US dollar corrects to 1-month lows
Last week, the US dollar finally succumbed to the positive sentiment in the financial markets and corrected to 1-month lows. Investors opted for riskier currencies as equity indices held or tested new all-time highs and the commodity CRB index recorded a new cycle high. Positive sentiment continues to prevail in the markets and investors are choosing riskier instruments to reflect the good economic situation.
In the US, economic data was positive. Annual growth in the second quarter was 12.1% year-on-year or 6.5% quarter-on-quarter. The country's consumer confidence index stood at 129.1 points, which remained stable compared to the previous month, but nevertheless at a level similar to that of the pre-pandemic period, suggesting a significant recovery in sentiment among the citizens. New home sales stood at 676 thousand year-on-year, down from a level of 724 the previous month. Significantly higher prices are undermining affordability, which is part of the reason why buyer activity is falling. The personal consumption expenditures index showed a 4.0% year-over-year increase in prices and supported the high inflation sentiment in the country. Initial jobless claims fell from 0.42 million to 0.40 million during the week.
The US central bank held a meeting, but no important and unexpected decisions were taken. Interest rates remained unchanged and the stimulus program will continue to buy USD 120 billion worth of instruments per month, despite the high inflation in the country.
The new strain of the corona virus continued to spread at a rapid pace globally, with the weekly average of new cases rising from 521 to 582 thousand per day. The situation in the US continued to show a negative trend, with the weekly average of new cases rising from 49 to 76 thousand per day. The number of vaccinations administered in the country increased from 341 million to 345 million, with a change of only 4 million and no sign of acceleration despite the increase in the number of new cases. Overall in the US, the number of people vaccinated with at least one dose rose from 56.6% to 57.4% of the population, an increase of 0.8% per week. In Lithuania, the rate rose from 48.2% to 50.5%, a difference of 2.3%, indicating a return to the high vaccination rates seen in June. Interestingly, in England, where the Delta strain became widespread quite early, the number of cases has been falling in recent weeks, with the weekly average dropping from 40,000 to 28,000 per day.
The main currency pair EUR/USD reflected the sentiment of the US dollar and rebounded from the level of 1.175, appreciating all the way up to 1.190, although it finally ended the week's trading at the level of 1.187. Economic data in the Old Continent was good and pointed to a further recovery from the pandemic. The European economy grew by 13.7% in the second quarter compared to the same period a year earlier, while annual inflation reached 2.2%. The German Ifo business climate index stood at 100.8 points, up marginally from 101.7 last month. On the German labor market, the number of unemployed fell by -91 thousand and the unemployment rate dropped to 5.7%. The preliminary June German annual inflation rate rose to 3.8%. The EUR/USD pair ended the week trading up 0.9%.
The most important Asian pair USD/JPY depreciated mostly and corrected to the level of 109.4, although it finally ended the week's trading at 109.7 points. Economic data included the preliminary purchasing managers' indexes, which stood at 52.2 in the industrial sector and 46.4 points in the services sector. In June, retail sales grew by 0.1% year-on-year. USD/JPY ended the week's trading down -0.8%.
The British pound/US dollar pair appreciated to close at 1.398 points on Friday. No important economic data were published. GBP/USD ended the week up 1.1%.
This week will start with the manufacturing sector purchasing managers' index and German retail sales. No important data is scheduled for Tuesday, while on Wednesday the services purchasing managers' index and European retail sales are expected. The Bank of England is scheduled to meet on Thursday, while on Friday all attention will turn to US labor market data.
According to Admiral Markets market sentiment data, 40% of investors have long positions in EUR/USD (down -17 percentage points compared to last week). In the main Asian pair USD/JPY, 52% of investors have long positions (up 34 percentage points). In GBP/USD, 31% of participants expect a rise (down -3 percentage points). Such market data is interpreted as a contrarian indicator, so that EUR/USD and GBP/USD are likely to appreciate and USD/JPY to depreciate. The analysis of positioning data should be combined with fundamental projections and technical analysis.
Source: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com
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