The US dollar saw some appreciation last week
Price volatility in financial markets rose unexpectedly last week, prompting investors to reduce risk and sell their assets. Lower demand for risk has prompted market participants to return to safe-haven instruments and boosted demand for the U.S. dollar, which has risen to highs in the last 2 weeks.
The U.S. economic data was quite positive. The country's economy showed a recovery in the last quarter of 2020 and recorded preliminary annual growth of 4%, but the change for the whole of 2020 was negative and reached -3.5% compared to 2019, which was the first fall since the 2009 financial crisis. The consumer confidence index was 89.3 points and was in-line with market expectations. Overall, the index has remained marginally unchanged since April 2020 and suggested that sentiment among the population is not showing a recovery towards the heights of the cycle. The number of new jobless claims fell slightly from 0.90 to 0.85 million a week.
A meeting of the U.S. Federal Reserve was also held, but no important decisions were made. The interest rate was left in the lows at 0-0.25% and confirmed that it would keep the current rate of the bond repurchase program stable at 120 billion USD per month. Jerome Powell also mentioned that current stimulus measures will be applied at least until the inflation rate reaches the 2% threshold, and members expect to allow price rises to exceed this level before deciding to tighten monetary policy and reduce stimulus levels.
Coronavirus data showed a continuing slowdown of the spread. Tighter restrictions are contributing to this trend, as heads of state fear new outbreaks of the virus. The U.S. situation hinted at a further slowdown and the average number of cases over the past 7 days has dropped from 184,000 to 160,000 a day. The number of people vaccinated in the country rose from 19.8 to 28.9 million, a change of 9.1 million, almost 50% more than the previous week, indicating a further acceleration in vaccination rates and improving supply chains. In the United States as a whole, about 8.8% of the population has already been vaccinated. In Spain, the third wave continues and the number of new cases remains high. Among the more positive news was news from Russia, where the number has risen from 30,000 a day to 19,000, which the country's politicians called the success of the vaccination program and virus control, and the Moscow mayor announced plans to return normal life to the country's largest city soon. Around 91 million doses of the vaccine have been injected worldwide, and that level has risen from 60 million last week.
The major currency pair EUR/USD depreciated slightly to 1,210-point level and a 50-day moving average. Economic data in Europe included preliminary annual inflation in Germany in January, which stood at 1.0%, and labour market data, which showed a decline in unemployed numbers of 40,000 and a stable unemployment rate of 6.0%. The EUR/USD pair closed the week with a fall of -0.3%.
The most important Asian pair USD/JPY recorded a rather significant rise to 104.7 points and the highest point in the last 2 months. Economic data included retail sales in December, an annual change of -0.3%, and industrial production, which was -3.2% lower than a year ago. USD/JPY ended the week up 0.9%.
The British pound fluctuated very slightly against the U.S. dollar and the pair mostly consolidated around the 1,370-point level. Economic data included labour market results, which showed an increase in the number of unemployed by 7,000 and an increase in the unemployment rate in the country from 4.9% to 5.0%. GBP/USD ended the week up 0.2%.
This week will begin with the actual results of the manufacturing PMI index. Preliminary European economic data for the last quarter will be expected on Tuesday. Service sector PMI indices and preliminary European inflation data will be monitored on Wednesday. A meeting of the Bank of England will be watched on Thursday and U.S. labour market data on Friday.
According to Admiral Markets market sentiment data, 27% of investors have long positions in the EUR/USD pair (down -14 percentage points from last week's data). In the main Asian pair USD/JPY, 15% of investors have long positions (fell by -11 percentage points). In the GBP/USD pair, 47% of participants expect a rise (up 16 percentage points). Such market data is interpreted as contraindicative, so a rise in EUR/USD, GBP/USD and USD/JPY for all pairs is likely. 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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