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U.S. dollar rose to 4-month high as the Euro stumbles

March 29, 2021 14:00

Last week was very positive for the U.S. dollar as the value of the reserve currency index rose +0.9% and reached its highest point since November 2020. In the first half of the week, sentiment in the U.S. stock market was more negative than usual, which gave the U.S. dollar favorable conditions to appreciate. 

USD

U.S. data were mixed, with some sectors of the economy showing a moderate slowdown and others showing a further recovery. Existing home annual sales were 6.22 million in February, down about -6% from the average of the last 5 months. New home annual sales were 775k and also showed a slowdown to its lowest level in the last 6 months. The lower activity is partly explained by the rise in interest rates, which have already reached the level of 3.36%, when at the beginning of January 2021 it reached 2.86%. Preliminary PMI indices were 59 points in the industry and 60 points in the services sector. Both showed rapid development and good expectations. The number of new jobless claims fell from 0.77 to 0.68 million a week.

There was also talk last week of a preliminary 3 trillion USD infrastructure investment plan prepared by Joe Biden’s team. It aims to increase economic productivity, reduce carbon emissions and reduce financial inequality in society. Much of the money would go to building clean energy sources, as well as about 1 trillion for the development and reconstruction of roads, bridges, trains and other transport infrastructure.

The global situation of the coronavirus has maintained a negative trend and the average number of new cases per week has risen from 462 to 536 thousand per day. The situation in the US eventually succumbed to general sentiment and the decline in new cases stabilized, with the weekly average rising slightly from 56 to 60,000 new cases per day. The number of vaccines injected in the country has risen from 118 million to 137 million, a change of 19 million, and the vaccination process has accelerated even further as vaccine production has grown. Overall, the number of people vaccinated with at least one dose in the United States rose from 23.3% to 27.0% of the population. Globally, the number of people receiving at least one dose in Israel rose from 57% to 58%, in England from 39% to 44%, and in Lithuania from almost 10% to almost 12%.

Euro

The main currency pair EUR/USD continued the depreciation trend and fell below the level of 1.18 and the 200-day moving average on the daily chart. Among economic data In Europe, there were preliminary PMI indices: 62.4 in manufacturing sector and 48.8 in services. The German manufacturing PMI scored 66.6 points and was at its highest level in more than 10 years. The German Ifo business index rose to 96.6 points and was at its highest level since June 2019. The EUR/USD pair closed the week with a fall of -0.9%. 

JPY

The top Asian pair, USD/JPY, consolidated at the beginning of the week, rising sharply above 109.5 on Thursday and Friday. Among the economic data were preliminary PMI indices: manufacturing PMI was at 52.0, and services PMI at 46.5. USD/JPY ended the week appreciating 0.7%.

GBP

The GBP/USD pair fell significantly below the 1,370-point level at the beginning of the week, but later rose to 1,380 points, where it finished trading at a 200-day moving average. Among the important economic data was the unemployment rate, which fell to 5.0%, the average wage rose by 4.8%, and annual inflation was 0.4% in February. Preliminary PMI indices were 57.9 in the industrial sector and 56.8 in the services sector. Retail sales fell -3.7% year-on-year in February. GBP/USD ended the week depreciating -0.6%.

Economic Events

This week will start fairly calmly and important data is not scheduled for Monday. Tuesday will start with Japanese retail sales data and the country's labour market indicators, followed by the release of preliminary German inflation data and the results of the U.S. consumer confidence index. Japanese industrial output indicators, China’s actual PMI index results, as well as German labour market data and preliminary European inflation in March, are expected on Wednesday. PMI index data for major economies will be monitored on Thursday. Friday will be quite calm as Easter is due in many states, but labour market data will be released in the U.S., which may be more volatile. 

According to Admiral Markets market sentiment data, 73% of investors have long positions in the EUR/USD pair (increased +22 percentage points from last week’s data). In the main Asian pair USD/JPY, 19% of investors have long positions (fell by 5 percentage points). In the GBP/USD pair, 38% of participants expect a rise (down 31 percentage points). Such market data is interpreted as contraindicative, so USD/JPY and GBP/USD pairs are expected to rise and EUR/USD is expected 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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