, and Europe opened with a decline. So far, markets cannot assess the new degree of threat associated with the probability of a second wave of coronavirus spread and whether new restrictive measures will be introduced. Fed Chairman Powell rejects the possibility of a rate cut, since in his opinion, the experience of the Bank of Japan and the ECB is not applicable to the United States. Regarding purchases of corporate bonds, Powell emphasized that the Fed will reduce purchases as soon as it sees that the state of the stock market has improved. However, it is unclear when or whether this will happen.

Markets are in a "suspended" state - the reaction to tightening or easing quarantine measures will be exactly the opposite. As a result, a high degree of uncertainty will remain until any objective data becomes available.

GBP/USD

Last week, the Bank of England expanded the QE program by £ 100 billion, bringing the buyback program to 745 billion, while explaining that it expects the completion of QE by the end of the year. This decision was not unanimous, and chief economist Andy Haldane voted against the expansion. In his opinion, the recovery is much faster than anticipated at the BoE meeting in May.

Indeed, a slight increase in optimism can be noted. For example, a decline in GDP in the 2nd quarter is now expected to reach 20%, not 27%, but questions remain about consumer demand and inflation.

NIESR Institute notes that the first signs of the impact of the virus on the labor market is a decrease in vacancies, a slowdown in wage growth and tightening credit requirements. According to NIESR, wage growth in the 2nd quarter will be negative, which means that without large-scale support, the UK economy will slide into the abyss due to a sharp decline in consumer demand, tax collection and an increase in the budget deficit, which will have nothing to cover.

The task of raising consumer demand will be central in the coming months, and it will be impossible to do this without incentive measures. As a result, another QE extension is likely at the next meeting in August, but not a reduction at all.

The CFTC report turned out to be positive for the pound for the first time in several weeks, the net short position declined by $ 656 million, so the likelihood that a base was found in the 0.2330/60 zone slightly increased. At the same time, we should proceed from the fact that the shortening of a short position is not evidence of the strength of the pound, but primarily reflects the dollar's weakness. In addition, the estimated price is still below its average.

The outlook for the pound remains negative despite a positive CFTC report. There is no progress on a trade agreement with the EU, a likely technical pullback will meet resistance in the zone of 1.2450/70, and the probability of a continued decline in the pound remains high.

EUR/USD

The EU online summit has not brought any practical results - the decision to create an economic recovery fund in the amount of 750 billion euros proposed by the European Commission has not been made. At the same time, the ECB head, Lagarde, speaking to the summit participants, emphasized that the "dramatic recession" would be even deeper if the fund was not created, since the impact of the crisis on the labor market had not yet taken shape.

The net long euro position increased markedly again, as follows from the CFTC weekly report, and reached $ 16.492 billion.

The euro continues to correct and the key support of 1.1150 has not yet been reached, but the probability of a local bottom and an upward reversal close to current levels remains high.