US dollar experienced a volatile week

August 16, 2021 16:00

The world's reserve currency showed diverging trends last week, appreciating in the early days and briefly reaching a 4-month high, but then depreciating significantly and ending the whole trading week in red.

USD 

US economic data were strong. The country's annual inflation rate reached 5.4% in July, beating expectations of 5.3%. So far, the actual data do not reflect the central bank's stance on temporary inflation, which remains at decade highs. The Producer Price Index showed a 7.8% annual rise, accelerating from the 7.3% level of the previous month. The number of open job positions jumped to 10.07 million and is at its highest level in decades. This high reflects a post-pandemic economic recovery, where businesses' demand for new workers is growing much faster than people are willing to return to the workforce and forgo increased unemployment benefits. The number of new jobless claims fell from 0.385 million to 0.375 million per week.

Delta variant continued to spread and the number of infections worldwide increased moderately and the weekly average of new cases rose from 624 to 647 thousand per day. The situation in the US continued to deteriorate, with the weekly average of new cases rising from 105 to 129 thousand per day. The number of vaccines administered in the country increased from 350 to 355 million with a change of 5 million. Overall, the number of people vaccinated with at least one dose in the US rose from 58.4% to 59.4% of the population, an increase of 1.0% per week. In Lithuania, the number of people vaccinated with at least one dose rose from 53.0% to 55.5%, a difference of 2.5%. In England, where the delta strain is particularly prevalent, the number of new infections was stable at 28 thousand level.

Euro 

The major currency pair EUR/USD depreciated at the beginning of the week to the level of 1.171, the lowest level since the end of March, but recovered its losses on Friday and ended the week's trading in green. Economic data in the Old Continent continued to show growth, albeit at a slower pace. The ZEW Economic Sentiment Index stood at 42.7 in Europe and 40.4 in Germany, both pointing to a slowdown in growth. European Industrial Production growth came in at 9.7% year-on-year, below both last month and market participants' expectations. The EUR/USD pair ended the week trading up 0.3%.

JPY

The most important Asian pair USD/JPY reflected the general sentiment towards the US dollar and started the week on the rise, but fell significantly on Friday. Among the economic data was the Producer Price Index, which showed a 5.6% annual rise, faster than the previous month, suggesting continued inflationary pressure in the economy. USD/JPY ended the week down -0.6%.

GBP 

The British pound and US dollar pair was volatile and briefly reached 1.380 at the end of the week, but rebounded on Friday and ended trading at 1.387. Economic data included the country's economic growth in the second quarter, which came in at 22.2% year-on-year. Industrial production in June was 8.3% higher than in the same period a year earlier. GBP/USD ended the week unchanged.

Economic Events 

This week will start with Japan's preliminary economic growth in Q2, South Korea's export volumes in August and important Chinese retail sales, industrial production and investment data. On Tuesday, UK labour market figures, European second-quarter economic growth and US July retail sales and industrial production figures are due. On Wednesday, investors will be looking at the change in Japanese export volumes in July, inflation figures for England and Europe, as well as the minutes of the last US central bank meeting. Thursday will be quiet with UK retail sales data due on Friday.

According to Admiral Markets market sentiment data, 33% of investors have long positions in the EUR/USD pair (down -55 percentage points compared to last week). In the main Asian pair USD/JPY, 62% of investors have long positions (up 43 percentage points). In GBP/USD, 36% of participants expect a rise (down 8 percentage points). Such market data is interpreted as a contrarian indicator, so that EUR/USD and GBP/USD are likely to appreciate and USD/JPY 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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