Indicators are mixed as the USD strengthens

Last week investors bought the U.S. dollar and pushed the global reserve currency to retreat from several years of lows. Investors tended to return to safe-haven currencies as the stock market survived one of the worst weeks since the pandemic began.

USD

In the world's largest economy, the indicators were mixed. The ISM manufacturing PMI index jumped as high as 56.0 points, suggesting a marked improvement in business expectations. Such a rapid rise was driven by the new orders component, which reached 67.6 points. Labour market data were also positive, with 1.37 million new jobs created, leading to a fall in the unemployment rate from 10.2% to 8.4%. The number of new jobless claims fell slightly from 1.0 to 0.88 million a week. Worse news included a growing number of bankruptcies in the country, with as many as 45 U.S. companies with assets in excess of 1 billion USD announcing bankruptcy proceedings and creditor protection this year. This is more than at the same time in 2009, during the global economic crisis. As the number of bankruptcies grows, a wave of late payments and bad debts will spread throughout the economy.

Coronavirus data showed a slight increase in cases worldwide. The number of new cases in the U.S. has stopped declining and has risen to over 45,000 in recent days. In Brazil, the situation remained stable, while in India, growth continued and reached the level of 85,000 cases per day. Russia recorded a slight increase from 4.7 to 5.1 thousand per day. There is also an increase in cases across Europe: Spain, Italy, France.

Euro

The main currency pair EUR/USD reflected changes in market sentiment. On Tuesday, the pair tried to test the 1,200 level of resistance, the highest point since May 2018, but failed and ended the week under pressure from sellers at the 1,183 level. Among the economic data was the manufacturing PMI index, which stood at 51.7 points and suggested a moderate recovery. Preliminary August annual inflation was negative in Europe at -0.2% and in Germany at 0.0%. The European unemployment rate rose from 7.7% to 7.9%. Retail sales in Europe rose 0.4% year-on-year. The EUR/USD pair closed the week with a fall of -0.6%.

JPY

Asia's top pair, the USD/JPY, rose throughout the week, closing at 106.2. Among the economic news was the country's industrial change in July, which fell -16.1% from a year earlier. Retail sales fell -2.8% in July. The manufacturing PMI index was at 47.2 points and remained in negative territory. USD/JPY has ended the week appreciating +0.8%.

GBP

The British pound reflected market risk appetite, rising earlier in the week and then depreciating against the U.S. dollar. The manufacturing PMI index was at 55.2 points and hinted at a recovery, while the Services Sector rose further to 58.8 points. GBP/USD ended the week depreciating -0.5%.

Economic events

This week will start with China's international trade data, and the U.S. will have a non-working day. German export data will be released on Tuesday, which will make it possible to understand the viability of international trade in a pandemic environment. Preliminary economic developments for the second quarter of the European economy will also be published. No major indicators are scheduled for Wednesday, and a meeting of the European Central Bank will be held on Thursday. U.K. industrial output and U.S. inflation data are expected on Friday.

According to Admiral Markets market sentiment data, 39% of investors have long positions in the EUR/USD pair (increased 17 percentage points from last week's data). In the main Asian pair USD/JPY, 45% of investors have long positions (fell by -10 percentage points). In the GBP/USD pair, 29% of participants expect a rise (up 9 percentage points). Such market data is interpreted as contraindicative, therefore EUR/USD, GBP/USD and USD/JPY are likely to rise. 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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