U.S. dollar consolidated at lows while caution remains
A recent fall of the U.S. dollar stabilized last week and the value of the world's reserve currency consolidated in the lows of the past few years. Investors in both the currency and stock markets were positive, but somewhat more cautious, which led to a slowdown in the prevailing trends.
U.S. economic data was scarce and mixed. Inflation remained stable at 1.2% on an annual basis in November, with prices rising by 1.6% year on year after eliminating the energy and food components. The number of new jobless claims rose from 0.71 to 0.85 million a week.
The number of new cases of corona virus worldwide has remained high:
- The number of new cases in the U.S. is around 215,000, based on the past 7 days, and a slowdown has not yet been seen
- In India, a slowdown in the incidence of diseases from 40 to 30 thousand was seen
- In Brazil, the number of cases ranged from 42 to 50 thousand
- In Russia, the number of new cases per day stabilized at 28 thousand
In France, the number of cases remains relatively low at 14,000, and in Italy it is also slowing to 17,000.
The main currency pair EUR/USD fluctuated slightly above the 1,210 price level. Among the European data was the following:
- The European ZEW Economic Index rose from 32.8 to 54.4 points, suggesting improving sentiment about future prospects among business participants
- In November, annual inflation in Germany stood at -0.3%, reflecting persistent deflationary pressures
- The meeting of the European Central Bank received a lot of attention, announcing a 500 billion increase in the bond repurchase program to 1.85 trillion euros and extending it at least until March 2022
- Interest remained unchanged at -0.5%
The EUR/USD pair ended the trading week depreciating -0.1%.
The most important Asian pair, USD/JPY, fluctuated slightly around the 104.0-point level. Among the economic data was the country's household spending in October, which grew 1.9% year on year. The country's prime minister also unveiled a 700 billion USD economic stimulus program. This is the third promotion program this year and they aim to help the country's business and population mitigate the negative effects of the pandemic.
The USD/JPY ended the week depreciating -0.1%.
The British pound depreciated against the U.S. dollar to 1.32, reaching as low as 1.314 points during Friday's trading session. Investors are worried that Britain will fail to reach an agreement with the European Union to withdraw from the European single market and customs union, which could potentially lead to tariffs and quotas on trade between them and harm the economies of both countries. Among the data was industrial production, which fell -5.5% year-on-year.
The GBP/USD ended the week trading depreciating -1.6%.
This week will start with the industrial production volumes of Japan and the European Union. The rest of the week will unfold as follows:
- Important data on Chinese industry, retail sales and investment will be expected on Tuesday, followed by data on the English labor market and data in U.S. industry
- Wednesday will begin with Japanese export results, followed by inflation data in U.K and preliminary PMI indices of major economies, and finally U.S. retail sales
- A meeting of the U.S. Federal Reserve will also take place on Wednesday
A meeting of the Bank of England will be watched on Thursday and the country's retail data will be released on Friday.
According to Admiral Markets market sentiment data:
- 46% of investors have long positions in the EUR/USD pair (increased +17 percentage points from last week's data)
- In the main Asian pair USD/JPY, 73% of investors have long positions (up 32 percentage points)
- In the GBP/USD pair, 49% of participants expect a rise (up 15 percentage points)
Such market data is interpreted as contraindicative, so EUR/USD is expected to rise, USD/JPY is expected to depreciate, and the GBP/USD pair is expected to remain at a neutral level. The analysis of positioning data needs to be combined with fundamental projections and technical analysis.
Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com
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