Investors remained buyers of the U.S. dollar last week and the world's reserve currency rose to its highest point since mid-August. Worse-than-usual sentiment in the stock market and other riskier assets has led market participants to choose safer instruments, including the U.S. dollar.
There was not much news in the world's largest economy. Among the most important were inflation rates in August. Inflation rose to 1.3% year on year, exceeding expectations. Excluding food and energy prices, inflation was 1.7%, with second-hand car prices and furniture growing the most. The number of new jobless claims will remain stable at 0.9 million per week.
The number of new cases of the coronavirus in the world has remained at an all-time high. In the U.S., there was a visible slowdown in the spread, with an average of 35,000 cases per day over the last 7 days.
India has become the second most prevalent country with no slowdown in the spread of the virus, averaging 7,000 over 7 days. In Brazil, the number of new cases slowed down to 27 thousand, while in Russia a slight increase to 5.2 thousand. In Europe, trends have diverged, with Spain declining, Italy remaining stable and France growing rapidly above the numbers of the first wave.
The main currency pair EUR/USD remained in the trading channel in recent months, at the lower support level of 1,175. Among the news was a preliminary change in the European economy in the second quarter, which stood at -11.8% compared to the first quarter of 2020. German export volumes in July were -11% lower than a year ago, but compared to the previous month, the rise was 4.7% and it was the third positive month in a row.
The minutes and decisions of the European Central Bank meeting were announced on Thursday - interest rates and the quantitative stimulus program remain unchanged as expected. The EUR/USD pair closed the week appreciating +0.1%.
The top Asian pair, USD/JPY, has consolidated at 106.0-point level, which has been supporting for the past few weeks. Economic indicators included household spending, which fell by -7.6% year-on-year, while average earnings fell by -1.3%. USD/JPY has ended the week with depreciating -0.1%.
The British pound depreciated sharply against the U.S. dollar as investors became increasingly worried about the Brexit situation, due to growing confrontation between the U.K. and Europe, the country's main export market.
Economic data included industrial production in July, which contracted by -7.8% year on year. The economic recovery continued with 6.6% growth in July compared to June, which is a positive sign, although the overall economic level remains about 11% lower than before the pandemic. GBP/USD lost as much as -3.6% per week.
This week will start with the change in Chinese house prices, Japanese and European industrial output. South Korean export data and Chinese industrial, retail and investment indicators, as well as British labor market data and U.S. industrial production will be monitored on Tuesday. Inflation in the U.K., U.S. retail sales data will be expected on Wednesday, with a meeting of the U.S. Federal Reserve and a press conference receiving particular attention.
On Thursday, a meeting of the Central Bank of Japan and England will take place and European inflation data will be also announced. Friday will be calmer and retail trade data will be watched in the U.K.
According to Admiral Markets market sentiment data, 43% of investors have long positions in the EUR/USD pair (increased +4 percentage points from last week's data). In the main Asian pair USD/JPY, 41% of investors have long positions (decreased -4 percentage points). In the GBP/USD pair, 52% of participants expect a rise (increased +23 percentage points).
Such market data is interpreted as contraindicative, so EUR/USD and USD/JPY pairs are expected to rise and GBP/USD 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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