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U.S. dollar has appreciated amid growing anxiety in markets

November 02, 2020 12:30

U.S. dollar has appreciated amid growing anxiety in markets

Last week, financial markets were characterized by higher than usual volatility, which was mostly negative and worried investors about future prospects. This prompted market participants to return to the position of the U.S. dollar, which led to a rise of the global reserve currency.

USD

U.S. economic data was good and showed moderate recovery in activity. The most anticipated metric was the change in the volume of the economy in the third quarter of 2020, which informs investors about the pace of recovery. Growth was 33.1% compared to the second quarter of the year, which was historically poor, leading to a historically good third quarter.

Other metrics included:

  • The consumer confidence index was 100.9 points and changed insignificantly compared to last month's data, but did not reach the market's expectations of 102 points
  • Annual sales of new homes amounted to 0.96 million and remained at the highest level since 2007
  • The number of new jobless claims fell from 0.79 to 0.75 million per week.

Many economists believe that the country's overall activity remains at a lower level than it was before the pandemic.

The coronavirus remains the focus of media and investor attention. The virus is spreading rapidly in many parts of the world, forcing stricter restrictions that will undoubtedly affect economic activity:

  • The number of cases in the U.S. continued to move rapidly and recorded new heights, reaching almost 100,000 cases a day at the end of the week. Based on a 7-day average, it rose from 68,000 to 81,000 per day.
  • In India, the spread of the virus continued to slow and the weekly average fell from 53,000 to 46,000
  • In Brazil, the average number of new cases remains stable at 23,000 per day
  • Russia is seeing further growth in its weekly average from 16,000 to 17,000 a day, with a new daily record of around 18,000 recorded in recent days.

In Europe, the virus is spreading extremely fast, and major countries are gradually taking tough action to reduce the burden on health. In France, the number of infections is as high as 50,000 a day, and in Spain it is 25,000.

Euro

The main currency pair, EUR/USD, depreciated to the level of 1.165, the lowest point since the end of September. If the pair falls below the 1.160 level, that would be its weakest value since July.

Economic data included:

  • Preliminary European inflation, which was negative at -0.3%
  • The economy declined -4.3% in the third quarter, compared to a year ago, but exceeded market expectations of -7.0%
  • The Ifo index of the German business climate was 92.7 points and changed only slightly compared to the results of recent months.

Other data from Europe's largest economy included labor market figures showing that the count of unemployed fell by 35 thousand and the unemployment rate fell to 6.2%.

There was also a meeting of the European Central Bank, at which it was decided not to change interest rates, which remained negative at -0.5%, and not to change the volume of the quantitative stimulus program, which remained at 1.35 trillion EUR.

Subsequently, reports appeared in the press that the bank's members would submit more changes at the December meeting, including a possible increase in the volume of the incentive program by 500 billion EUR and an extension of 6 months until the end of 2021.

The EUR/USD pair ended the week dropping -1.8%.

JPY

The most important Asian pair, USD/JPY, depreciated but recovered some of its losses in the last days of week.

There was little economic data. Investors watched the meeting of the country's central bank, at which members did not change monetary policy, but worsened the economic forecast for 2020 from -4.7% to -5.5%. However,they improved the expected recovery in 2021 from 1.6% to 3.6%.

USD/JPY ended the week with a drop of -0.1%.

GBP

The British pound depreciated against the U.S. dollar and reached 1.295 points. There was no relevant economic data.

GBP/USD ended the week dropping -0.7%.

Economic events

This week will start with the manufacturing PMI index data. Here is what to pay attention to the rest of the week:

  • Tuesday: There will be a vote in the U.S. presidential election
  • Wednesday: No major results are scheduled
  • Thursday: European retail sales and the outcome of the Bank of England meeting
  • Friday: U.S. labor market data

These are the key events investors will be paying attention to this week.

Let's look at the market sentiment data. According to Admiral Markets:

  • 72% of investors have long positions in the EUR/USD pair (increased 53 percentage points from last week's data)
  • In the main Asian pair, USD/JPY, 59% of investors have long positions (up 4 percentage points)
  • In the GBP/USD pair, 45% of participants expect a rise (up 6 percentage points)

Such market data is interpreted as contraindicative, so GBP/USD is expected to rise and EUR/USD and USD/JPY to fall. 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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