World’s reserve currency moderately appreciated

Last week the U.S. dollar remained highly volatile. The global reserve currency started the weekly trading with a pessimistic sentiment, before later switching to positive, while on Friday the U.S. dollar briefly rose to its highest point in the last 3 weeks.

USD 

U.S. economic data continued to show a rapid recovery in the country’s activity. Actual PMI indices data hinted at further development: the ISM manufacturing PMI index was 61.2 points and services PMI was at 64.0. Interestingly, both showed further upward inflation pressure in the economy, with the price component of the index at 88 and 81 points, respectively. In total 559,000 new jobs were created in the country’s labour market in May, indicating a continued recovery and a return to active life. This figure somewhat disappointed the market, due to higher expectations, which amounted to 650,000. The unemployment rate fell to 5.8%, while the number of new jobless claims fell from 410,000 to 390,000 per week.

The global pandemic situation showed positive signs, with the weekly average of new cases falling from 509,000 to 446,000 per day. The U.S. trend remained positive and the weekly average fell from 21,000 to 15,000 per day. The number of vaccines injected in the country rose by just 5 million, from 294 million to 299 million, and the daily average fell to its lowest level since January. Overall, the number of people vaccinated with at least one dose in the U.S. rose from 50.3% to 51.1% of the population and increased by only 0.9% over the week.

Euro 

The main currency pair EUR/USD largely reflected the sentiment of the U.S. dollar, and it was characterised by rather large fluctuations during the week. On Friday, the pair briefly hit the 1,211 level and a 50-day moving average on the daily chart. In Europe, economic data included a manufacturing PMI index of 63.1 points and 55.2 points in the services sector, suggesting an overall recovery. Preliminary European annual inflation stood at 2.0% in May, up from 1.6% last month. The same indicator in Germany rose to 2.5% from 2.0% and the European unemployment rate fell to 8.0%. Moreover, the EUR/USD pair closed the week with a drop of -0.2%.

JPY 

The top Asian pair, the USD/JPY, looked further and consolidated around the 109.5 price level. Economic data included a change in industrial output, which grew by 15.4% year-on-year, and retail trade, which grew by 12.0% year-on-year. The actual PMI index was at 53.0 points in manufacturing and 46.5 in services. USD/JPY ended the week with a fall of -0.3%.

GBP 

The British pound and the U.S. dollar continued to consolidate and trading continued to be in the range between 1.41 and 1.42. Among the economic data were actual PMI indices: the manufacturing PMI was at 65.6 points and the services sector at 62.9, and both showed a very fast-recovering economy after the pandemic and austerity. GBP/USD ended the week with a depreciation of -0.2%.

Economic Events 

This week will begin with the results of China’s international trade and the German factory orders. On Tuesday, the focus will shift to the German and European ZEW Economic Sentiment Index. China's producer price index will be monitored on Wednesday, which will indicate a scale of inflation pressure from a manufacturing sector, and later German international trade data will be announced. The meeting of the European Central Bank, its decisions and comments on further policy, as well as the U.S. inflation indicators in May will receive a lot of attention on Thursday. The U.K. industrial production and the U.S. University of Michigan consumer sentiment index are planned on Friday.

According to Admirals market sentiment data, 36% of investors have long positions in the EUR/USD pair (up 2 percentage points from last week). In the main Asian pair USD/JPY, 53% of investors have long positions (up 29 percentage points). In the GBP/USD pair, 33% of participants expect a rise (up 7 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, Admirals MT4 Supreme Edition, investing.com

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