U.S. dollar was looking for further direction

July 12, 2021 12:00

Last week the global reserve currency showed differing sentiment. In the first few days it appreciated and reached the highest value since the beginning of April, but it later depreciated quite significantly and lost the positive result of the whole week, ending in red. Strong economic data around the world encourages investors to maintain riskier positions that promise better returns than safe instruments in current circumstances.


U.S. economic data remained positive and indicated growth. The service sector PMI index was at 60.1 points and, despite declining slightly, remained in the high-growth zone. The number of new jobless claims was stable at 370,000 per week.

Pandemic trends remained negative as more and more states began to spread the delta virus strain, while the weekly average of new cases rose from 381,000 to 425,000 per day. The situation in the U.S. continued to reflect global sentiment and deteriorated moderately, with the weekly average of new cases rising from 14,100 to 18,000 thousand per day. The number of vaccines injected in the country rose from 329 million to 333 million, a change of only 4 million, significantly less than in the previous week, and fell to its lowest level since the beginning of the year. Overall, the number of people vaccinated with at least one dose in the U.S. rose from 54.7% to 55.3% of the population and increased by 0.6% over the week. In the U.K., the weekly average number of infections rose to 29,000 per day, and in Russia there was an increase to 24,000.


The main currency pair EUR/USD depreciated at the beginning of the week and reached the level of 1,179 on Wednesday, the lowest point since the beginning of April. Nevertheless, the remaining trading session was marked by a positive sentiment and the pair moved up and compensated for all the week’s losses. Among the economic data in Europe were the actual service sector PMI indices, which rose to 58.3 points in Europe and 57.5 in Germany, and which is at many year highs. In May, European retail sales grew 9.0% year-on-year and exceeded market expectations. The European ZEW Economic Sentiment Index was 61.2 points and has retreated from the highs of recent months. The EUR/USD pair closed the week with a rise of 0.1%.


The main Asian pair, USD/JPY, depreciated and briefly hit a low in the past month on Thursday. Among the economic data was the actual service PMI index data, which rose to 48.0 points, but it still failed to reach positive territory. Household expenditure indicators were also published, showing an annual increase of 11.6%. USD/JPY ended the week with a fall of 0.8%.


The British pound rose against the dollar to 1,390 USD level, although it reached full growth in one day on Friday, after a relatively quiet week. Among the economic data was a change in industrial output, which rose 20.6% year on year, with the trade deficit shrinking to $8.5 billion in May from $11 billion the previous month. GBP/USD ended the week appreciating 0.5%.

Economic Events 

This week will start with the Japanese Production Price Index. China's international trade indicators will be expected on Tuesday, and Japanese industrial production is scheduled for Wednesday, and inflation in England in June. Investors will also be monitoring the U.S. Production Price index on Wednesday, which will provide an outlook for inflation. Meanwhile, Thursday will start with important data from China, where industrial production, retail and economic growth indicators will be published, followed by a monitoring of the situation in the U.K. labour market and data on U.S. industrial production. A meeting and press conference of the Bank of Japan will be watched on Friday, followed by inflation data in Europe in June and U.S. retail sales data.

According to Admirals’ market sentiment data, 33% of investors have long positions in the EUR/USD pair (down -17 percentage points from last week's data). In the main Asian pair USD/JPY, 53% of investors have long positions (up 13 percentage points). In the GBP/USD pair, 21% of participants expect a rise (down -26 percentage points). Such market data is interpreted as contraindicative, so EUR/USD and GBP/USD are expected to appreciate and USD/JPY to depreciate. 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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