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U.S. dollar has appreciated

September 28, 2020 12:30

Fundamental Overview USD highest since March, JPY regains losses

Last week the world's reserve currency finally broke through the consolidation channel, reaching its highest level since July. It was the best week for the U.S. dollar since March.

USD

U.S. economic news was positive and mostly in-line with expectations. The preliminary manufacturing PMI index was at 53.5 points, suggesting growing activity and development in the country. The number of industrial orders grew 0.4% month-on-month, but was -6.3% year-on-year, and both figures fell short of market analysts' forecasts. The number of new jobless claims remained at 0.87 million per week.

The real estate market experienced further recovery, with both new home and secondary market transactions growing.

When commenting on the country's economic situation to Congress, U.S. Federal Reserve Chairman Jerome Powell said there was visible recovery in the economy, but uncertainty remained high. For this reason, further state support for the population will likely be needed.

The number of new cases of the coronavirus remains at highs:

  • The number of cases in the U.S. was fairly stable and the 7-day average reached about 41,000
  • In India, the spread of the virus continued to slow down and the weekly average fell from 92 to 85 thousand
  • Brazil saw a slowdown from 31 to 28 thousand a day
  • A second wave was recorded in Russia, when the number of cases rose from 5.7 to 6.4 thousand per day

In Europe, the situation has changed little: in Spain, the number of cases has fallen, in France it is rising rapidly, and in Italy the number remains relatively stable and low.

Euro

The main currency pair EUR/USD depreciated to 1.162, reflecting the sentiment of the U.S. dollar. In Europe, economic news did not come as much of a surprise:

  • The preliminary manufacturing PMI index was at 53.7 points and showed growth from the level of the previous month
  • The European Central Bank's balance sheet amounted to 6.5 trillion euros, which is 38% higher than 12 months ago.
  • Currently, the central bank's balance sheet is about 49% of the size of the European economy, as measured by the economic activity level of the end of 2019

In comparison, the U.S. Federal Reserve's intervention accounts for about 33% of the size of the U.S. economy and the effect is smaller than in Europe.

The EUR/USD pair ended the week depreciating -1.8%.

JPY

The main Asian pair, USD/JPY, reversed the trend and regained almost all of its losses from the previous week. The preliminary manufacturing PMI index was at 47.3 points and Japan was the only major economy where sentiment remains in negative territory.

USD/JPY ended the week appreciating +1.0%.

GBP

The British pound adjusted against the U.S. dollar. There was little economic news, the most important of which was the preliminary manufacturing PMI index, which reached 54.3 points and was in positive territory.

GBP/USD ended the week depreciating -1.4%.

Economic Events

This week will start relatively calmly and the investors will watch the press conference of the European Central Bank on Monday. The U.S. Consumer Confidence Index, which measures the sentiment and potential activity of the country's population, will be monitored on Tuesday.

Data on Japanese industrial production, German retail and labor market indicators, and European headline inflation are expected on Wednesday. On Thursday, the focus will be on actual PMI indices, and on Friday, U.S. labor market data will be watched.

According to Admiral Markets market sentiment data:

  • 64% of investors have long positions in the EUR/USD pair (increased +32 percentage points from last week's data)
  • In the main Asian pair USD/JPY, 45% of investors have long positions (fell by -21 percentage points)
  • In the GBP/USD pair, 45% of participants expect a rise (down -17 percentage points)

Such market data is interpreted as contraindicative, therefore USD/JPY and GBP/USD are expected to rise and EUR/USD 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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