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U.S. Dollar Did Not Show Signs of Direction

February 22, 2021 10:21

Fundamental Analysis

The U.S. dollar started quite positively last week, but sentiment didn’t last long and the world’s reserve currency has depreciated since Thursday. The value of the U.S. dollar index remains mostly unchanged since the beginning of 2021. 

USD

U.S. economic data has been fairly positive. In January, retail trade volumes grew by as much as 7.4% year-on-year and significantly exceeded market participants' expectations. It is noted that this month's growth was mainly driven by lower-income residents who received stimulus checks from the state, while households with incomes of more than 100,000 USD maintained fairly stable shopping volumes. Industrial production in January was -1.8% lower than the same period a year ago. The number of new jobless claims rose slightly from 0.79 to 0.86 million a week.

A further slowdown in the number of coronavirus cases was recorded. The weekly average for new cases in the U.S. has fallen from 99,000 to 70,000 a day. The number of people vaccinated in the country rose from 51.7 to 60.5 million, a change of 8.8 million, and the rate of vaccination has slowed slightly compared to last week. Overall, the number of people vaccinated with at least one dose in the U.S. rose from 11.2% to 12.7% of the population. Globally, Israel leads the public vaccination program with 47% of the population receiving at least one dose and the United Arab Emirates with 51%.

EUR

The main currency pair EUR/USD reflected the trends of the U.S. dollar, so it depreciated to 1,195 in the first half of the week, but later rose above 1,210 points. Among the economic data, there was a preliminary economic change in Europe in the last quarter of the year, which was -5.0% lower than in the same period a year ago, and for the whole of 2020, the economy shrank by -6.8% compared to 2019. The preliminary manufacturing PMI index was 57.7 points and service PMI was at 44.7 points. In December, industrial production volumes decreased by -0.8% year-on-year. The EUR/USD pair closed the week unchanged. 

JPY

The top Asian pair, USD/JPY, rose significantly in the first days of the week, but later lost some of its gains and ended the week at a 200-day moving average on a daily chart. Among the data was the change in the country's economy: in terms of the annual change in the fourth quarter, growth reached 12.7% and exceeded expectations, and in terms of the whole of 2020, the economy contracted by -4.8% compared to 2019. USD/JPY ended the week up 0.5%. 

GBP

The British pound continued to rise against the U.S. dollar and the pair reached 1.40 level after a break of almost 3 years. Economic data included annual inflation in January, which stood at 0.7% and slightly exceeded expectations, while retail sales were -5.9% lower than at the same time a year ago. The preliminary manufacturing PMI index was at 54.9 points and services was at 49.7 points. GBP/USD ended the week up 1.1%. 

Economic Events

This week will start relatively calmly and investors will monitor the German Ifo business index. Britain’s labor market data, actual European inflation, the U.S. consumer confidence index and a speech by Jerome Powell, the country's central bank chief, will be expected on Tuesday. New home sales in the U.S. are scheduled for Wednesday, and existing home sales are scheduled for Thursday. The results of Japanese industrial production will be monitored on Friday.

According to Admiral Markets market sentiment data, 35% of investors have long positions in the EUR/USD pair (increased +7 percentage points from last week’s data). In the main Asian pair USD/JPY, 52% of investors have long positions (increased +14 percentage points). In the GBP/USD pair, 21% of participants expect a rise (increased +5 percentage points). Such market data is interpreted as contraindicative, so EUR/USD and GBP/USD pairs are expected to rise and USD/JPY to depreciate. 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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