US dollar continued its depreciation

Last week the currency market remained in a corrective mood for the US dollar and the world’s reserve currency index depreciated by -0.6%, the lowest level in the last month.

USD

Data in the world’s largest economy pointed to continued growth, but at a moderate slowdown compared to the first half of the year. The actual ISM Manufacturing Purchasing Managers’ Index was 59.9 points and remained stable compared to the previous month. The country’s labour market created 235 thousand jobs, but the actual result fell well short of market expectations of 750 thousand, suggesting that the labour market is recovering at a slower pace than investors expect and contributing to slower growth figures in the second half of 2021. The unemployment rate fell to 5.2%. The US Consumer Confidence Index was 113.8 points, slowing down for the second month in a row from the pandemic highs. New car sales fell to 13.1 million year-on-year, the lowest level in over a year. New jobless claims fell again, from 0.353 million to 0.340 million for the week, a positive sign.

Pandemic trends showed an improvement after more than 2 months of rapid growth in the number of cases, with the global spread of the delta virus. Last week, the average number of infections fell from 654 to 629 thousand per day. The situation in the US showed a slowdown, with the weekly average of new cases rising from 156 to 163 thousand per day. The number of vaccinations administered in the country increased from 367 million to 374 million, a change of 7 million and the fastest rate of vaccination since the beginning of July. Overall in the US, the number of people vaccinated with at least one dose rose from 61.3% to 62.2% of the population, an increase of 0.9% over the week. In Lithuania, the number of people vaccinated with at least one dose rose from 58.9% to 59.9%, a difference of only 1.0%. Nevertheless, the vaccination rate in Lithuania reached 70% this week in the population aged 16 years and over. In England, the number of cases has stabilised at 34 thousand per day.

Euro

The main currency pair EUR/USD appreciated throughout the week and was briefly above the 1.190 level on Friday. Economic data in the Old Continent were good and showed accelerating price growth. The actual European Manufacturing Purchasing Managers’ Index stood at 61.4 points and remained in a strong growth zone. Germany’s preliminary annual inflation rate was 3.9%, while Europe’s jumped to 3.0%, significantly higher than the 2.2% of the previous month. The Producer Price Index showed a 12.1% annual increase in July, suggesting that upward pressure on prices continues, especially while the commodity cycle is recording new highs. In Germany, the labour market situation continued to improve, with the number of unemployed falling by 53 thousand in August and the unemployment rate falling to 5.5%. Also, German retail sales volumes were -0.3% lower in July than in the same period a year earlier. The EUR/USD pair ended the week up 0.7%.

JPY

The most important Asian pair USD/JPY continued to move in a channel around its 50-day moving average on the daily chart. Among the data was the actual Manufacturing Purchasing Managers’ Index, which stood at 52.7 points and suggested moderate growth in the sector. The services sector was only 42.9 points and indicated a decline in activity. July retail sales volumes showed a 2.4% year-on-year increase. Industrial production in July was 11.6% higher than a year earlier. USD/JPY ended the week down -0.1%.

GBP

The British pound/US dollar pair started the week very calmly and then appreciated significantly, ending the week at the level of 1.386 points. There were no important economic data. GBP/USD ended the week up 0.8%.

Economic Events

This week is quiet, with no important data scheduled and the US will have a day of unemployment. On Tuesday, the Chinese international trade figures, the European preliminary economic growth for the second quarter and the ZEW index results for Europe and Germany will be monitored. No important data are scheduled for Wednesday, while Thursday will be devoted to the European Central Bank and decisions on changes to the quantitative easing programme. On Friday, Industrial Production data for England and the US Producer Price Index are due.

According to Admiral Markets market sentiment data, 28% of investors have long positions in the EUR/USD pair (down -1 percentage point compared to last week). In the main Asian pair USD/JPY, 55% of investors have long positions (up +6 percentage points). In GBP/USD, 22% of participants expect a rise (down -25 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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