Anna Zaitseva, analyst of FG “FINAM”
On Friday, July 16, the US dollar continues to strengthen against major global currencies amid growing concerns over the rising incidence of COVID-19 worldwide and accelerating inflation in the United States. As of 11:48 Moscow time, the EUR / USD rate is down 0.02% and is trading at 1.18120, while the DXY dollar index is growing by 0.07% and is at 92.692. At the end of the previous trading session, the main currency pair fell 0.19% to 1.18133, while the DXY indicator closed 0.24% higher at 92.631.
Against the background of an increase in the incidence of a new strain of coronavirus in the world, a decrease in risk appetite is observed in the foreign exchange market, which contributes to the strengthening of the US dollar. For example, in Indonesia, the daily increase in new cases of infection has exceeded the same level in India, and, according to authorities, the country is now developing a worst-case scenario of the epidemic. In Australia, following Sydney, the lockdown in Melbourne was extended until the end of July, and now more than 40% of the population is under increased restrictive measures. An increase in the incidence is also observed in South Korea, which was previously an example of a “successful history” in the fight against the pandemic. In these conditions, there is a tendency for the flow of funds of market participants from conventionally risky currencies to the US dollar, which supports the latter.
In addition, in the foreign exchange market, expectations of an earlier rollback of monetary stimuli in the United States persist against the backdrop of accelerating inflation to 5.4% in June. At the same time, Fed Chairman Jerome Powell, in his speech to Congress, once again tried to correct investor sentiment, insisting that the state of the American economy, especially the labor market, is still far from the target values, and the soft monetary policy will persist until a full recovery economy. At the same time, he noted that the Fed is really talking about the timing of the reduction of the asset purchase program.
With regard to macroeconomic statistics, yesterday the US released data on the number of initial applications for unemployment benefits. At the end of the last week, the indicator fell to 360 thousand, completely coinciding with the consensus forecast, compared with the previous result of 386 thousand. Industrial production growth in the States slowed down in June to 0.4% (m / m) compared to the May result c + 0.7% (m / m), while analysts had expected an increase of 0.6% (m / m). The NY Empire State Manufacturing PMI rose to 43 points in July from 17.4 points a month earlier, well above the 18-point consensus forecast. Meanwhile, a similar indicator from the Federal Reserve Bank of Philadelphia fell to 21.9 points in July compared to 30.7 points in June and analysts’ expectations of 28 points.
Today it will be necessary to pay attention to the publication in the eurozone of data on the trade balance and inflation, in the US – on retail sales, inventories, as well as on a number of indicators from the University of Michigan.
The EUR / USD rate is again testing the level of 1.1800 for a breakdown downward. The “fast” stochastic line turned upward, which may indicate weakening of the downward impulse and the likelihood of consolidation for the instrument in the short-term horizon.
This information is not investment advice.