U.S. dollar fell to lowest level since April, 2018
Last week, a sharp downward trend in the U.S. dollar was in the spotlight, which depreciated to the lows of the past several years. As stock markets remain at highs, investors maintain high demand for risky assets.
U.S. economic data was positive:
- The ISM manufacturing PMI stood at 57.5 points and suggested expansion
- Services stood at 58.4 points, also suggesting expansion
- 245 thousand new jobs were created in the labour market, falling short of market expectations of 610 thousand
- The unemployment rate fell to 6.7%
- The number of new jobless claims fell from 0.78 to 0.71 million per week
All in all, this data showed further recovery in the economy
The spread of the coronavirus showed no signs of slowing down:
- The number of new cases in the U.S. jumped to as high as 230 thousand a day, which is a new record, but it is closely linked to Thanksgiving and increased testing among family members during the holiday
- In India, for the fifth week in a row, the number of cases was stable at 40 thousand
- Brazil saw further growth to 42 thousand
- In Russia, a record was also set when the number of cases per day reached 28 thousand
- In France, the number of cases fell to 10 thousand
- In Spain, this number fell to 7 thousand
- In Italy, the number of cases fell to 21 thousand
This data suggests a decline in the second virus wave in Europe.
The main currency pair, EUR/USD, broke through the 1,215 level, the highest since May 2018. Considering PMI index data, the manufacturing sector in Germany reached 57.8 points, but the European index was lower, at 53.8 points.
The situation in the services sector was significantly worse, with the index falling to 41.7 points in Europe, reflecting relatively tight quarantine restrictions on the Continent. Preliminary annual inflation in Germany was -0.3% in November, and in Europe, it was also -0.3%, which suggests that deflationary pressures in Europe remain.
The EUR/USD pair ended the week appreciating +1.3%.
The most important Asian pair, USD/JPY, fluctuated very slightly at 104.0 points. Among the economic data were PMI indices:
- Manufacturing reached 49.0 points
- Services reached 47.8 points
- The unemployment rate in the country rose to 3.1%
The USD/JPY ended the week appreciating +0.1%.
The British pound appreciated against the U.S. dollar to 1,350 points. Among the economic data were PMI indices:
- The manufacturing sector was at 55.6 points and showed expansion
- The services index was at 47.6 points and reflected constraints, due to the virus
The difficulties in the services segment are well illustrated by last week's news, with the announcement of bankruptcy proceedings for Debenhams and Arcadia retail chains in England. The companies have been facing financial difficulties for some time, but the pandemic has particularly affected their operations and forced them to declare bankruptcy.
If the administrator doesn't find buyers for all or part of the Debenhams business, it's likely the network, with 124 stores, will be permanently closed and 12 thousand employees laid off.
Arcadia's situation is a little better, the company has declared a technical bankruptcy because it cannot meet its debt obligations, but business continuity is possible. Arcadia, which manages the Topshop brand, has 444 stores and about 13 thousand employees.
The GBP/USD ended the week appreciating +1.0%.
This week will begin with the results of China's international trade data, followed by German industrial output. The rest of the week will unfold as follows:
- Germany's ZEW economic index will be monitored on Tuesday
- Germany's international trade results will be monitored on Wednesday
- Industrial production volumes, monthly economic data and U.S. inflation rates will be expected on Thursday
- A meeting of the European Central Bank will also take place on Thursday, at which decisions on further economic stimulus are expected
- No important indicators were planned for Friday.
According to Admiral Markets market sentiment data:
- 29% of investors have long positions in the EUR/USD pair (up 17 percentage points from last week)
- In the main Asian pair, USD/JPY, 41% of investors have long positions (down 36 percentage points)
- In the GBP/USD pair, 34% of participants expect a rise (down 4 percentage points)
Such market data is interpreted as contraindicative, therefore, EUR/USD, GBP/USD and USD/JPY pairs are expected 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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