Markets opened in different directions this morning with a small positive margin, which, first of all, comes from the increasing probability of reaching an agreement in Congress on the scale of the next wave of QE. Despite the fact that Democrats did not accept Trump's proposal for a $1.8 trillion fiscal stimulus package, Trump announced that he is ready to offer even more. Today, there will be negotiations on this key issue and positive news could dramatically increase volatility.
The moods of investors are typically changing. Some improvement in the overall position was due to the corporate sector – investors assume that the US financial authorities will find a way to stimulate the economy, which will result in additional income for corporations, hence the increase in demand for stocks and corporate bonds. At the same time, there is no positive news on government securities, which clearly means that foreign investors do not believe in plans to restore US financial stability.
All this is a caution both for the US dollar and for the global financial system based on the dollar. Here, it is expected that the next QE will not bring any positive result for the economy, but will only give an opportunity to earn extra money on financial speculation.
The CFTC report confirmed the main trends of the previous weeks. The total short position on USD fell by 979 million mainly due to the protective currencies EUR, JPY, CHF. In turn, commodity currencies did not show a single dynamic.
According to a combination of factors, investors are more likely to expect positive results in the coming weeks. Gold's net long position declined by 1.17 billion, which is in favor of the dollar. For oil, changes in general in favor of growing demand is in favor of risky assets.
The US dollar is in demand again at the beginning of the week, so we should proceed from the fact that the trend towards its strengthening will most likely continue.
Eurozone's inflation in September is in line with forecasts. However, the markets did not receive new information from Eurostat. Last week, ECB's President, Ms. Lagarde confirmed plans to revise the stimulus policy at a meeting in December if inflation does not show growth in line with forecasts. This was also considered by ECB's Chief Economist, Mr. Lane.
Thus, we should assume that the ECB will most likely offer a new stimulus package in December, since there are few chances for exceeding inflation.
The long position in the euro continues to decline in the futures market. The latest CFTC report showed a decline of 806 million. At the same time, the target price declines, which indicates that the bearish mood is in demand for the euro.
Thus far, the euro/dollar pair remains at the support area of 1.1680/1700, but there is a high probability that it will not hold. So the next target is the level of 1.1612, while the main one is 1.15.
The pound continues to trade in conditions of uncertainty, which does not allow it to leave the range. The uncertainty, in turn, is a direct consequence of the lack of any progress in the Brexit negotiations.
The net short position for GBP fell by 117 million and the estimated price is still directed downward. Apparently, investors assume that Britain will not be able to impose its position on the EU, and the process launched by the Queen of Great Britain in her throne speech on May 27, 2015 will eventually get what was planned – the UK's exit from the EU without any deal.
Today, EU and UK negotiators will try again to create the ground for continuing negotiations in a telephone conversation. If the results of the conversation are announced in a positive way, then the pound may rise to the resistance level of 1.3180, but if not, then the most probable scenario will be implemented – a decline to the limit of the channel 1.2780/2800, followed by a movement to the level of 1.22.