U.S. dollar returned to quarterly low
Market optimism prevailed last week and investors were buyers of risky assets. This led to mass investor withdrawal from the U.S. dollar, which adjusted to a level of support last reached in March and early June, suggesting that the quarterly lows are being re-tested and pressure for the global reserve currency remains.
Economic data in the U.S. has been mixed and have suggested a gradual recovery in economic activity, but overall levels remain well below pre-pandemic levels. The inflation rate stood at 0.6% year-on-year in June, after adjusting for energy and food prices at 1.2%. In general, price growth trend demonstrates a marked slowdown, reflecting the deteriorating economic situation. If similar trends continue, this will be one of the biggest challenges for central banks, whose main task is to maintain a positive rise in prices in order to stimulate consumption at the current moment. Industrial production in June was -10.8% lower than in the same period a year ago. Retail sales in June recorded a rise of 1.1% year-on-year, suggesting that the situation is gradually improving. The number of new jobless claims remained at 1.3 million a week and still shows a significantly-higher-than-usual number of people applying for unemployment benefits.
The coronavirus situation continued to show signs of deterioration. The U.S. is the greatest concern, where the number of new cases has grown to 75,000 a day. Although the number of deaths remains stable so far, it is expected that an increase will be seen in the coming weeks, reflecting the rapid spread of the virus. Mandatory wearing of masks has been reinstated in the state of Texas, but politicians are avoiding the return of quarantine as this would significantly affect the financial situation of the population. San Francisco has announced that schools will not open in the fall season and students will be taught from home. Florida also ranks among the highest risk states in the country. In Brazil, the number of new cases has stabilized at about 40,000 a day, the country's president has become infected. India is experiencing further rapid growth and has reached 35,000 new cases per day. In Russia, the situation is stable and is recorded at about 6.5 thousand cases per day.
The main currency pair EUR/USD rose above the level of 1.14, reflecting the weakening trend of the U.S. dollar. Economic data in Europe did not promise rapid recovery, but showed moderate improvement. The ZEW sentiment index was 59.6 points and was at its highest level in the last 5 years. European inflation was only 0.3% in June and has remained at its lowest point since 2016. Industrial production in May fell by -20.9% year-on-year. A meeting of the European Central Bank also took place, but members decided not to make hasty decisions and wait for more economic data, so they did not make changes in interest rates and a stimulus program. EUR/USD has ended the week appreciating 1.1%.
The main Asian pair, USD/JPY, consolidated and continued to fluctuate around the 107 level. No significant economic news was announced, but investors' attention shifted to the country's central bank meeting. It decided not to change interest rates and stimulus levels as members expressed expectations that the economy would show a gradual recovery. According to the bank's forecasts, the economy is expected to shrink by -4.7% this year. USD/JPY has ended the week appreciating +0.1%.
The British pound adjusted against the U.S. dollar to the level of 1,256. Among the economic data were labour market results, which showed how many jobs were created after a few very poor months and the unemployment rate remained at 3.9%, which exceeded market expectations. GBP/USD ended the week trading at -0.5%.
This week will start early in the morning with Japan international trade data. June inflation will be announced in Japan on Tuesday. U.S. secondary real estate sales data will be monitored on Wednesday. No major news is scheduled for Thursday, with retail sales in England and preliminary manufacturing PMI data expected on Friday.
According to Admiral Markets market sentiment data, 21% of investors have long positions in the EUR/USD pair (down -16 percentage points from last week). In the main Asian pair USD/JPY, 59% of investors have long positions (increased +2 percentage points). In the GBP/USD pair, 38% of participants expect a rise (down -6 percentage points). Such market data is interpreted as contraindicative, therefore EUR/USD and GBP/USD are expected to appreciate 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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