U.S. dollar has continued to depreciate
Last week, investors continued to look for risky assets and were selling U.S. dollars. The global reserve currency depreciated to its lowest point during Friday's trading session, which was last recorded only in May 2018.
Economic data in the U.S. varied. The change in the economy in the second quarter was very negative and the annual result was as low as -32.9% compared to the previous quarter, which was mainly due to the decline in domestic consumption. The consumer confidence index was 92.6 points and remained close to the lows of the last 4 months. The number of new jobless claims remained at 1.4 million a week.
Federal Reserve held a meeting, but there were no surprises and interest rates remained unchanged at 0%, and quantitative stimulus will continue to be actively used.
Also, there was a discussion among U.S. politicians about what to do next with unemployment benefits. Those who lost their jobs during the pandemic were paid increased benefits, adding 600 USD a week, which, according to many, were too high and did not motivate low earners to look for work because benefits fully covered their lost income. In the meantime, the term has expired and it is being decided how to proceed and what structure to apply in the coming months. Republican proposal to pay 70% of the previous salary is on the way, but this is a technical problem, as state systems are not yet able to provide such a calculation. Until this is achieved, it is planned to reduce the supplement from 600 to 200 USD, which will reduce unemployment benefits by about -40% on average and is likely to affect domestic consumption, which has so far shown a rapid recovery.
Coronavirus numbers showed signs of stabilization. In the U.S., the number of new cases dropped to 65,000 a day. In Brazil, the results were inconsistent, reaching a record one day and registered 70,000 new cases, but this number dropped to 42,000 by the end of the week. India is showing signs of further growth and the number of cases has risen to the level of 55 thousand. In Russia, the number of cases remained stable at 5.5 thousand per day.
The major currency pair EUR/USD largely reflected the trend of the U.S. dollar and reached the level of 1,190 on Friday. Among the data was a change in the European GDP in the second quarter, which stood at -12.1% year on year. Preliminary inflation in July was 0.4% per year. In Germany, retail sales showed a rapid recovery, while the labor market continued to contract and remained stable with an unemployment rate of 6.4%. The EUR/USD pair closed the week appreciating +1.1%.
The main Asian pair, the USD/JPY, broke below through the trading channel earlier this week, but recovered most of its losses on Friday. Among the economic news was retail sales, which fell -1.2% year-on-year. Industrial production volumes remained as low as -17.7% compared to the level a year ago. USD/JPY ended the week depreciating -0.2%.
The British pound has risen steadily against the U.S. dollar, reaching 1,315 on Friday, the highest level since March 2020. No significant economic indicators were published in Britain. GBP/USD ended the week appreciating 2.3%.
This week will begin with a change in the Japanese economy in the second quarter and the manufacturing PMI indices in the major economies. No major indicators were planned for Tuesday, and European retail data will be monitored on Wednesday. A meeting of the Bank of England will be held on Thursday. German and Chinese international trade figures are expected on Friday, followed by U.S. labor market data.
According to Admiral Markets market sentiment data, 37% of investors have long positions in the EUR/USD pair (increased +20 percentage points compared to last week's data). In the main Asian pair USD/JPY, 63% of investors have long positions (up 2 percentage points). In the GBP/USD pair, 36% of participants expect a rise (up 6 percentage points). Such market data is interpreted as contraindicative, so EUR/USD and GBP/USD are expected to rise and USD/JPY to fall. 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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