The world’s reserve currency continued its consolidation

Last week the US dollar was in a consolidative mood and did not show a consistent direction, although the stock markets started the week with a rather material correction and then the US central bank finally signalled a tapering of its stimulus programme in the coming months.

USD

Data in the world’s largest economy remained good and pointed to a high level of activity among people and businesses. Preliminary data on the purchasing managers’ indices pointed to a moderate slowdown in the pace of growth, with manufacturing at 60.5 points and services at 54.4, both remaining in positive territory, although the results were weaker than in the previous month. In the secondary real estate market, annual existing home sales stood at 5.88 million in August and were stable in the perspective of the last six months, while sales of new homes reached 740 thousand per year and rose gradually for the second month in a row. The number of new jobless claims continued to rise marginally from 0.332 to 0.351 million on a weekly basis.

Also last week, the minutes of the US central bank’s last meeting were released, with the main message being that the bank’s members are prepared to reduce the size of the stimulus programme and buy smaller amounts of bonds on the market. The market’s expectation is that the next meeting will already announce amounts and dates for when and how this process will start. The forecasts for 2022 were also updated, with 3.8% annual economic growth and 2.2% inflation expected.

The spread of the virus continued to show a slowing trend, with the global average of new cases dropping from 533 to 482 thousand per day. North America recorded a decline of around -15% in cases per week, while Europe saw a slight increase of a few percent. In the US alone, the figures moved in a positive direction, with the weekly average dropping from 148 to 122 thousand cases per day. The number of vaccines administered increased from 383 million to 389 million, with a change of 6 million, as the third dose of the vaccine intensified. Overall in the US, the number of people vaccinated with at least one dose rose from 63.5% to 64.1% of the population, with a weekly increase of 0.6%. In Lithuania, the number of people vaccinated with at least one dose rose from 61.5% to 62.0%, a difference of 0.5%. In England, the number of cases remains stable at 33,000 per day.

Euro

The major currency pair EUR/USD depreciated to the level of 1.169 at the beginning of the week, but recovered its losses and ended the trading session marginally changed. Economic data on the Old Continent included the German producer price index, which rose by 12% in August compared to the same period a year earlier, the fastest rise since 1974, suggesting that upward pressure on prices still remains in the economy. Preliminary purchasing managers’ indices were also released: European manufacturing fell to 58.7 and services slipped to 56.3 points, suggesting slower growth expectations in the coming months. The EUR/USD pair ended the week down -0.1%.

JPY

The most important Asian pair USD/JPY moved in the trading channel formed at the beginning of July. After starting the week with a correction to the bottom at 109.2, it started to appreciate significantly on Wednesday and ended the week at 110.7 points. Among the data was the August annual inflation rate, which remained negative at -0.4%. Preliminary purchasing managers’ indices showed mixed results, with industrial falling to 51.7 points and services rising to 47.4. USD/JPY ended the week trading up 0.7%.

GBP

The British pound/US dollar pair reflected the general sentiment on the currency markets and depreciated at the beginning of the week before appreciating in the second half. Data included preliminary purchasing managers’ indices: industrial at 56.3 and services at 54.6 points. The central bankers unanimously decided to keep the monetary policy and the amount of stimulus unchanged. GBP/USD ended the week down -0.5%.

Economic Events

This week will start quietly and on Monday only the US industrial orders will be monitored. On Tuesday, the US consumer confidence index will be due, and on Wednesday the German retail sales and the US pending home sales will be released. On Thursday, Japanese industrial production data and German labour market results will be monitored, while on Friday European preliminary inflation and actual purchasing managers’ indices will be seen.

According to Admiral Markets market sentiment data, 70% of investors have long positions in EUR/USD (down -15 percentage points compared to last week). In the main Asian pair USD/JPY, 9% of investors have long positions (down -15 percentage points). In the GBP/USD pair, 68% of participants expect a rise (down -15 percentage points). Such market data is interpreted as a contrarian indicator, and therefore EUR/USD and GBP/USD are expected to fall, while USD/JPY is expected to appreciate. 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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