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The U.S. dollar has risen to the upper boundary of the trading channel

May 18, 2020 11:00

Flow of negative news continued last week as U.S. consumption shrank significantly, recession was recorded in Germany, and political tensions between the U.S. and China continued to rise as Donald Trump threatened to cut ties between nations.

USD

Economic indicators in the U.S. remained poor. The number of new jobless claims has fallen to 3.0 million, but overall has remained high and is still quite far from neutral, suggesting that the situation in the country remains tense. Retail sales fell -21.6% in April compared to last year. Industrial production decreased by as much as -15% compared to last year. Annual inflation fell to 0.3% and remained above 1.4% after eliminating energy and food prices.

Euro

The situation of the virus did not change significantly. In Europe, the situation has improved, especially in Italy, Spain and France. The U.S. has begun to see a moderate decline in new cases, which have dropped to 20,000 a day. Meanwhile, Russia remains the new epicenter of the virus, with more than 10,000 cases per day, and Brazil, whose curve is rising rapidly to 15,000 per day.

The main currency pair EUR/USD fluctuated insignificantly and traded in a relatively narrow channel between 1,080 and 1,085 points. Economic data was poor, especially for March. Italian industrial production contracted by as much as -29% in March compared to last year, and for Europe as a whole by -12.9%. According to preliminary data, the European economy contracted by -3.2% in the first quarter and Germany by -1.9%. The economy of Europe is gradually opening up and activity is recovering, but the biggest question remains how consumer behaviour will change and whether they will consume boldly or remain cautious, as has happened in China. The EUR/USD pair closed the week with depreciation of -0.2%.

JPY

The most important Asian pair, USD/JPY, rose slightly to 107 points. There were no important economic data, but investors' attention was drawn to changes in industrial production prices, which recorded a fall of -2.3% per year, which suggests increasing deflationary pressures in the economy due to falling economic activity and falling commodity prices. USD/JPY has ended the week appreciating +0.4%.

GBP

The British pound has consistently depreciated over the past week, reaching its lowest level since the last week of March. The virus situation gradually improved as the number of new infections fell to almost 3,000 a day from about 4,000 previous week. Among the news was a change in the country's economy in the first quarter, which stood at -1.6% year-on-year. In March, industrial production fell by -8.2% and construction volumes by -7.1% compared to the same period in 2019. GBP/USD has ended the week depreciating -2.5%.

Economic Events

This week will start with data from the first quarter of the Japanese economy. Data on Japanese industrial production, U.K. labor market indicators and the results of the German and European ZEW index will be published on Tuesday. Wednesday will start with inflation data for U.K. and Europe, followed by the announcement of the minutes of the last U.S. Federal Reserve meeting. Investors will monitor Japan's export volumes on Thursday morning, followed by preliminary results from the manufacturing PMI index. Inflation in Japan and retail sales data in England are expected on Friday.

According to Admiral Markets market sentiment data, 64% of investors have long positions in the EUR/USD pair (down -6 percentage points from last week). In the main Asian pair USD/JPY, 48% of investors have long positions (decreased by -12 percentage points). In the GBP/USD pair, 69% of participants expect a rise (increased +7 percentage points). Such market data is interpreted as contraindicative, therefore EUR/USD and GBP/USD are expected to fall and USD/JPY may appreciate. Positioning data analysis should be combined with fundamental projections and technical analysis.

Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com


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