11.05.202011:01 Forex Analysis & Reviews: Failed non-farm against the CFTC report: dollar is alive and well; Overview of EUR and GBP

Despite the fact that the April employment report was the worst in history, forecasts were still exceeded - the disaster with employment was not so deep. 20,500 thousand jobs were lost, the unemployment rate rose to 14.7% (16% was forecasted), and only a strong increase in the average hourly wage of 7.9% looks clearly positive if it were not for the fact that it was based on unprecedented amounts of government assistance and includes including benefits and unemployment benefits through government programs.

The main conclusion from Friday's CFTC report is that long-term demand for the US dollar is returning, which is based not on a short-term reaction due to the growth of panic, but on estimates of economic prospects. The consolidated position on the dollar is still below zero, but it decreased by 1.16 billion to -8.409 billion.

We cannot say that there is a pronounced movement in commodity or protective currencies. The euro and the yen have the largest losses, but the Australian dollar has reduced its short position, which is most likely explained by good data on China - players are hoping for a recovery in demand.

At the end of the week, the dollar seems to be a favorite, and it is highly likely to end the current week in a positive zone against most competitors. On the other hand, the net long position in gold declined, as well as a recovery in demand for oil. It seems that the players are really going to start from the bottom.

EUR/USD

Last week, the consolidated bullish position on the euro lost 0.438 billion, falling to 10.339 billion, and despite the fact that the bullish advantage is still very strong, the trend for the European currency is negative. The estimated fair price is rapidly declining, so the chances of EUR/USD rising to this level are fading into the background.

The ECB's actions are constrained by the decision of the German constitutional court, which ordered the ECB to change the direction of the QE program within three months. Despite the fact that the ECB has already commented on the court's decision in the spirit of "it will not affect our plans", the Bundesbank is faced with the need to comply with this decision, stop buying t-bills and even sell off all the assets it acquired under QE. The court's decision will not be able to pass without a trace, and the Euro will be under additional pressure in the coming weeks.

The second round of negotiations on a trade agreement between the EU and Britain begins today, which should lead to the formation of the positions of the parties before the final round on June 1. By Friday, EU negotiator Michel Bernier will announce the results of the negotiations, with a high probability of being zero, which will only create additional pressure on the euro and the pound.

As a result, the probability of EUR/USD declining the sideways range is growing. The nearest support 1.0765 and 1.0725 are weak, breaking through below which will increase the probability of testing the level of 1.0635. There are no reasons for purchases, it is more logical to sell on attempts to grow and when breaking through the support.

GBP/USD

The consumer confidence index in April was unexpectedly stable at 34p, and for the second month, it has been holding above the historical low of - 39p observed in July 2008, while the forecast was - 15p.

A stable level of confidence makes adjustments to forecasts for the depth of the fall of the UK economy. Models according to historical data are based on the simple understanding that a crisis always has conditions that have accumulated over a long period of time, and a way out of a crisis is usually comparable in time to the period of accumulation of negative. Perhaps, the Gfk report indicates that consumers perceive the current crisis not as an economic, but as a short-term reaction to the COVID-19 pandemic, which means that with the retreat of the virus, the economy, in mass perception, will also recover quickly.

Now, only time will tell which model will be correct in the end. The CFTC report showed a further increase in the consolidated short position on the pound, speculators are trading on a further decline.

The pound has been trading for a month and a half in a wide side range, and considering the actions of major players, it can be assumed that the probability of getting out of the range is significantly higher. We should expect a decline to the support of 1.2245 / 60 and an attempt to further decline. The next support is at 1.2160, the fall of which will form the pound's reversal downwards completely. The resistance zone is at 1.2515 / 40, and it is logical to sell to it when trying to grow.