U.S. dollar fell to January lows
The depreciation trend of the U.S. dollar continued last week and it was already the 5th negative week out of the last seven. The global reserve currency had fallen to its lowest point since January 2021 during Friday’s trading session. Such trends are driven by positive economic data and a high risk appetite among investors.
U.S. economic data remained positive. Preliminary PMI indices showed growth: the industry reached 61.5 points, while the services sector even reached 70.1 points. The existing home sales were 5.85 million per annum which slowed moderately in the last quarter. Interestingly, real estate prices rose significantly during the pandemic and it is estimated that in the first quarter of 2021, prices were as much as 16.2% higher than a year ago. The number of new jobless claims fell from 0.47 to 0.44 million a week.
In the minutes of the last meeting of the U.S. Federal Reserve, there were hints of members' thoughts on starting to reduce economic stimulus. Given the rapid recovery in the economy, consumption, and rising inflation, bank members have hinted that discussions at the next meetings may begin on how to change and reduce the current $120 billion a month debt-buying programme.
The spread of the coronavirus showed a further slowdown, with the weekly average of new cases falling from 714,000 to 613,000 per day. In India, the situation has stabilised and the average number of new infections has dropped to 273,000 per day. The epidemiological situation in the U.S. continued to improve and the weekly average fell from 35,000 to 27,000 per day. The number of vaccines injected in the country rose from 268 million to 282 million, a change of 14 million and remained stable compared to the previous week. Overall, the number of people vaccinated with at least one dose in the U.S. rose from 46.8% to 48.6% of the population and increased by 1.8% over the week. In Lithuania, this indicator rose from 30.8% to 33.3% and the vaccination rate remained high.
The major currency pair EUR/USD started the week appreciating, but later lost momentum and consolidated the remaining trading sessions around the 1,220-point level. Among the data, there was a preliminary economic change in Europe in the first quarter of 2021, reaching a contraction of -1.8% compared to the same period a year ago. Actual annual inflation in April was 1.6%. Preliminary managers' purchase indices showed growth: the industrial sector was stable at 62.8 points and services rose to 55.1 points. The EUR/USD pair closed the week appreciating +0.3%.
Asia’s top pair, the USD/JPY, depreciated the most and ended the week at 108.9 points. Among the data was a preliminary change in the economy in the first quarter of 2021, which fell by -5.1% compared to the same period a year ago. Industrial production in March was 3.4% higher than a year ago, and exports in April grew by as much as 38% year-on-year when the economy was shut down due to the threat of a pandemic. The preliminary purchase index of industrial sector managers reached 52.5 points. USD/JPY ended the week with a fall of -0.4%.
The British pound and the U.S. dollar reflected the overall trend of the global reserve currency, with the pair appreciating in the first half of the week but then consolidating. Among the economic data were labor market indicators, which showed a decrease of -15 thousand in the number of unemployed and a 4.0% year-on-year increase in wages. In April, inflation stood at 1.5% year-on-year, while retail sales rose as much as 42.4% year-on-year. The preliminary manufacturing PMI index was at 66.1 points and showed a rapid recovery. GBP/USD ended the week up 0.4%.
This week will be quite calm. No important data is planned for Monday, and the German Ifo Business Climate Index and the U.S. Consumer Confidence Index are expected on Tuesday. No important data is scheduled for Wednesday, with U.S. preliminary first-quarter economic growth figures and the number of preliminary real estate sales contracts expected in the U.S. on Thursday. Meanwhile, the U.S. Personal Expenditure Price Index is released on Friday.
According to Admiral Markets market sentiment data, 34% of investors have long positions in the EUR/USD pair (up 13 percentage points from last week). In the main Asian pair USD/JPY, 50% of investors have long positions (down 8 percentage points). In the GBP/USD pair, 43% of participants expect a rise (up 15 percentage points). Such market data is interpreted as contraindicative, so EUR/USD and GBP/USD pairs are expected to appreciate and USD/JPY to remain in a neutral position. 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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