Speculative positions for EURUSD will depend on the release of the US GDP report

Mario Draghi’s clear explanations of the terms to retain the ECB interest rate at the current level and its emphasis on the divergence in the economic expansion of the USA and the Euro-area sent EURUSD down by a whole figure. The ECB president noted that the USA and the currency block at the different stages of business-cycle, and the European central bank is not going to change the target rate until late summer. Before the Governing Council’s meeting in July, the talks about divisions within the ECB were supporting euro. The subject matter of the dispute was the difference in the texts of the regulator’s accompanying statement in English and other languages after the ECB meeting in June. Super-Mario emphasized that investors should base on the English variant.

Although the central bank’s president emphasized that the foreign exchange rate in not the subject of his regulation, and the existing for many years international laws don’t allow anyone to carry out competitive devaluation of the currency, the market perfectly understood his comments about different stages of business cycle. Different paces of the economic expansion in the USA and in the Euro-area, as well as the divergence in the ECB and the Fed monetary policies became the main drivers for EURUSD drop 7.2% down, compared with its February’s highs. Mario Draghi’s press-conference encouraged bears, but there might be a trap.

Remember, in early 2018, euro was one of the G10 leaders due to the hopes for the European GDP strong and steady growth and the suggested monetary normalization by the ECB. THE market was being dominated by bulls; however, by the mid-year, everything had changed completely. The weak start of the currency block’s economy and the confidence in the rise of US GDP rate, due to the fiscal stimulus, turned many speculators into EURUSD bears. Their dollar net long positions hit the highest levels since February, 2017.

Dynamics of US dollar speculative positions

Source: Bloomberg

The market can punish for being over-confident, and Morgan Stanley forecasts that the greenback strength won’t last for long. It names the main reasons to be Donald Trump’s comments, weaker US statistics than investors expect, China’s retaliation to the USA protectionism, as well as a potential change in the BoJ management of the yield curve. Morgan Stanley recommends its clients to buy EURUSD at 1.16 with a take profit at 1.21.

Investors are still focused on the release of the US GDP report in the second quarter. After the weak data on the orders for the US long-lasting goods and an increase in the US trade deficit in goods by 5.5% in June, Macroeconomic Advisers has lowered down its forecast to 4.5%, from 4.9%; Atlanta Fed – to 3.8%, form 4.5%; JP Morgan – to 3.8%, form 4.5%. Donald Trump noted that if the first reading suggests +4%, he will be satisfied. The rate of 3.7-3.9% proves the idea that the USA economy is strong and sane. I suspect that the president, by his comments, to hinted that the actual data won’t meet the consensus forecast of 4.1%. I may well trigger EURUSD rising in price.

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Real-time price chart of EURUSD

Dollar Can’t Do without Clues

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