The US dollar seems to be strengthening for the third day in a row. Dollar index futures rose above 93 points, holding near 4-month highs.
Demand for safe-haven assets appears to have remained high amid concerns about the impact of a surge in COVID-19 cases globally. The Delta mutation has been dominant among infections lately.
The U.S. dollar appears to have been on the rise since mid-June when a sharp increase in inflation forecasts for this year and an acceleration in the timing of an interest rate hike occurred after the Federal Reserve's last meeting.
Jerome Powell, Fed Chief, eased the situation afterward, saying that the Fed is in no hurry to start tapering as it is still far from reaching a satisfactory economic situation. Despite these statements, with no further catalysts and risk-off sentiment spreading among global investors, the dollar may have room for further appreciation.
Attention should also be paid to investor positioning on US dollar contracts. In early 2021, non-commercial investors (speculators) held close to -15,000 net long positions with the contract at 89 points. At the end of May 2021, when the contract was again at 89 pts, net long positions increased to 2780. On the other hand, as of July 13, when the contract was at 92 pts, net long positions increased to more than 11 thousand, which is the largest lead of long positions over short positions since May 2020, according to the COT report published by the CFTC.
The above could affect many markets, especially the currency market and at least the main pair EUR/USD rate. Here, too, warning signals of excessive strengthening of the euro have been appearing for a long time, since the summer of 2020. The European Central Bank openly declared that the EUR/USD exchange rate above 1.23-.24 does not suit it, but the chances for conducting a very loose monetary policy in the coming years are growing. As a result, EUR/USD is currently trading in the region of USD 1.17 and may potentially even reach the March 2020 levels, i.e. near 1.1200.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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