U.S. dollar consolidated at its lows

August 10, 2020 16:00

Last week the global reserve currency showed a consolidation sentiment and trading was at a several years' low. The U.S. President announced during a weekend press conference that he would sign an executive order temporarily eliminating the payroll tax, continue to pay a supplement to unemployment benefit of 400 USD, and defer repayment of student loans. These measures are intended to help the population in the wake of the pandemic.


U.S. economic data was positive. The ISM manufacturing PMI index rose to 54.2 points, suggesting a rapidly recovering sector. Although the employee component remained below 50 points, which is likely to slow the labour market recovery, the new orders variable was at 61.5 points and improved the overall index result. Other important data came from the labour market, where 1.76 million jobs were created in the last month and the unemployment rate fell from 11.1% to 10.2%. The number of new jobless claims fell from 1.4 to 1.2 million a week.

Data from the virus situation suggested a slowdown and stabilization of the spread. The number of new cases in the U.S. continued to decline, averaging about 55,000 per day, well below the last high of 75,000. In Brazil, the number also dropped to about 50,000 a day. In India, meanwhile, growth has persisted and reached 60,000 cases per day. In Russia, about 5.2 thousand new cases are recorded every day.


The main currency pair EUR/USD has tested the resistance level of 1.19 several times, the highest since May 2018. Among the economic data was the manufacturing PMI index, which stood at 51.8 points. Retail sales grew 5.7% month-on-month and 1.3% year-on-year, suggesting that consumption volumes in the Old Continent are rapidly returning to previous levels. The EUR/USD pair closed the week appreciating 0.1%.


Major Asian pair USD/JPY showed consolidation signs as well and traded around 106.0 level. The manufacturing PMI increased to 45.2 points, but still remained in negative territory. Household spending decreased by -1.2% per year. USD/JPY finished the trading week increasing 0.1%.


The British pound also showed signs of consolidation and fluctuated at 1.31-level against the U.S. dollar. The manufacturing PMI index rose to 53.3 points. A meeting of the country's central bank also took place, but interest rates and the scope of the stimulus program remained unchanged. GBP/USD ended the week depreciating -0.3%.

Economic Events

This week will start calmly and investors will monitor China's inflation rates on Monday. On Tuesday, the focus will be on the British labour market performance and the European and German ZEW economic index data. The second quarter of the British economy and industrial production are expected on Wednesday, followed by U.S. inflation data. Germany and Spain will publish information on price increases on Thursday. Early on Friday morning, investors will watch important data from China, where the volumes of industrial production, investment and retail trade will be published, and later the focus will shift to the USA, where we will find out the results of retail trade and industrial production.

According to Admiral Markets market sentiment data, 40% of investors have long positions in the EUR/USD pair (increased 3 percentage points from last week's data). In the main Asian pair USD/JPY, 49% of investors have long positions (decreased by -14 percentage points). In the GBP/USD pair, 32% of participants expect a rise (down -4 percentage points). Such market data is interpreted as contraindicative, so EUR/USD and GBP/USD are expected to rise, and the sentiment in the USD/JPY pair is neutral. 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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