The USD continues to see trouble regaining value

January 04, 2021 10:00

Last week, sellers put pressure on the U.S. dollar and the global reserve currency fell to new lows in 2020.

Due to the holiday period and short work week, economic data in the U.S. was very limited. The most important were pending home sales, the volumes of which increased by about 16% compared to the same period a year ago. The country’s real estate market remains very active, with property prices rising by about 7% per year, loan interest rates falling by about -1%, and the number of homes sold in the market one of the lowest in a decade, reducing supply. The number of new jobless claims remained stable at 0.79 million a week.

USD

The spread of the coronavirus infection remains high. The situation in the United States remains relatively negative, with about 190,000 new cases of the virus recorded each day. The country has already vaccinated 3.5 million times and, although significantly behind schedule, is expected to catch up in the first quarter of 2021. The vaccination process is most advanced in Israel, where 10% of the population has already been vaccinated. In India, a further slowdown was recorded and the average number of cases dropped to 17,000. In Brazil, the trend remains stable at 35,000 cases per day. In Russia, it changed insignificantly and there were 28,000 thousand cases. In France and Italy, the situation was stable, but in U.K. further sharp growth was recorded at 57,000 per day.

Euro

The major currency pair EUR/USD rose briefly to new highs in 2020 in the second half of the week, at 1,230, but did not last long and depreciated on Thursday afternoon. Due to the important economic data of the festive period, the European data was not published. The EUR/USD pair ended the week up 0.3%.

JPY

The top Asian pair, USD/JPY, returned to 9-month lows and closed at 103.3 points. Among the economic news was the change in industrial volumes in November, which showed a contraction of -3.4% compared to the previous year. USD/JPY ended the week dropping -0.3%.

GBP

The British pound appreciated against the U.S. dollar and ended the week at 1,366-point level, the highest since April 2018. The holiday week was short and there was no economic data. On Thursday night, after the end of 2020, United Kingdom finally withdrew from the European Union, ending almost 5 years of divorce process. Zero import tariffs and zero quotas in trade are mostly applauded, but there are significant increases in administrative requirements, which will force businesses to incur higher staff, documentation and time costs at customs posts. Importantly, the current agreement does not cover the U.K. services sector, particularly finance, which alone paid around 75 billion GBP in taxes in 2018. GBP/USD ended the week up 0.8%.

Economic Events

This week will start with the actual results of the manufacturing PMI index. German retail and labor market data will be expected on Tuesday. Service sector PMI indices will be monitored on Wednesday, and the minutes of the last meeting of the U.S. Federal Reserve will be published in the evening. On Thursday, investors will expect preliminary inflation figures for Europe in December and retail sales in November. On Friday, the focus will be on U.S. labor market data: the number of new jobs created, the unemployment rate and the change in wages.

According to Admiral Markets market sentiment data, 60% of investors have long positions in the EUR/USD pair (increased +5 percentage points from last week’s data). In the main Asian pair USD/JPY, 48% of investors have long positions (up 7 percentage points). In the GBP/USD pair, 31% of participants expect a rise (down 5 percentage points). Such market data is interpreted as contraindicative, so GBP/USD is expected to rise, EUR/USD to fall, and the USD/JPY pair is expected to remain in a neutral position. 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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