16.08.202109:50 Forex Analysis & Reviews: US consumer confidence index decrease indicates deep problems in the economy. Overview of USD, EUR, and GBP

The consumer confidence index from the University of Michigan fell sharply in August to 70.2 from 81.2 p a month earlier, while no change was predicted. The index has fallen faster six times in half a century. At the same time, consumers do not expect anything good from the rapid spread of the delta strain of COVID-19, rightly judging that this will affect the whole economy and their personal incomes.

Last week, many Fed members reported their opinion on the curtailment of the QE program. Some were categorical – Kaplan, Bullard, and Waller are ready to announce a reduction in QE starting from October at the meeting on September 22, while others such as Clarida, Evans, Brainard, etc. were not so categorical, saying that we need more time to make sure that the labor market is recovering, and only then make a decision on QE. This means that it is necessary to postpone the decision by the end of the year.

Fed Chairman Powell will speak on Tuesday, and the minutes of the Fed meeting will be published on Wednesday, which will reflect the depth of disagreements on a key issue for the global economy.

According to the CFTC report, the US dollar's cumulative long position rose by 1.078 billion, namely to 3.749 billion over the reporting week. This is the maximum since March 2020. The preponderance of the bulls is small, but the trend is obviously upward and the potential for dollar growth is high.

The US dollar is expected to further strengthen this week.

EUR/USD

As for the Euro currency, the liquidation of the long position is observed again. There was a weekly reduction of 676 million to 4.96 billion, but the trend cannot be called stable, since the estimated price has not changed much and coincides with the long-term average. We can also say this – the decline in the long position on futures is compensated by other factors, which may suggest the instability of the bulls' positions on the dollar, which need a strong new driver.

However, there is no strong driver for the euro, as traders do not expect any changes from the ECB at least until the Fed announces the start of the reduction. Politicians in Europe are shifting the focus of attention to the green agenda, hoping to take control in the formation of financial flows by forming a "registration and supervision regime for external reviewers", as it is directly written in the official proposals of the EU Commission on the principles of "green bonds".

We should pay attention to the report on GDP for Q2 on Tuesday, and to the report on consumer inflation on Wednesday.

The EUR/USD pair failed to break through the support level of 1.1702 on its second attempt, which is a 38.2% correction from the rapid growth in 2020. If the bears manage to build up pressure, then a decline to 1.15 with subsequent consolidation can be expected.

GBP/USD

The NIESR Institute reported a slowdown in GDP growth. The GDP grew by 4.8% in Q2 mainly due to the opening of the services sector, while there is a growth forecast of 2.4% in Q3. The economy still remains below the pre-pandemic level of 4.4% as of the second quarter.

This week, important reports for general understanding will be published. On Tuesday – a report on the labor market, the forecast for the growth rate of average wages, which remains a strong driver of the economic recovery and may provoke purchases of the pound. On Wednesday – a report on consumer inflation and producer prices draw attention. The forecasts are positive.

The pound is one of the few that strengthened against the US dollar. A net long position of 612 million was formed again, and the estimated price is directed upwards, which gives reasons to assume further growth of the pound.

The nearest target of the bears is the support zone of 1.3770 / 90, but it can be assumed that the decline will be shallow since the settlement price is directed upwards. After that, the pound will resume growth to the levels of 1.3892 and 1.3913. The target is a local high of 1.3981.