U.S. dollar fluctuated around a 2-year low

The U.S. dollar fluctuated within a narrow range last week when the market was low on liquidity due to the holiday season. The global reserve currency consolidated around the lowest point since April 2018.

USD

On the political front, members of the U.S. Congress managed to agree on a 908 billion USD economic stimulus program. It should include funding for small businesses, health check-ups, rent deferral taxes, as well as one-time per capita benefits of 600 USD and an increased unemployment benefit of up to 300 USD per week. The president is scheduled to sign the program earlier this week.

U.S. economic data was scarce. The country’s consumer confidence index was 88.6 and fell short of market expectations of 97.0 points. This is the lowest value of the index since August. Existing homes market activity remained high and annual home sales were 6.69 million a year in November, very close to business cycle highs. Sales of new homes, meanwhile, slowed to 841,000 a year, the third consecutive month in which total sales shifted from 1.0 million a year. The number of new jobless claims fell from 0.89 to 0.80 million a week.

Coronavirus activity has slowed somewhat in recent days, but this is likely to be related to less testing for the holiday period. The U.S. situation showed an improvement, with the average number of cases last week falling below 200,000 a day. In India, the positive trend continued, with the number of cases falling below the level of 25,000 per day. In Brazil, too, the number of cases has been lower in recent days than in the last month, which dropped to 35,000 a day. In Russia, the number of new cases remains stable at 29,000. In France, the situation is also stable and the rate of new cases remains relatively low at 15,000. Great Britain rose to sixth place, where the number of new cases jumped to as high as 36,000 a day, largely due to a new mutation in the virus that is more easily and quickly transmitted between people.

Euro

The main currency pair EUR/USD retreated from its highs to 1,218. In Europe, important economic data were not published due to the festive period. The EUR/USD pair ended the week down -0.6%.

JPY

The main Asian pair, USD/JPY, resisted the lows and rose to 103.6. Among the economic data were retail sales in November, which grew 0.7% year-on-year. The country's unemployment rate also fell from 3.1% to 2.9%. USD/JPY ended the week appreciating +0.4%.

GBP

The British pound started the week depreciating against the US dollar to 1.33 level, but news later emerged that England and the European Union had managed to find an agreement on international trade, prompting the pound to recover and the pair jumped to 1.356. This agreement must be approved by both the English Parliament and the European Union institutions before the end of the year for it to enter into force. This is expected to be done in a timely manner, allowing countries to trade duty-free and quota-free in the coming years and not hampering the movement of goods, but regulation and administration will increase, requiring more documentation, time and staff. No economic indicators were published. GBP/USD ended the week up 0.3%.

Economic Events

This week will start on Monday with data from Japanese industrial production. No indicators are planned for Tuesday and Wednesday, and data from the Chinese manufacturing PMI index will be expected on Thursday morning. Also, Thursday is New Year’s Eve, so some markets will not be open or close earlier, and Friday will be a non-working day.

According to Admiral Markets market sentiment data, 55% of investors have long positions in the EUR/USD pair (up 21 percentage points from last week’s data). In the major Asian pair USD/JPY, 41% of investors have long positions (down 17 percentage points). In the GBP/USD pair, 36% of participants expect a rise (down 4 percentage points). Such market data is interpreted as contraindicative, so GBP/USD and USD/JPY pairs are expected to rise and EUR/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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