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U.S. dollar adjusted to 2-month lows

October 26, 2020 13:30

U.S. dollar adjusted to 2-month lows

USD

Last week, the U.S. dollar index fell below its 50-day moving average and reached its lowest level since early September.

U.S. economic data was mixed.

  • The country's secondary real estate market showed extremely high activity, with sales in September reaching 6.54 million a year, the highest level in a decade.
  • The median price of homes sold was 312 thousand USD and rose 15% year-over-year, mainly due to low stock of homes sold in the market.
  • The preliminary purchase index for industrial sector managers fell to 53.3 points, as did the services segment to 52.3, suggesting declining optimism among business participants for the coming months.

The number of new jobless claims fell from 0.90 to 0.79 million a week.

Coronavirus shows a further rapid spread in the world and the number of new cases has again set a record:

  • The number of cases in the U.S. rose sharply from 54 to 68 thousand per day, based on a 7-day average, and returned to a historic high
  • In most cases, California has overtaken Texas
  • In India, the spread of the virus has continued to slow and the weekly average fell from 65 to 53 thousand
  • In Brazil, the average number of new cases stabilized at 22 thousand per day
  • Russia saw further growth from 14 to 16 thousand a day.

In Europe, the situation deteriorated rapidly, with 20 thousand new cases in Spain and Italy and as many as 40 thousand in France.

Euro

The main currency pair EUR/USD strengthened to the level of 1,185 and ended the week above the 50-day moving average. Actual results were not included in the list of economic indicators - they mostly included sentiment and survey data.

The manufacturing PMI index rose slightly to 54.4 points, but the services recorded a fall to negative territory to 46.2 points, indicating an deteriorating situation due to the spread of the virus. The European consumer confidence index was -15.5 and remained at the lowest level of the pandemic and shows no signs of recovery.

The EUR/USD pair ended the week appreciating +1.2%.

JPY

The most important Asian pair, the USD/JPY, depreciated to September lows. Economic data included export volumes in September, which fell -4.9% year-on-year and are gradually recovering from pandemic lows. The annual inflation rate recovered slightly and was at a neutral level of 0.0%, which means that the pressure on the country's central bank remains. Preliminary manufacturing and services PMI indices remained in negative territory, reaching 48.0 and 46.6 points, respectively.

USD/JPY has ended the week with depreciating -0.7%.

GBP

The British pound strengthened against the U.S. dollar. Economic data included annual inflation of 0.5% and retail sales growing by 4.7% year-on-year.

GBP/USD ended the week appreciating +1.0%.

Economic events

This week will start with the German Ifo Business Climate Index, followed by the release of new home sales in the U.S. Here is what follows:

  • Tuesday: U.S. durable goods orders data and the country's consumer confidence indicators
  • Wednesday: No important data was scheduled for Wednesday
  • Thursday: Japan's retail sales and the country's central bank's monetary policy decision will be announced.
    • Subsequently, the results of the German labor market and the decision of the European Central Bank on the interest and incentive scheme will be released
    • Also, U.S. preliminary third-quarter economic data will be announced.

Preliminary data for the third quarter of the German economy and preliminary inflation figures for Europe in October are expected on Friday.

According to Admiral Markets, market sentiment data:

  • 19% of investors have long positions in the EUR/USD pair (decreased -38 percentage points compared to last week's data)
  • In the main Asian pair USD/JPY, 55% of investors have long positions (fell by -9 percentage points)
  • In the GBP/USD pair, 39% of participants expect a rise (down -12 percentage points)

Such market data is interpreted as contraindicative, so EUR/USD and GBP/USD are expected to rise and USD/JPY 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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