The global reserve currency retreated from highs

Last week, the U.S. dollar index adjusted from several-month highs. With good market sentiment and stock markets recording new all-time highs, investors opted for riskier currencies and tended to sell the U.S. dollar. 

USD

There were not much economic data in the U.S. The main focus was on the country's annual inflation, which rose slightly to 1.4% in January, but fell short of market expectations of 1.5%. The Consumer Confidence Index calculated by the University of Michigan was at 76.2 points, below the market's 80.8 forecasts and remained relatively stable over the past six months. The number of new jobless claims was stable at 0.79 million a week. 

Coronavirus news showed a further slowdown in the spread of the world. The weekly average for new cases in the U.S. has dropped from 119,000 to 99,000 per day, the lowest point in the last 3 months. The number of people vaccinated in the country rose from 40.5 to 51.7 million, and the rate of vaccination was stable compared to the previous week. Overall, about 11.2% of the population in the United States has already been vaccinated with at least one dose. Around 174 million doses of the vaccine have been injected worldwide, a level that has risen from 128 million last week. Israel, the United Arab Emirates and the United Kingdom continue to lead in terms of vaccination. 

Euro

The main currency pair EUR/USD appreciated moderately and reached the level of 1,215 points. Among the economic data in Europe was the volume of industrial production in Germany in December, which was -1.0% lower than a year ago. The country's exports were 0.1% higher in December compared to November, driven mainly by demand for goods from China and the United States. German exports for the whole of 2020 were -9.3% lower than a year ago and reflected the impact of the pandemic and austerity on the economy. The EUR/USD pair closed the week with a rise of 0.6%. 

JPY

The most important Asian pair USD/JPY started a correction last week and depreciated to the level of 104.5, but later recovered slightly and rose to 105.1. Economic data was scarce, and included an average change in household earnings, which fell by -3.2% and fell short of market expectations. The cost of the country's industrial production fell by -1.6% year-on-year, which suggests deflationary pressures. USD/JPY ended the week with a fall of -0.5%. 

GBP

The British pound appreciated against the U.S. dollar and the pair rose to the level of 1,385 points, the highest point since April 2018. Among the data was the change in the country’s economy in 2020, which was -9.9% compared to 2019. It was the largest one-year correction in 300 years and the size of the economy has returned to 2013 levels. Activity is likely to recover significantly after the end of the pandemic, when social constraints will be released, which have been particularly severe in the country due to the spread of virus mutations. Among other news were industrial production, which fell -3.3% year-on-year in December, and investment, which was -10.4% lower in the fourth quarter than a year ago, prompting concern among business participants. GBP/USD ended the week up 0.8%. 

Economic Events

This week will start with Japan’s preliminary GDP results and industrial production data. Monday will also be a U.S. holiday. On Tuesday, the data of the German ZEW index and the results of the European economy in the fourth quarter and in 2020 will be monitored. Japan's export figures, U.K. inflation and U.S. retail sales and industrial production volumes are expected on Wednesday. The minutes of the last meeting of the U.S. Federal Reserve will also be announced on Wednesday evening. No important data is scheduled for Thursday, and English retail sales and preliminary manager purchase indices for major economies are expected on Friday. 

According to Admiral Markets market sentiment data, 28% of investors have long positions in the EUR/USD pair (down 3 percentage points from last week). In the main Asian pair USD/JPY, 38% of investors have long positions (up 20 percentage points). In the GBP/USD pair, 16% of participants expect a rise (down 1 percentage point). Such market data is interpreted as contraindicative, so a rise in EUR/USD, GBP/USD and USD/JPY pairs is likely. 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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