The rate of the US dollar continues to weaken in the market. In fact, hopes for rising Treasury yields, accelerated vaccine rollouts, as well as aggressive fiscal stimulus, are no longer supporting the currency as they once did. And although the US economy is recovering at a rather fast rate, this does not mean that inflationary pressures will increase at a similar pace. Therefore, it will be hard for the Fed to bring interest rates at their previous levels for quite a long time.
Anyhow, today, Fed Chairman Jerome Powell will speak to the Senate Banking Committee to present his outlook on the US economy. His speech may affect the rate of the dollar to some extent.
To put it more precisely, Powell will have to find a balance between the Fed's policies and the fiscal measures that the Democrats are trying to push through the Senate. But most likely, he will advocate the adoption of a new assistance program, since judging by the latest Fed protocols, there is a need to further support the economy and the labor market, as employment is still far from the target level, just like inflation.
As for Europe, the latest reports on the German economy provided significant support to the European currency. According to the latest data, Germany will recover much faster this spring. The Bundesbank believes the second wave of COVID-19 prevented the recovery of the German economy at the end of 2020 and partially affected the first quarter of 2021. Nevertheless, economic activity is still 4% below the pre-crisis level.
Business confidence in Germany also rose to 92.4 points this month, which is higher than the expected 90.5 points. The rise in the index indicates that its economy is handling isolation better than expected. In fact, the current assessment of the situation has also become more positive, increasing to 90.6 points this February, from 89.2 points in the previous month. Expectations also jumped from 91.5 points to 94.2 points.
The Conference Board also reported that the Leading Economic Index (LEI) rose to 0.5% in January, which is much better than what economists forecasted.
As a result, EUR / USD is one step away from continuing a bull market. To do this, buyers need to push the quote above 1.2180, as such will lead to a new upward wave towards 1.2220 and 1.2260. There is also no need to panic even if the euro moves down a bit, because 1.2135 is a strong support. Also, even if this area is broken down, long positions will still increase around 1.2090. In fact, according to the latest COT report, long non-commercial positions have increased 220.943 to 222.895, while short non-commercial positions rose from 80.721 to 82.899. All in all, the total non-commercial net position fell slightly from 140.222 to 140.006. As for the weekly closing price, it is 1.2132, which indicates the presence of buyers in the market.
Pound is beginning to soar due to the lifting of lockdown in the UK. All schools in England, as well as extra-curricular sports and outdoor activities, will start operating. From March 8, outdoor recreation will be allowed, and from March 9, gatherings of up to six people or two families will be permitted. A number of sports facilities are also expected to open, from tennis courts to golf courses. However, Prime Minister Boris Johnson said the full resumption of the economy will be carried out gradually, and some factories will be closed until June 21, 2021.
Another important news is that UK Treasury Secretary Rishi Sunak is about to present a new budget that will take into account the new amount of spending the government will take in order to provide support to the economy. On March 3, Sunak will announce new support measures under next year's budget.
Going back to GBP/USD, the key level for today is 1.4050, because a break above or below it will point the further direction of the pound. If there will be no active purchases from the side of large players, it is better to postpone long positions until the test of 1.3983. This is because the bull market will continue only after the quote breaks above 1.4110. Such will bring the pair up to 1.4185 and 1.4240.
As for the COT report, long non-commercial positions fell from 60,513 to 60,269, while short non-commercial positions decreased from 39,395 to 38,102, keeping the bullish sentiment in the market. All in all, the non-commercial net position rose to 22,167, from 21,118 a week earlier. Meanwhile, the weekly closing price was 1.3914.
Today, reports on the UK labor market and EU inflation will be published. The unemployment rate is projected to rise to 5.1%, while inflation is expected to be in line with the preliminary estimate, which is 0.9%.