U.S. dollar bounced higher from the lows

January 11, 2021 10:30

The global reserve currency began depreciating last week to its lowest point since March 2018, as financial markets were optimistic and investors had high-risk sentiment, prompting market participants to sell the safe currency - U.S. dollar. Nevertheless, on Wednesday and for the rest of the week, the U.S. dollar found support levels and rebounded slightly from its lowest point in nearly 3 years.


Economic data in the U.S. varied. The ISM manufacturing PMI index was at 60.7 points and exceeded expectations and suggested further growth. The services sector index was 57.2 points and also showed rapid growth despite record pandemic numbers. Labour market figures were worse than previously and the country lost 140,000 jobs in December, the first negative month since April 2020. The unemployment rate remained at 6.7%. The number of new jobless claims remained stable at 0.79 million a week.

The spread of the coronavirus intensified in early January after a calmer festive period. The U.S. weekly average rose to 246,000, and the number of one-day cases reached 300,000 on Friday, according to data. In India, the number of new cases has stabilized at the level of 18 thousand per day. Much attention is being paid to the United Kingdom, which is witnessing a new mutation in the virus that is spreading extremely rapidly, and the country currently has about 60,000 cases per day. It is estimated that 19 million doses of the vaccine have already been injected worldwide, and 7.1 million in the U.S., a significant increase from the 3.5 million level last week.


The main currency pair EUR/USD had risen to 1,235 points in the first half of the week, but later lost the gains and ended the week at 1,222 points. Among the economic data in Europe was the manufacturing PMI index, which stood at 55.2 points and indicated growth. The services sector index was 46.4 points and, although up from last month, still remained in negative territory. European preliminary annual inflation was negative at -0.3% in December. The EUR/USD pair ended the week unchanged.


The most important Asian pair, USD/JPY, largely reflected U.S. dollar trends and depreciated at the beginning of the week, but then rebounded. Among the economic data was the manufacturing sector PMI index, which was 50.0 points, and the services sector, which was 47.7 points. USD/JPY ended the week up 0.6%.


The British pound hit 1,370 against the U.S. dollar on Monday, but later depreciated for the rest of the week and lost positions. Among the economic data was the manufacturing PMI index, which stood at 57.5 points and showed growth. The service sector had 49.4 points and showed only a very limited negative impact of quarantine on sentiment. GBP/USD ended the week with depreciation of -0.7%.

Economic Events

This week will start fairly calmly and important economic indicators are not planned on Monday and Tuesday. European industrial production data and U.S. inflation figures for December will be expected on Wednesday. On Thursday, the focus will shift to preliminary data for the fourth quarter of the German economy. The results of industrial production in U.K. will be monitored on Friday, followed by U.S. retail sales and industrial production.

According to Admiral Markets market sentiment data, 38% of investors have long positions in the EUR/USD pair (down -22 percentage points from last week). In the main Asian pair USD/JPY, 39% of investors have long positions (fell by -9 percentage points). In the GBP/USD pair, 50% of participants expect a rise (up 19 percentage points). Such market data is interpreted as contraindicative, so EUR/USD and USD/JPY are expected to rise and the GBP/USD pair remains 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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