US dollar consolidates at 12-month high

October 11, 2021

Last week the US dollar fluctuated around the last 12-month highs, looking for news and a new impetus to move further. Risk appetite remains high in financial markets with equity indices rising, commodities becoming more expensive and bond yields also rising, an environment that has historically been conducive to a depreciation of the US dollar, but in recent months the world’s reserve currency has resisted these patterns and has appreciated.

USD

In the US, economic data were scarce but showed a continued strengthening of the economy. The labour market indicators were the most notable: 194 thousand new jobs were created in the country, falling short of market expectations of 500 thousand, while the unemployment rate dropped to 4.8%, the lowest since the spring of 2017. Annual sales of new vehicles retreated to 9.66 million, a relatively low level as historically strong economies hover around the 16-18 million mark, but partly due to a shortage of components that is limiting production volumes. The number of new jobless claims eventually returned to a downward trend, falling from 0.362 million to 0.326 million over the week.

The global spread of the virus continued to show a consistent slowdown and the weekly average of new cases fell from 434 to 408 thousand per day. In North America, the drop in cases was -19%, in Asia -14% and in South America -8%, but in Europe, the increase continued and reached 11% per week. In the USA, the data showed an improvement and the average dropped from 98 to 87 thousand per day. The number of vaccines administered increased from 395 million to 402 million with a change of 7 million. Overall in the US, the number of people vaccinated with at least one dose rose from 64.7% to 65.3% of the population, an increase of 0.6% per week. In Lithuania, the number of people vaccinated with at least one dose rose from 62.7% to 63.2%, a difference of 0.5%.

EUR

The main currency pair EUR/USD depreciated on Wednesday to 1.153, the lowest level since July 2020, but recovered some of the losses to end the week at 1.157. Among the economic data on the Old Continent was the services purchasing managers’ index, which declined from 59.0 to 56.4 points, showing a moderate slowdown, but still remaining in positive territory. The European producer price index showed a 13.4% annual increase, up from 12.4% the previous month, suggesting that upward pressure on inflation persists. Retail sales in Europe in August were unchanged from the same period a year earlier. The EUR/USD pair ended the week down -0.2%.

JPY

The most important Asian pair USD/JPY showed positive sentiment and appreciated to the 112.2 level and the highest point since February 2020 and April 2019. Economic data was scarce, including household spending falling -3.0% year-over-year. USD/JPY ended the week trading higher by 1.0%.

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GBP

The British pound-US dollar pair moved in line with the global reserve currency trend. No important economic data were released. GBP/USD ended the week up 0.5%.

Economic Events

This week will start quietly and no important data is scheduled for Monday. On Tuesday, the Japanese producer price index, the labour market indicators in the British, German, and European ZEW indices will be expected. On Wednesday, attention will turn to China’s international trade volumes, English and European industrial production data, and US September headline inflation. Also on Wednesday, the minutes of the last US central bank meeting will be published. No major indicators are scheduled on Thursday, while US retail sales data are due on Friday.

According to Admiral Markets market sentiment data, 67% of investors have long positions in EUR/USD (down -14 percentage points compared to last week). In the main Asian pair USD/JPY, 11% of investors have long positions (down -13 percentage points). In GBP/USD, 46% of participants expect a rise (down -10 percentage points). Such market data is interpreted as a contrarian indicator, and therefore a EUR/USD depreciation is expected, while USD/JPY and GBP/USD appreciation is expected. The analysis of positioning data should be combined with fundamental projections and technical analysis.

Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com

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