12.07.202109:45 Forex Analysis & Reviews: Demand for protective assets is expected to rise. Overview of USD, EUR, and GBP

This week promises to be full of events – we expect the publication of US consumer inflation data, reports from US banks, China's GDP for the 2nd quarter, Bank of Canada's meeting, and in the center of these events, Fed Chairman Jerome Powell will make two consecutive speeches in the US Congress.

It is worth noting that Powell will speak at the House of Representatives on Wednesday around 7.00 Universal time, and at the Senate on Thursday about 13.30 Universal time. In view of the Fed's cautious and generally insufficiently informative comments during the last few weeks, Powell's speech is expected with increased interest, since there are too many questions about the current policy. In particular, it is important how the Fed intends to exit the $ 120 billion purchase program in a month since its curtailment is capable of bringing down the stock market, but the continuation is even more strange amid the strong economic growth. For Congress, Powell's position is very important because he needs to solve the problem of the national debt, that is, raise the borrowing ceiling once again. At the same time the question of rates – whether the inflation growth is so temporary that it does not pay attention to the obvious, and how much the Fed will have enough restraint, will also be important.

The current CFTC report provided quite a lot of new information. First, the US dollar's net short position declined for three consecutive weeks, with a weekly change of 2.307 billion to -7.867 billion. The bearish advantage is the lowest since the beginning of April.

Second, there is a reduction in positions in all commodity currencies – CAD, AUD, NZD, and MXN (Mexican peso), which indicates an approaching crisis.

Third, gold's long position in gold noticeably rose by 4.283 billion to 32.854 billion, while the Japanese yen stopped declining. This together may mean the approach of a crisis, since there is a coordinated repositioning of investors from risky assets to protective ones.

EUR/USD

The European Central Banks'revision of the inflation target to 2% against "just" below 2% did not lead to a revision of the timing of a return to normal monetary policy. Although some comments may follow after the meeting on July 22, the euro's impulse will not contribute to the continuation of growth.

The net long position on the euro has declined again, this time by 1.551 billion up to 11.409 billion. The total number of short contracts in euros is now the maximum since March 2020. The estimated price is confidently holding below the long-term average, with a downward direction.

An upward pullback from the lower border of the triangle (approximately 1.1770/80) was expected, but this is just a correction. The priority scenario is still to break through the trend line down and move to the level of 1.1704.

GBP/USD

The extensive package of macroeconomic data published on Friday was generally not in favor of a strong pound sterling. The growth of industrial production in May amounted to an impressive 20.6% yoy, but it turned out to be slightly worse than both April and forecasts. GDP growth in May was only 0.8% against the forecast of 1.7%. Only the NIESR estimate of GDP in June was positive – 4.8% against the forecast of 2.6%.

However, NIESR accompanies its forecast with a cautious comment – although the growth in May was faster than usual, it was almost entirely due to the lifting of COVID-19 restrictions, since the services sector accounted for 0.7% of the 0.8% growth in May. Moreover, it is still unknown whether the lifting of restrictions will further contribute to the continuation of strong growth in Q3 or the activity of the Delta strain will lead to consumer caution or even another isolation.

The British pound turned out to be one of the two currencies (yen is the second) that was able to resist a large-scale wave of sales. The long position even slightly rose from 1.533 billion to 1.889 billion. But the settlement price, as in the case of the euro, is sharply inclined downwards as speculators have slightly increased a long position. Hedgers (operators) massively hedge risks based on the further weakening of the pound.

There are no fundamental reasons to expect GBP/USD growth. It is reasonable to use an attempt to rebound the pound above the level of 1.39 for sales with a target of 1.3729, then 1.3664, then 23.6% of the Fibo expansion from last year's growth, which is the level of 1.3575.