US dollar appreciates after labour market data

Last week saw the return of US dollar buyers to the currency markets, with the world's reserve currency appreciating and recovering most of the previous week's losses, despite high-risk appetite in overall financial markets. 

USD 

US economic data continued to be strong and pointed to continued economic growth. The labour market added 943 thousand new jobs in July, above market expectations of 870 thousand. The unemployment rate fell to 5.4%. The ISM Purchasing Managers' Index stood at 59.5 points in the manufacturing sector and 64.1 in the services sector, both pointing to a sustained growth sentiment among businesses. The number of new jobless claims fell from 0.40 to 0.385 million during the week.  

The momentum of the pandemic maintained the positive trend and pointed to a further increase in cases, with the weekly average of new infections rising from 582 to 624 thousand per day. In the US, the situation remained negative, with the weekly average of new cases rising from 76 to 105 thousand per day. Florida was the epicentre of the pandemic in the country, accounting for about a quarter of the new infections. The number of vaccines administered in the country increased from 345 million to 350 million, a change of 5 million per week. Overall in the US, the number of people vaccinated with at least one dose rose from 57.4% to 58.4% of the population, an increase of 1.0% per week. Looking only at adults, the US has reached its target and 70% now have at least one or a full vaccination against the virus. In Lithuania, the number of people vaccinated with at least one dose rose from 50.5% to 53.0%, a difference of 2.5%, and the rate of vaccination has accelerated as the country prepares to tighten restrictions on the unvaccinated population. In Lithuania, 63% of the population has already received at least one dose of vaccine, based only on people aged 18 years and older. In England, the drop in new infections has stabilised at 26 thousand, while in the Netherlands, where the number of new infections was back to an all-time high in early July, the wave is receding, with a reduction of about -75% in new cases. 

Euro 

The major currency pair EUR/USD mainly reflected the prevailing sentiment towards the US dollar, and as a consequence corrected significantly to last month's lows, and fell very short of the lowest point since April. Economic data in the Old Continent was positive. The Purchasing Managers' Indices showed further growth: the manufacturing sector was at 65.9 in Germany and 62.8 in Europe, while services were at 61.8 points in Germany and 59.8 in Europe. In June, retail sales volumes were 6.2% higher in Germany than in the same period a year earlier and 5.0% in Europe. The EUR/USD pair ended the week down -0.9%. 

JPY 

The most important Asian pair USD/JPY started the week depreciating to 108.8, the lowest level since May, but then appreciated and recovered the losses and even ended the week trading in green. Among the economic data were the Purchasing Managers' Indices: manufacturing reached 53.0 points, while services declined to 47.4 and remained in the negative zone. USD/JPY ended the week up 0.5%. 

GBP 

The British pound-US dollar pair mostly consolidated last week and remained above its 200-day moving average. Economic data included the Purchasing Managers' Index, which stood at 60.4 points in the manufacturing sector and 59.4 in the services sector. There was no change in interest rates at the country's central bank meeting. GBP/USD ended the week down -0.2%. 

Economic Events 

This week will start with German international trade data, with the German and European ZEW economic sentiment indices being monitored on Tuesday. German and US July headline inflation is due on Wednesday. On Thursday, investors will be looking at the preliminary economic growth for the second quarter in England and the change in the country's industrial sector volumes. Friday will be relatively quiet, with the publication of the US University of Michigan's Consumer Expectations Index. 

According to Admiral Markets market sentiment data, 88% of investors have long positions in the EUR/USD pair (up 44 percentage points compared to last week). In the main Asian pair USD/JPY, 19% of investors have long positions (down -33 percentage points). In GBP/USD, 44% of participants expect a rise (up 13 percentage points). Such market data is interpreted as a contrarian indicator, so that GBP/USD and USD/JPY are likely to appreciate and EUR/USD to depreciate. The analysis of positioning data should be combined with fundamental projections and technical analysis. 

Source: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com 

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