FX.co ★ Corporations report profits, while speculators buy defensive assets. Overview of USD, EUR, GBP

So far, confident reports from American corporations outweigh growing concerns about the COVID-19 delta strain. The S&P 500 index reached a new record level, closing down 1.0% on Friday. At the moment, 87% of companies have exceeded forecasts, and if this trend continues, it will end up with the highest earnings since 2008.

However, bond markets do not support this enthusiasm as government bond yields are slowly but inevitably declining. The CFTC report is completely opposite to the direction of stock indices and insists on the opposite trend. The cumulative short position on the US dollar has finally been liquidated. For the first time since April 2019, the US dollar has formed a long position of 0.893 million. Everything was sold off – the euro, pound, and commodity currencies. Only protective assets were bought – the dollar, yen, and gold.

The interpretation of the current situation is quite clear – there is an increase in demand for protective assets and the US dollar. Apparently, the world is waiting for another wave of ruinous lockdowns, and the recovery will be temporary.

The reason may lie in the insufficient effectiveness of vaccines against mutated strains of the coronavirus. Delta has about 15 mutations compared to the source code, and some of them help the virus to avoid the influence of antibodies. In turn, the gamma variant, or the British strain, confidently affects both vaccinated and unvaccinated. The latest Israeli study showed that the effectiveness of vaccines decreases over time, which may require both revaccination and new restrictions.

There is no panic in the currency markets yet. A return to strict restrictive measures is considered only theoretically, but the confident purchase of protective assets by speculators does not leave room for other assumptions.

On Wednesday, the FOMC meeting will be held, at which no announcements are expected about the beginning of the reduction of the QE program. If the comments are soft, it will mean that the pace of QE is likely to continue until the end of the year, which may raise risk appetite. If the Fed gives a positive assessment of the employment recovery, it will mean that the Fed may announce a reduction in the pace of purchases in September. It is quite possible that speculators are preparing for this scenario, and if it comes true, the demand for the US dollar may become even more strong.

EUR/USD

Markit's composite business confidence increased to 60.6p in June, the highest in 21 years. It seems that this is a reaction to the lifting of covid restrictions, primarily in the service sector, and the alignment of the situation with supplies, which have been the main problem for production for a long time.

So far, the business sees lower risks, which cannot be said about currency speculators, who act in exactly the opposite way according to the CFTC report. The long position on the euro fell by 2.042 billion to 6.75 billion, while the volume of short contracts rose to the highest since March, and despite the fact that the preponderance of long positions still persists, the trend is negative. The estimated price is below the long-term average, inclined downwards.

Since the ECB does not change policy and does not link the exit from the QE program to either inflation or rates, there are actually no reasons for the euro's bullish reversal at the beginning of the week. It can be assumed that the European currency will remain under pressure, with a downward direction. The nearest target is the level of 1.1704.

GBP/USD

The Markit PMI report did not meet the forecasts, many of the surveyed firms claim a shortage of staff due to the requirements for self-isolation, and the services index significantly declined from 64.6 p to 59.8 p.

The pound's net long position turned into a net short position. The preponderance of -298 million still looks insignificant, but the estimated price is going down rapidly.

No important macroeconomic publications are planned before the meeting of the Bank of England. The Committee members also intend to remain silent, and the appearance of a strong driver that can change the trend is unlikely. The targets are 1.3512 and 1.3475, but the main one is 1.3161. The bearish impulse is strong and the movement may accelerate if some negative driver comes to the world markets.