The dollar climbed to highs of June
Last week, investors remained buyers of the dollar. In general, the foreign exchange market was experiencing a declining appetite for risk as investors withdrew from risky currencies and returned to the U.S. dollar and Japanese yen. Investors remain worried about the economic situation and the second wave of the virus.
Economic indicators in the U.S. were mixed. The country's retail sales fell -6.1% year-on-year in May, still showing a relative slowdown. However, compared to May and April, sales grew +17.7%, which suggests a recovery in the short-term. Market participants are cautious about this recovery, as consumption cannot remain sustainable while unemployment remains high. Industry volumes shrank by as much as -15.3% in May compared to the same period a year ago, which also points to problems returning to pre-viral levels. The number of new jobless claims remained unchanged at 1.5 million per week.
Coronavirus trends continued to move in a negative direction. The U.S. remained in the spotlight as the number of new infections crossed the 30,000 mark a day and has risen 50% from the 20,000 level in May. The situation is also not improving in Brazil, India, Chile, where the number of new cases remains high. In Russia, the number of new infections remains stable at 8,000 per day.
The main currency pair EUR/USD recorded a decline and retreated further from the 3-month highs. Economic data on the Old Continent varied. Annual inflation was just 0.1% in May, indicating pressure on the central bank to seek more aggressive solutions to avoid deflation. The ZEW Economic Sentiment Index was 58.6 points and has risen to its highest level in the last 5 years, suggesting increased optimism in the market. The new car market saw huge declines, with sales down as much as -57% in May and market analysts predicting a surplus of production, with warehouse sizes about 30% higher than usual. The EUR/USD pair closed the week with a fall of -0.7%.
The main Asian pair, the USD/JPY, adjusted slightly and returned to last month's lows. Among the economic data was the change in the country's exports in May, which shrank by as much as -28% compared to the beginning of the period. Inflation was only 0.1%, and after eliminating energy and food prices, it even reached a deflationary level of -0.2%. USD/JPY ended the week depreciating -0.5%.
The British pound adjusted quite significantly against the U.S. dollar. Among the news was the unemployment claims, which reached 529 thousand in May, and it was the second negative month in a row, reflecting the impact of the virus on the country's economy. The inflation rate fell to 0.5%. Retail sales fell -13.1% compared to last year. The country's central bank did not change interest rates, but increased the quantitative stimulus program by an additional 100 billion GBP. GBP/USD ended the trading dropping -1.5%.
This week will begin with U.S. real estate data that will show secondary market sales in May. On Tuesday, investors will turn their attention to the preliminary results of the PMI indices in major economies. The German Ifo Business Climate Index will be expected on Wednesday, and the U.S. durable goods orders data will be expected on Thursday. No important data was scheduled for Friday.
According to Admiral Markets market sentiment data, 49% of investors have long positions in the EUR/USD pair (increased +20 percentage points from last week). In the main Asian pair USD/JPY, 69% of investors have long positions (up +4 percentage points). In the GBP/USD pair, 60% of participants expect a rise (up +21 percentage points). Such market data is interpreted as contraindicative, so GBP/USD and USD/JPY are expected to fall and the EUR/USD position is currently neutral. 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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