U.S. dollar was looking for direction
Last week started positively, which led to the dollar depreciating to new 3-month lows. But on Wednesday, with the release of U.S. inflation data, markets became restless, leading to both the correction of the country’s stock markets and the appreciation of the U.S. dollar. Nevertheless, this change in sentiment was brief and risk appetite increased again for the rest of the week.
U.S. economic data showed a rapid recovery and an improving situation. The biggest surprise for market participants was the country's annual inflation, which rose to 4.2%. The last time such price increases were seen was in 2008. Retail sales in April were as much as 51.2% higher than at the same time a year ago. This was largely due to the small base in 2020, as the country was closed at the time, due to the first wave of the pandemic. Another contributing factor were stimulus checks, which subsequently gave the population significantly more opportunities to spend. Other data in the country's labour market included the number of open job positions. It jumped to 8.1 million and was at its highest level since 2001, double the average of 4.6 million in the last 20 years. While companies return to the old rhythm of work, new employees are sought, but many of them are in no hurry to return because they receive generous unemployment benefits. The increased unemployment benefits that are currently in place will expire in September. The same trend is confirmed by data compiled by the U.S. Small Business Association - the index, which shows how difficult it is to find an employee, has reached 40 points, a new all-time high. The number of new jobless claims fell from 0.50 to 0.47 million a week.
The global spread of the pandemic continued to slow as the weekly average of new cases fell from 789,000 to 714,000 per day. India remained the focus, but new cases fell by about -15% from wave heights. The U.S. continued to show good data as the weekly average fell from 45,000 to 35,000 a day. The number of vaccines injected in the country rose from 255 to 268 million, a change of 13 million, even less than last week. Various initiatives have emerged in the country to support the pace of vaccination. Indeed, one of the most interesting incentives was in Ohio, where residents are set to take part in a lottery where as many as five people can win $1 million after receiving at least one dose of the vaccine. Overall, the number of people vaccinated with at least one dose in the U.S. rose from 45.3% to 46.8% of the population and increased by 1.5% over the week. In Lithuania, this indicator rose from 27.2% to 30.8%, representing one of the best weeks.
The main currency pair EUR/USD reflected the general market sentiment and adjusted to the level of 1,206 on Wednesday, but later returned to the 1,214-point level. Economic data in Europe included the European ZEW sentiment index, which stood at 84.0 points and was the highest in the last decade, as well as industrial production volumes, which were 10.9% higher than a year ago. In Europe as a whole, vaccination programmes are gaining momentum and economies are gradually opening up, giving a positive sentiment to the indicators. The EUR/USD pair closed the week with a fall of -0.2%.
The top Asian pair USD/JPY, reflecting global sentiment, rose to 109.7 points on Wednesday and peaked in the last month. For the rest of the week, it adjusted slightly to the 109.3 level. Economic data included household spending in March, which grew by 6.2% year on year. USD/JPY ended the week appreciating 0.7%.
The British pound and the U.S. dollar stood out, when the week started off a fairly significant rise from 1.40 to 1.415 and returned to 3-month highs. The further movement of the week reflected the general sentiment of the financial markets. Economic data included an annual growth rate of 3.6% in industrial production in March. GBP/USD ended the week appreciating 0.8%.
This week will start with important data from the Chinese economy: industry, trade and investment indicators. Preliminary growth results for Japan and Europe in the first quarter, as well as data from the English labor market, are expected on Tuesday. Meanwhile, on Wednesday, investors will monitor the volume of Japanese industrial production in March, as well as inflation in England in April, while awaiting the minutes of the last meeting of the U.S. Federal Reserve. Japan's export volumes are expected on Thursday, and preliminary PMI indices for major economies are expected on Friday.
According to Admiral Markets market sentiment data, 21% of investors have long positions in the EUR/USD pair (up 7 percentage points from last week). In the main Asian pair USD/JPY, 42% of investors have long positions (down 11 percentage points). In the GBP/USD pair, 28% of participants expect a rise (increased 2 percentage points). Such market data is interpreted as contraindicative, therefore EUR/USD, GBP/USD and USD/JPY pairs are expected to appreciate. 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
INFORMATION ABOUT ANALYTICAL MATERIALS:
The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admiral Markets investment firms operating under the Admiral Markets trademark (hereinafter “Admiral Markets”) Before making any investment decisions please pay close attention to the following:
- This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
- Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.
- With view to protecting the interests of our clients and the objectivity of the Analysis, Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
- The Analysis is prepared by an independent analyst, Skirmantas Paulavicius (analyst), (hereinafter “Author”) based on their personal estimations.
- Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis.
- Any kind of past or modeled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
- Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved.