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Central banks have remained in the spotlight

July 22, 2019 11:30

Last week there were no new tendencies recorded in the currency markets and the U.S. dollar has fluctuated around 200-day moving average. Investors have actively monitored and evaluated central bank comments about the monetary policy, and expectations of monetary policy softening were high. The market has speculated, that the European Central Bank will be less cautious about inflation to keep the continent's economy growing, while U.S. bank members commented that a 0.5% interest rate cut at the July meeting is not very likely. Nevertheless, investors remain confident that the U.S. interest rates will be reduced by at least 0.25%.


Overall, U.S. economic data was ambiguous. Among important data was retail trade growth, which was at 3.4% per year and was in-line with market expectations. U.S. consumers remain positive and are likely to consume, especially when labor market remains at full employment and the fear surrounding a loss of job is low. Nevertheless, data from manufacturing sector was significantly worse and volumes increased only 1.3% per year, which was not in-line with market expectations. A significant slowdown of growth could be felt in the manufacturing sector, which can be mainly attributed to global situation and decreasing trade volumes. In real estate market, positive news were also scarce - housing starts and building permits data has disappointed the market expectations. Among positive news was business sentiment survey data, which in Philadelphia and New York have shown significant leap into positive territory, after extremely poor performance last month, therefore it is too early to speculate on potentially improving sentiment. The number of new applications for the unemployed rose slightly from 209 to 216 thousand, reflecting the continued good sentiment in the labour market.


Main currency pair EUR/USD has reflected U.S. dollar sentiment and fluctuated above 1.120 support level. Europe's economic data was in-line with previous months and did not indicate further deterioration. Europe's inflation has recorded 1.3% level per year and was in-line with market expectations. Business sentiment index ZEW was -24.5 in Germany and -20.3 points in Europe and further indicated poor sentiment among business representatives. EUR/USD has ended the trading week dropping -0.4%.


Most important Asian pair USD/JPY has marginally depreciated and at the end of week it has closed below 108-point level. Japan has posted June's inflation data, which was at 0.7% per year and was in-line with market expectations, also export volumes were published, which have decreased -6.7% per year and it was 8th consecutive month in a row. Overall, factual manufacturing sector results indicate, that country's companies are experiencing difficulties due to decreasing demand in the world and this tendency can be felt by all the main economies. USD/JPY has ended the trading week dropping -0.1%.


Great Britain's pound has ended the week marginally depreciated, although on Wednesday it has reached the lowest point in the last few years. Main reasons for depreciation were uncertainty regarding Brexit and lack of clarity about foreign politics from the candidates to the Prime Minister position. Nevertheless, country's parliament, in effort to decrease risk of no-agreement Brexit, has decided to limit its work at the end of October, which will prevent opportunities to leave European Union without an agreement and it has provided the investors with optimism and the currency pair has appreciated. Among economic data was inflation, which was at 2.0% per year and retail sales, whose yearly growth was at 3.8%. Both indicators were in-line with market expectations. GBP/USD has ended the trading week depreciating -0.5%.

Economic Events

This week will begin calmly and there is no important announcements planned on Monday. On Tuesday, investors will be watching U.S. real estate market data and on Wednesday preliminary Purchasing Managers Indices in the main economies. On Thursday, most of attention will be drawn to European Central Bank's meeting and press conference, where investors will be searching for cues about monetary policy. On Friday market participants will watch U.S. economy growth results in the second quarter.

According to Admiral Markets market sentiment data, EUR/USD long positions are held by 74% of investors (increased +29 percentage points compared to last week's data). In the main Asian pair USD/JPY 63% of investors hold long positions (decreased -5 percentage points). In GBP/USD pair 66% of participants expect growth (increased +5 percentage points). This kind of market data is interpreted as a controversial indicator, therefore depreciation is likely in EUR/USD, GBP/USD and USD/JPY pairs. Analysis of positioning data should always be accompanied by fundamental projections and technical analysis.

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

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