After many weeks, the USD is gaining ground

Last week the U.S. dollar moderately depreciated to February lows, but during Friday’s trading session sentiment changed and the global reserve currency appreciated significantly, offsetting losses of the week. This rebound eventually stopped the 4-week downward trend in the U.S. dollar.

USD

U.S. economic data remained very positive and hinted at a rapid recovery. The country’s economy recorded 6.4% annual growth in the first quarter, largely driven by high household consumption driven by government stimulus checks. The consumer confidence index rose to 121.7 points and has been at its highest point since February 2020, returning to pre-pandemic levels. The durable orders grew by as much as 25% compared to the same period a year ago, due to the opening of economies and businesses filling warehouses and preparing for greater activity. The number of new jobless claims fell from 0.55 to 0.53 million a week.

No important decisions were made at the U.S. Federal Reserve meeting. Monetary policy has remained unchanged, as has the size of the stimulus program. Members said the economy has not yet recovered enough to reduce bond-buying volumes. 

The acceleration of the pandemic slowed significantly last week and the number of new cases grew only marginally from 816 to 825 thousand per day. India continued to be in the spotlight, recording world record of new cases - more than 400,000 cases per day. The situation in the U.S. continued to improve gradually, with the weekly average falling from 62 to 54 thousand new cases a day. The number of vaccines injected in the country has risen from 222 to 240 million, a change of 18 million, slightly lower than in recent weeks. Overall, the number of people vaccinated with at least one dose in the U.S. rose from 41.3% to 43.6% of the population and increased by 2.3% over the week. In Lithuania, this indicator increased from 22.4% to 24.5%, as a large number of vaccines are given for the second vaccination.

Euro

The main currency pair EUR/USD grew in the first half of the week and reached the level of 1,215 on Thursday, the highest since February 26. However, the pair depreciated significantly to the level of 1,202 on Friday due to a change in investor sentiment. Economic data in Europe included preliminary inflation in Europe, which stood at 1.6% per year, and in Germany, which was at 2.0%. The preliminary annual change in the European economy for the first quarter was -1.8% quarter on quarter. Ifo business climate index was at 96.8 points and showed a further recovery, although it did not meet market expectations. The EUR/USD pair closed the week with a fall of -0.7%.

JPY

The top Asian pair, the USD/JPY, showed a recovery and surely rose from 107.9 to 109.3 points last week. Economic data included the country’s retail sales, which grew 5.2% year-on-year, while industrial production was 4.0% higher than a year ago. The manufacturing PMI Index was at 53.6 points and showed growth. The central bank has not changed its policy. USD/JPY ended the week up 1.4%.

GBP

The British pound and U.S. dollar pair largely reflected trends in the global reserve currency, but remained broadly in the trading range over the past few months. No relevant economic data was published in the country. GBP/USD ended the week dropping -0.4%.

Economic Events

This week will start with actual data on the manufacturing PMI indices, as well as German retail sales. U.S. international trade data will be monitored on Tuesday, and service sector PMI indices will be monitored on Wednesday. A meeting of the Bank of England and its press conference will be watched on Thursday, and international trade volumes between China and Germany in April and US labor market data will be watched on Friday.

According to Admiral Markets market sentiment data, 65% of investors have long positions in the EUR/USD pair (up 50 percentage points from last week’s data). In the major Asian pair USD/JPY, 32% of investors have long positions (down 27 percentage points). In the GBP/USD pair, 72% of participants expect a rise (up 32 percentage points). Such market data is interpreted as contraindicative, therefore EUR/USD and GBP/USD are expected to depreciate and USD/JPY 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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