The U.S. dollar continued to depreciate

The U.S. dollar depreciated against major currencies last week, bringing the reserve currency index to its lowest point since April 2018.

U.S. economic data was positive, but there were visible signs that the recovery was slowing. Retail sales were 4.1% higher than a year ago, but November volumes were -1.1% lower than in October, which worries investors that the recovery is slowing. Industrial production in November was -5.5% lower than a year ago. The preliminary manufacturing PMI index was at 56.5 points and hinted at a further recovery. The number of jobless claims rose from 0.85 to 0.89 million a week.

USD

The coronavirus continues to spread actively around the world and the number of cases remains high. The situation in the U.S. worsened when the country set a dismal double record, with more than 250,000 new cases a day and just over 37,000 deaths. More than 110,000 people have been treated for the virus in the country’s hospitals, mostly since the start of the pandemic. In India, a further slowdown in the incidence of diseases from 30,000 to 25,000  was seen. In Brazil, the number of cases was stable at the level of 50,000. In Russia, the number of new cases is also stable at 28,000. France remains in fifth place in the world in terms of the total number of cases, but the number of new cases remains relatively low at 15,000. Turkey rose to sixth place, with 30,000 cases recorded daily.

Euro

The major currency pair EUR/USD continued to rise and reached the level of 1,225 points, the highest level since April 2018. Among the economic data was the change in European industrial volumes in October, which were -3.8% lower than a year ago, and the preliminary PMI indices: manufacturing index reached 55.5 and services 47.3. The services sector remains negatively affected by quarantine constraints, but shows a recovery compared to October data. The EUR/USD pair ended the week appreciating +1.2%.

JPY

The main Asian pair USD/JPY continued to depreciate, reaching 103.0 points on Thursday, the lowest point since the March stock market panic, and if not, since November 2016. Among the economic data were industrial production volumes in October, which were -3.0% lower than a year ago, and export volumes in November were -4.2% lower than a year ago. The inflation rate in the country reached -0.9% in November and increased deflationary pressure on the central bank. USD/JPY ended the week depreciating -0.7%.

GBP

The British pound rose against the U.S. dollar to the level of 1.36, which it hit briefly on Thursday. Negotiations on the terms of the Brexit trade remain in the spotlight, with the parties still not reaching an agreement, so there is still a high probability that customs will have to trade with each other, thus complicating the economic situation. The number of unemployed increased by 64 thousand in the country's labour market. Annual inflation fell to 0.3% in November, with preliminary PMI indices standing at 57.3 points in industry and 49.9 points in services. Retail sales grew 2.4% year-on-year. GBP/USD has ended the week appreciating 2.3%.

Economic Events

This week will be quite calm and short due to the Christmas period. No important data is planned on Monday, and the activity of U.S. existing home sales will be monitored on Tuesday. U.S. new home sales figures and the University of Michigan Consumer Confidence Index are expected on Wednesday. Major markets will close earlier on Thursday and there will be a non-working day on Friday.

According to Admiral Markets market sentiment data, 34% of investors have long positions in the EUR/USD pair (down 12 percentage points from last week). In the main Asian pair USD/JPY, 58% of investors have long positions (down 15 percentage points). In the GBP/USD pair, 40% of participants expect a rise (down 9 percentage points). Such market data is interpreted as contraindicative, so EUR/USD and GBP/USD are expected to rise and USD/JPY to fall. 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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