US dollar continued its consolidation

Last week the world's reserve currency consolidated around a 4-month high and looked for further direction. Positive sentiment prevailed in the financial markets with the main US equity indices returning to new highs and the CRB commodities index also trading around the highs of the current bull cycle. However, such optimism has not had a significant negative impact on the value of the US dollar, which remained only marginally affected.

USD 

US economic data was scarce, but showed a continued strong economy. The preliminary manufacturing sector purchasing managers' index stood at 63.1 points, rising to yet another new high in this growth cycle. Existing home sales in June reached an annual level of 5.86 million and were up slightly from 5.78 million last month. Interestingly, the average house price rose by as much as 16.1% compared to the same period a year ago. The number of jobless claims unexpectedly rose from 360,000 to 420,000 during the week.

The pandemic statistics pointed to a slowdown in the spread of the virus, with the weekly average of new cases rising from 492,000 to 521,000 per day, and holding steady for the last few days. The situation in the US deteriorated quite significantly with the rapid spread of the delta strain, with the weekly average of new cases rising from 31,000 to 49,000 per day. The number of vaccines administered in the country increased from 337 million to 341 million, with a change of only 4 million and remained at the 2021 lows. Overall, in the US the number of people vaccinated with at least one dose rose from 55.9% to 56.6% of the population, with a weekly increase of 0.7%. Among other countries where the delta strain is particularly prevalent, England showed a decline in the number of new cases, with the weekly average dropping to 40 thousand per day from the high of this wave at 47,000.

Euro 

The main currency pair EUR/USD showed a negative sentiment and slightly depreciated. Economic data in the Old Continent was scarce and the focus on the preliminary readings of the manufacturing sector purchasing managers' index, which stood at 62.6 points in Europe and 65.6 points in Germany, both pointing to a strong growth. The European Central Bank held a meeting at which no major decisions were taken and no changes were made to interest rates or the size of the stimulus program. Investors' attention was focused on the press conference where Christine Lagarde said that the bank's policy will remain aggressive and stimulative until European inflation reaches a sustainable level of 2% over the longer term. The bonds purchase program will be implemented at a pace of €20 billion a month. The EUR/USD pair ended the week's trading down -0.3%.

JPY

The most important Asian pair USD/JPY started the week with a significant correction up to the 109.1 level, the lowest point since the end of May, but rose steadily for the rest of the week and ended trading in green. Economic data included June inflation, which came in at 0.2% annual growth and turned positive again after 8 months. Export growth in June was as high as 48.6% year-on-year basis. USD/JPY ended the week up 0.4%.

GBP 

The British pound and US dollar pair started the week with a significant correction to the 1.358 level, the lowest since February, but then recovered these losses to end the week marginally changed. Economic data included retail sales in June, which rose by 9.7% over the year, and the preliminary manufacturing purchasing managers' index, which stood at 60.4 points and suggested growth. GBP/USD ended the week down -0.1%.

Economic Events 

This week will start with the German Ifo Business Climate Index and the US New Home Sales figures. On Tuesday, the US durable goods orders and the country's consumer confidence index are due. On Wednesday, attention will turn to the minutes of the last US central bank meeting for clues on further monetary and stimulus policy and changes to it. On Thursday, the German labour market data, preliminary German inflation and preliminary US economic growth figures for the second quarter will be monitored. Friday will start with Japanese industrial production and retail sales data, followed by preliminary European and German economic growth data for the second quarter and the US Personal Consumption Expenditures index.

According to Admiral Markets market sentiment data, 57% of investors have long positions in the EUR/USD pair (up 15 percentage points compared to last week). In the main Asian pair USD/JPY, 18% of investors have long positions (down -13 percentage points). In GBP/USD, 34% of participants expect a rise (down -45 percentage points). Such market data is interpreted as a contrarian indicator, so a depreciation of EUR/USD and an appreciation of GBP/USD and USD/JPY is expected. 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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