U.S. dollar did not withstand market optimism

Last week the U.S. dollar did not maintain the upward trend and depreciated to the lows of the last 2 months. Optimism in the financial markets and positive economic data are forcing investors to choose riskier instruments to sell the U.S. dollar, which is considered a safe currency.

USD 

U.S. data remained strong, suggesting a continued economic recovery, although it was not in line with higher market expectations. The actual ISM PMI index data in the country's manufacturing sector was 60.7 points and slowed down relatively from the previous month's level of 64.7, but generally suggested good sentiment and growth. Among the components of the index, the price component stood out the most, rising to 89.6 points and indicating further accelerating inflation in the supply chain and among raw materials, which will very likely pass on to the final product. This level of the price component was last recorded in 2008, when oil cost was at 140 USD a barrel. The country's labour market data was also published - 266,000 new jobs were created in April, which did not reach 978,000 market expectations. The unemployment rate was at 6.1%. The country’s trade deficit reached 74.4 billion USD in March and was the largest since 1992. The number of new jobless claims fell from 0.53 to 0.50 million a week. 

Acceleration of the coronavirus pandemic last week showed a moderate slowdown, with the number of new cases worldwide falling from 825,000 to 789,000 per day. These figures were most strongly affected by India, which continued to record 400,000 new cases daily and exponential growth ended, at least for now. The number of cases in the U.S. continued to decline, with the weekly average falling from 54,000 to 45,000 a day. The number of vaccines injected in the country has risen from 240 to 255 million and the change is 15 million, far less than in recent months. In the country, the vaccination process is losing momentum as people who have been most waiting for the vaccine have been vaccinated and it is becoming increasingly difficult to attract a more conservative section of the population. Overall, the number of people vaccinated with at least one dose in the U.S. rose from 43.6% to 45.3% of the population and increased by 1.7% over the week. In Lithuania, this indicator increased from 24.5% to 27.2%, when the amount and stability of supplied vaccines increased significantly.

Euro

The main currency pair EUR/USD consolidated at the beginning of the week, but grew significantly on Thursday and Friday and closed at 1,216 points, the highest point since the end of February. Among the economic data in Europe were actual manufacturing PMI indices: 62.9 points in Europe, slightly more than 62.5 last month and the highest since 1997, when data collection began, and 66.2 points in Germany, showing further recovery despite the country's tight quarantine constraints. Retail sales in Germany grew by as much as 11.0% in March, and in Europe by as much as 12.0% year-on-year. The EUR/USD pair closed the week with a rise of -1.2%.

JPY

The top Asian pair USD/JPY consolidated above the 109.0-point level at the beginning of the week, but later depreciated to 108.4, reflecting the sentiment of the weakening U.S. dollar. No relevant economic data was published. USD/JPY ended the week with a fall of 0.7%.

GBP

The British pound and the U.S. dollar traded around the 1,390-point level, just reaching 1,400 on Friday, coupled with a strong impulse to the devaluation of the U.S. dollar. Economic data included sector PMI indices, which stood at 60.9 points in manufacturing and 61.0 in services sectors. The central bank did not change its monetary and stimulus policies. GBP/USD ended the week appreciating 1.2%.

Economic Events

This week will start calmly and important data is not scheduled for Monday. Inflation in China and spending by Japanese households along with the German ZEW Economic Sentiment Index will be expected on Tuesday. Wednesday will bring the data on the first quarter of the British economy and industrial production, as well as actual U.S. inflation data in April. No important indicators were planned on Thursday, and U.S. retail sales data and the country’s industrial output will be monitored on Friday.

According to Admirals market sentiment data, 14% of investors have long positions in the EUR/USD pair (down as much as 51 percentage points compared to last week's data). In the main Asian pair USD/JPY, 53% of investors have long positions (up 21 percentage points). In the GBP/USD pair, 26% of participants expect a rise (down 46 percentage points). Such market data is interpreted as contraindicative, so 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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