U.S. dollar remained in consolidation mode
Last week the U.S. dollar remained in the last 2-month trading channel, starting the week with a correction, but later recovered all weekly losses on Friday. With financial markets worried about rising bond yields, investors are withdrawing from stock markets, prompting a return of capital to the U.S. dollar, which is considered a safe investment.
U.S. data were relatively positive and showed a further gradual recovery in the economy. The consumer confidence index was 91.3 points, exceeded market expectations and last month's result. Sales of new homes in January amounted to 923 thousand per year and remained at 15-year highs. The number of new jobless claims fell from 0.86 to 0.73 million a week. Jerome Powell said in a statement in Washington that there is no need to worry about inflation in the country, as there are no preconditions for a rapid rise and the bank has the tools to control it.
Coronavirus data showed a stabilization of the situation, although improvement has slowed down. The weekly average for new cases in the U.S. remained stable at 70,000 per day. The number of vaccinations injected in the country rose from 60.5 million to 72.8 million, a change of 12.3 million, indicating a moderate increase in vaccination rates. Overall, the number of people vaccinated with at least one dose in the U.S. rose from 12.7% to 14.6% of the population. Globally, the population receiving at least one dose in Israel rose from 47% to 52%, in the United Arab Emirates from 51% to 56%, and in the U.K. to 30%.
The main currency pair EUR/USD rose in the first half of the week and reached the level of 1,224 on Thursday, the highest since the beginning of the year, but later depreciated rapidly and closed trading at 1,207-point level. Among the economic data in Europe was the German Ifo Business Climate Index, which rose to 92.4 points, but remained slightly unchanged over the past 9 months. Actual European inflation in January was 0.9% per year. Christine Lagarde, the head of the European Central Bank, mentioned that rising bond yields in member countries are being closely monitored, while other bank members have started talking about higher bond purchases to curb rising interest rates. The EUR/USD pair closed the week with depreciation of -0.4%.
The top Asian pair, USD/JPY, recorded further growth, rising to a 106.5-point level, the highest since August 2020. Economic data included a change in the country’s industrial output, which fell -5.3% year-on-year, and retail sales, which fell -2.4% year-on-year. USD/JPY ended the week appreciating 1.1%.
The GBP/USD pair was highly volatile, hitting 1.42 pips in the middle of the week, but falling to 1.39 at the end of the trade. There was not much economic data, and the focus was on labour market indicators, which showed a decrease in the number of unemployed by -20 thousand and an unemployment rate of 5.1%. GBP/USD has ended the week depreciating -0.6%.
This week will begin with the results of the manufacturing PMI indices. German retail sales data, the country's labour market indicators and preliminary European inflation in February will be monitored on Tuesday. Purchasing indices for service sector managers are expected on Wednesday to provide more information on how social constraints affect the sector. European retail sales will be released on Thursday, and the focus on Friday will be on U.S. labour market data.
According to Admiral Markets market sentiment data, 67% of investors have long positions in the EUR/USD pair (up 32 percentage points from last week). In the main Asian pair USD/JPY, 25% of investors have long positions (fell by -27 percentage points). In the GBP/USD pair, 54% of participants expect a rise (increased +33 percentage points). Such market data is interpreted as contraindicative, so EUR/USD and GBP/USD are expected to fall and USD/JPY to appreciate. 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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