US dollar remains the favorite, demand for risk declines, sales may increase. Overview of USD, EUR, GBP

The risk aversion was confirmed by sales on Asian stock exchanges on Monday morning. The Nikkei is losing more than a percent, and there is a large-scale decline in yields. In particular, the 10-year UST declined below 1.3%, which is quite consistent with the rising demand for protective assets.

The CFTC report turned out to be quite informative this time, and most importantly, it accurately shows the mood of investors. First, there is an obvious growth in demand for protective assets – gold's net position rose by 1.6 billion, reporting to 35.5 billion, the yen was bought again, while all commodity currencies, except NZD, were actively sold off. It was already known why the New Zealand dollar was not sold, since the RBNZ is preparing to raise rates and will most likely be a pioneer.

All other commodity currencies are under strong pressure, and the US dollar is one step away from eliminating a net short position. It adjusted by 4.269 billion, to -3.6 billion in the reporting week.

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On Sunday, the OPEC+ countries finally agreed on a schedule for a gradual exit from production restrictions. The schedule looks balanced. Production will increase by 0.4 million barrels per month until the 5.8 million barrels that fell as a result of the cuts are compensated. Therefore, OPEC+ shows its readiness to compensate for the growing demand, but at the same time, does not seek to do it quickly, which will most likely keep oil prices at a high level. The situation in the market will be reassessed in December, so the market will have clear guidelines for the next six months.

Today, the dollar and the yen may become the favorites of the markets, and gold can resume growth after a short break. The main reason for the flight from risks is the growth of fears about a new strain of coronavirus, but it is obvious that there are other factors – the lack of balanced plans of central banks to exit from a super-soft policy, which increases the general nervousness.

EUR/USD

The euro on the spot went deeper than the estimated price, which gives some chances for an upward correction, but in general, the trend towards sales is strong and there are no signs of a reversal yet. Sales totaled 2.6 billion, and the net long position fell to 8.79 billion.

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The results of the ECB meeting, which will be held on Thursday, can turn the euro up. After the ECB changed its inflation target at the beginning of the month as part of the revision of the global strategy, the next logical step will be changing the policy. There is no unity among the ECB members here – a hawkish minority is ready to start considering some steps to normalize since the growth of the balance sheet since 2014 has become simply indecent, while the majority is still inclined not to raise the inflation target and do nothing at all until at least September.

The market still believes that the ECB will refrain from announcing any changes before the September meeting. If these forecasts are justified, then the probability of the euro returning to growth will become even lower.

At the moment, it can be assumed that the euro will keep the downward direction. The nearest target is the level of 1.1770, then 1.1704.

GBP/USD

According to the CFTC report, the pound was sold on futures just as actively as the euro (like the franc, all European currencies are under noticeable pressure). The weekly contraction amounted to 1.2 billion, the net long position declined to 688 million, and the direction is clearly inclined downward. There are no signs of a reversal.

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Despite the fact that the average wage growth reached 7.3% y/y, which indicates growing inflationary risks, the pound failed to turn up. The Bank of England did not show unity in its ranks, and the BoE Governor, Bailey, did not see any reason to change anything. On the other hand, a number of other members of the Committee called to get ready for an increase in inflation and starting to consider plans for normalization.

In any case, the rhetoric did not contribute to the pound's growth. Speculators continue to sell it, and the likelihood of an upward reversal on Monday morning is low. The pound is one step away from the support line of 1.3729 and its breakdown looks very likely. If this happens, the next target will be the level of 1.3575.

The material has been provided by InstaForex Company - www.instaforex.com

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