Before Christmas, the U.S. dollar recovered
The U.S. dollar sentiment prevailed in the currency market last week and the reserve currency index rose to a 200-day moving average on its daily chart. There has been much discussion among investors about the guidelines for an international trade agreement between the U.S. and China. Market participants are worried about China's commitment to increase purchases of agricultural commodities, which would mean up to several times more exports than now, especially as China has welcomed new players into the supply chain in recent years, likely with long-term agreements, which are not expected to be easily changed. For this reason, investors worry that the agreement on China's side may not be implemented and the U.S. will revert to a tariff-raising policy. It is also interesting that Chinese President Xi Jinping has announced that he will not attend the Davos Congress in January, where presidents were expected to sign an agreement. According to recent news, China will send leading negotiator and vice-Prime Minister Liu He to Washington in January.
U.S. economic data was ambiguous. The preliminary manufacturing PMI index was at 52.5 points and remained stable in the expansion area. Meanwhile, actual industry volume data was negative and recorded a -0.75% contraction in November. Labour market data showed no trend, with 7.27 million new open positions, up from last month, and new unemployed applications reaching 234,000, remaining elevated from recent levels.
The main currency pair EUR/USD depreciated over the past week as it hit a 200-day moving average on the daily chart. Among the economic data, preliminary manufacturing PMI attracted significant attention, falling to 45.9 points at the European level and falling to 43.4 in Germany. This makes it clear that negative trends are still reigning in the European industry segment and are damaging the overall sentiment of the Old Continent. Inflation in Europe reached 1.0% year-over-year in November. EUR/USD has ended the week depreciating -0.4%.
The leading Asian pair USD/JPY has consolidated at 109.5 points. Economic data was mixed: exports fell -7.9% year-over-year, but slightly lower than in previous periods. Inflation remained low at 0.5% per year. Monetary policy remained unchanged at the central bank meeting, although comments on further stimulus, should the economic situation so require, persisted. USD/JPY has ended the trading week appreciating +0.1%.
The British pound recorded one of the worst performances among major currencies. The positive sentiment has fallen sharply, amid concerns that the country's prime minister will be in a hurry to complete his exit from the European Union. Last week, Parliament tentatively approved the exit agreement, but it stipulates that the deadline cannot be extended beyond the end of 2020, which worries investors about the haste and potential malfunctioning. Among the economic indicators, there was preliminary manufacturing PMI, which dropped to 47.4 points. Labour market results were rather poor with the number of unemployed rising by 28 thousand. Inflation was 1.5%. The central bank did not change its monetary policy. GBP/USD has ended the week depreciating -2.5%.
This week will be festive, therefore it is expected to be quite peaceful. On Monday, key data is expected from the U.S., where we will find changes in durable goods orders that signal business sentiment towards investment in development and equipment. Tuesday, Wednesday, and Thursday in many countries are holidays. Japanese inflation and retail sales figures are expected on Friday.
According to Admiral Markets market sentiment data, in EUR/USD pair 60% of investors have long positions (increased +14 percentage points compared to last week). In the main Asian pair USD/JPY 24% of investors have long positions (down -7 percentage points). In the GBP/USD pair, 60% of participants expect a rise (increased +33 percentage points). Such market data is interpreted as contraindicative, suggesting that the EUR/USD and GBP/USD pairs are likely to depreciate and the USD/JPY to appreciate. Analysis of positioning data should always be accompanied with fundamental projections and technical analysis.
Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com
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