U.S. dollar continued its search for further direction
The U.S. dollar was volatile last week as it depreciated to a new quarterly low at the beginning of week, but then began to rise and ended the week appreciating in value. Economic data remained strong and encouraged the choice of riskier instruments.
U.S. economic performance was strong. The consumer confidence index stood at 117.2 points in May, down slightly from last month’s level, but nonetheless, the index is almost back to pre-pandemic levels. The personal consumption expenditures price index recorded a rise of 3.6% per year, the highest level in more than a decade. This index is closely monitored by the U.S. Federal Reserve, so a high score is likely to spark a broader debate about a possible reduction in the stimulus programme, to avoid overheating the economy. Sales of new homes amounted to 863,000 per year and remained stable at the level of the last six months. The number of new jobless claims fell from 0.44 million to 0.41 million a week.
Global spread of the coronavirus has continued to slow and the weekly average of new cases has fallen from 613,000 to 509,000 thousand per day. In India, the number of cases has decreased and dropped from 273,000 to 195,000 per day. The situation in the U.S. maintained a positive trend and the weekly average fell from 27,000 to 21,000 per day. The number of vaccines injected in the country rose from 282 million to 294 million, a change of 12 million. Overall, the number of people vaccinated with at least one dose in the U.S. rose from 48.6% to 50.3% of the population and increased by 1.7% over the week. In Lithuania, this indicator rose from 33.3% to 36.0% and the vaccination rate remained high.
The main currency pair EUR/USD reflected the overall market volatility, when it rose to 1,226 on Tuesday, but later buyers did not support the trend and on Friday the pair adjusted to 1,214. There was little economic data in Europe, although it included the German Ifo business climate index, which rose to 99.2 points, the highest level since April 2019, suggesting a particularly positive sentiment in the country. The EUR/USD pair closed the week with a rise of 0.1%.
The most important Asian pair USD/JPY was in a positive sentiment and rose to 109.9 in the second half of the week, the highest point since the beginning of April. Among the data was the country's central bank inflation rate, which eliminates changes in energy and food prices. The indicator stood at -0.2% per year and maintained negative deflationary sentiment. The unemployment rate rose slightly to 2.8%. USD/JPY ended the week with a 0.9% rise in prices.
The British pound and U.S. dollar pair consolidated in a narrow range between the 1.41 and 1.42 levels. No relevant economic data was planned to be published. GBP/USD ended the week appreciating +0.3%.
This week will start with South Korean and Japanese industry volumes, followed by the release of China’s actual manufacturing PMI indices. Also Monday is a non-working day in the U.S. and UK. Actual data on the manufacturing PMI indices of the major economies, as well as German retail and labor market indicators, and preliminary inflation in Europe in May, are expected on Tuesday. No important economic data is planned for Wednesday, and service sector PMI indices will be monitored on Thursday. On Friday, investors will direct their attention to the results of the U.S. labor market.
According to Admiral Markets market sentiment data, 34% of investors have long positions in the EUR/USD pair (up 0 percentage points from last week). In the major Asian pair USD/JPY, 24% of investors have long positions (down 26 percentage points). In the GBP/USD pair, 26% of participants expect a rise (down 17 percentage points). Such market data is interpreted as contraindicative, therefore EUR/USD, USD/JPY and GBP/USD 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
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