The USD rose to a 2-month high
Last week, the global reserve currency finally gained buyer support and recorded a rise to 2-month highs. Investor demand for risky assets declined at the end of the week as stock indices and the bond market adjusted, contributing to positive U.S. dollar sentiment.
Economic data in the U.S. was relatively good, although it did not dissipate concerns that the economic recovery continued to lose momentum. Retail sales were 2.9% higher in December year-on-year, but fell -1.9% compared to November and disappointed market expectations. The country’s annual inflation was 1.4% in December and remained stable over the last quarter. Industrial production continued to recover gradually and in December was -3.6% lower than a year ago. The number of new jobless claims rose from 0.79 to 0.97 million a week.
Last week, the rate of spread of the coronavirus slowed down. The situation in the U.S. reflected global trends and the weekly average fell from 246 to 228 thousand cases per day. The number of people vaccinated in the country rose from 7.1 to 13.7 million and hinted at an accelerating process. In the United States as a whole, 4.2% of the population have already been vaccinated. Among other important news was the situation in the United Kingdom, where a mutated strain of the virus is spreading. U.K. ranked 5th in the world in terms of the number of cases, with the average slowing slightly from 60,000 to 48,000 cases a day. The situation was also significantly deteriorating in Spain, where the number of infections jumped from 10 to 40 thousand per day in a few weeks and the country was already recording the third wave of the virus. Around 40 million doses of the vaccine were injected worldwide, a significant increase from last week’s level of 19 million.
The main currency pair EUR/USD reflected the strengthening trends of the U.S. dollar and fell to the level of 1,207 and a 50-day moving average on the daily chart. There was little economic data coming from Europe. The European industrial volumes in November were -0.6% lower than a year ago, but recovered and grew by 2.5% compared to October. The German economy contracted by -5.0% in 2020, affected by both declining global demand and domestic economic quarantine constraints due to the epidemic. The EUR/USD pair closed the week depreciating -1.2%.
The main Asian pair, USD/JPY, fluctuated mostly below the 104.0 level and below a 50-day moving average on the daily chart. No relevant economic data was published. USD/JPY ended the week dropping -0.1%.
In the first half of the week, the British pound once again tried to break through the 1,370 resistance level against the U.S. dollar, but later did not keep up with the sentiment of the strengthening U.S. dollar and the pair depreciated. Among the economic data was a change in the country’s economy, which recorded a -2.6% decline from the previous month. This was the first negative month after 6 positive months and probably reflected significant constraints on the spread of the coronavirus. Industrial production volumes were -4.7% lower than a year ago. GBP/USD ended the week up 0.1%.
This week will start with important data from China, where industrial production, retail and economic growth figures will be released. Monday will be a non-working day in the U.S. German inflation rates and ZEW economic index data will be expected on Tuesday. Investors will monitor inflation rates in U.K. and Europe on Wednesday. Japan’s export data and a press release from the country’s central bank after the members’ meeting will be expected on Thursday. A meeting of the European Central Bank will follow and decisions on interest rates and additional incentives will be expected. Japan's inflation data and preliminary results of the major economies manufacturing PMI indices will be expected on Friday. The week will end with U.K. retail sales data and U.S. existing home sales results.
According to Admiral Markets market sentiment data, 80% of investors have long positions in the EUR/USD pair (increased +42 percentage points from last week). In the main Asian pair USD/JPY, 71% of investors have long positions (up 32 percentage points). In the GBP/USD pair, 59% of participants expect a rise (up 9 percentage points). Such market data is interpreted as contraindicative, therefore EUR/USD, GBP/USD and USD/JPY pairs are expected to depreciate. 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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