Reserve currency continued to depreciate

November 30, 2020 11:00

Reserve currency continued to depreciate

In the foreign exchange markets last week, the U.S. dollar continued to lose ground and depreciated to its lowest level since September, 2020, and May, 2018,. With optimism and a relatively high appetite for risk prevailing in the financial markets, investors are selling U.S. dollars and looking for riskier instruments and higher profit opportunities.

USD

U.S. economic data was positive:

  • The consumer confidence index fell slightly to 96.1 points and did not meet market expectations, but remains broadly at the same level it was in the last half of the year
  • The preliminary manufacturing PMI index was 56.7 points and suggested growth sentiment among businesses in this segment
  • Regional industrial sentiment indices compiled by the Federal Reserve's branches also showed growth in the Chicago, Kansas City, Richmond regions
  • New home sales have remained at their highest level since 2006, with annual sales reaching as many as 1 million homes in October
  • The number of new jobless claims continued to rise slightly from 0.74 to 0.78 million a week.

The coronavirus continues to spread rapidly:

  • The number of new cases in the U.S. stabilized at about 170,000 last week, but various social restrictions were still imposed in California
  • In India, for the fourth week in a row, the number of cases is stable at 43 thousand
  • Brazil is experiencing modest growth of up to 37,000 a day
  • In Russia, the spread of the virus is accelerating rapidly and in recent days about 25 thousand new cases have been recorded each day

Meanwhile, several European countries are showing signs of optimism, with France and Spain recording declining numbers of new infections.

Euro

The major currency pair, EUR/USD, has risen steadily over the past week, reaching the 1,195-point level, the highest level since early September. If the pair broke to the 1,200 level, then the euro would be the strongest it has been against the U.S. dollar since May, 2018.

Among the economic data, the preliminary results of the manufacturing PMI index stood at 53.6 points and remained in positive territory, but the service sector PMI was only 41.3 points and showed negative sentiment, mainly due to the introduction of quarantine measures in Europe.

The EUR/USD pair ended the week appreciating +0.9%.

JPY

The top Asian pair, USD/JPY, started to rise last week, but the positive sentiment did not last and the pair lost most of its gains in the remaining days. No economic news was published.

USD/JPY ended the week with a rise of 0.2%.

GBP

The value of the British Pound fluctuated slightly against the U.S. Dollar. After almost reaching 1.340 in the first half of the week, the highest since early September, the pair later depreciated.

The preliminary manufacturing PMI index was 55.2 and in the services sector 45.8 points. The country's finance minister, Rishi Sunak, said the economy is likely to shrink by about -11.3% this year, which will be the biggest drop in 300 years. Pre-crisis economic activity is expected to be achieved only by the end of 2022.

GBP/USD ended the week appreciating 0.2%.

Economic events

Here's how the week will unfold:

  • Services and manufacturing PMI indices in China, as well as U.S. pending homes sales data will be released on Monday
  • South Korean export data will be monitored early in the morning on Tuesday, followed by the PMI indices of the largest economies. This will include German labor market data and preliminary European inflation
  • Retail sales in Germany will attract attention on Wednesday and in Europe, as a whole, on Thursday
  • The results of the U.S. labour market, the number of newly created jobs and the unemployment rate will be expected on Friday.

According to Admiral Markets market sentiment data:

  • 12% of investors have long positions in the EUR/USD pair (down -24 percentage points from last week's data)
  • In the main Asian pair USD/JPY, 77% of investors have long positions (down 4 percentage points)
  • In the GBP/USD pair, 38% of participants expect a rise (up 11 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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