Markets show recovery as currencies consolidate
The world's reserve currency maintained its consolidative mood last week and moved around 12-month highs, although it briefly broke higher on Wednesday, when it reached its highest point since late September 2020. Overall, the US dollar continues to buck the general trend of high risk appetite in financial markets.
US economic data was good. The country's September retail sales were 14.0% higher than in the same period a year earlier. There is a lot of discussion in the market about disruptions in supply chains, which are partially reducing the availability of goods. One example of this, the car manufacturer Toyota reported an expected -15% drop in November production volumes due to a shortage of components. Another important data point was the September headline inflation rate, which stood at 5.4% year-on-year and has remained stable above the 5% level for the 4th month in a row. Contrary to what the central bank has been communicating, inflation is not retreating and remains high, and the shelter component is a significant contributor to this trend, which has shown a consistent recovery since the beginning of the year and accounts for as much as a third of the overall inflation index. The producer price index was also published, which rose by 8.6% year-on-year and recorded another new cycle high, suggesting that inflationary pressures from this sector are persisting and will continue to spill over to the rest of the economy. In the labour market, the shortage of workers remains severe, with the number of open positions at 10.44 million, only marginally retreating from historical highs. The number of new jobless claims fell further from 0.326 million to 0.293 million during the week.
The pandemic trend showed positive signs and the weekly average of global new cases fell from 408 to 402 thousand per day. Continental trends remained unchanged, with North America showing a -14% weekly decrease, Asia -8% and South America -19%, but Europe continued to grow and increased by +12% during the week. In the US, the data showed further improvement and the average dropped from 87 to 85 thousand per day. The number of vaccinations administered increased from 402 to 405 million, a change of 3 million. Overall in the US, the number of people vaccinated with at least one dose rose from 65.3% to 65.6% of the population, with a weekly increase of 0.3%. In Lithuania, the number of people vaccinated with at least one dose rose from 63.2% to 63.5%, a difference of 0.3%.
The main currency pair EUR/USD reflected the sentiment of the US dollar and depreciated to the level of 1.153 at the beginning of the week. Later, it recovered its losses and rose to the level of 1.160. Among the economic data in the Old Continent was the industrial production in August, which was 5.1% higher than at the same time a year ago. The ZEW economic sentiment index stood at 21.0 in Europe and 22.3 in Germany, both continuing their steady decline. The EUR/USD pair ended the week trading up 0.2%.
The most important Asian pair, USD/JPY, continued to show a strong appreciation sentiment, with the pair rising to the 114.2 level, the highest since October 2018. Economic data included the producer price index, which rose by 6.3% year-over-year, and the change in August industrial volumes, which reached 8.8% year-over-year. USD/JPY ended the week's trading up 1.8%.
The British pound and US dollar pair showed positive sentiment and appreciated consistently throughout the week, ending trading at 1.375. Important economic data included labour market indicators with the unemployment rate at 4.5% and average earnings rising by 7.2% year-over-year. Industrial production in August was 3.7% higher than a year earlier. GBP/USD ended the week trading up 1.0%.
This week will start with important economic data from China, where economic growth, industrial production and retail sales will be published. This will be followed by US industrial production data on Monday. There are no major releases scheduled for Tuesday, while inflation figures for England and Europe are due on Wednesday. On Thursday, investors will be watching US existing home sales and on Friday Japanese inflation, English retail sales and the preliminary results of the purchasing managers' index.
According to Admiral Markets market sentiment data, 59% of investors have long positions in EUR/USD (down -8 percentage points compared to last week). In the main Asian pair USD/JPY, 10% of investors have long positions (down -1 percentage point). In GBP/USD, 24% of participants expect a rise (down -22 percentage points). Such market data is interpreted as a contrarian indicator, so that EUR/USD is likely to fall and USD/JPY and GBP/USD to rise. The analysis of positioning data 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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