Currency market was in search for direction during festive period
Last week sentiment in the currency market fluctuated but showed no trend. In the last days of 2019, the world reserve currency depreciated, but appreciated in the second half of the week. The rise was fueled by political news as U.S. troops blew up a car, in which there was Iranian major general Qasem Soleimani, fueling speculation about escalating tensions in the Middle East and the U.S. - Iran conflict.
Economic data in the U.S. was significantly below market expectations. The focus was on the ISM manufacturing PMI index, which was at 47.2 points, the lowest level since June 2009, while Markit's index was 52.4 points and also depreciated. In the domestic industry, negative pressures and poor sentiment remain, as evidenced by the results of rail transportation, which shrank by -3.9% per year. All segments of the railway market recorded a decline, except for petroleum products, as the country's oil production grew moderately in 2019 and had a positive impact on the economy. The Consumer Confidence Index was 126.5 points and was below market expectations, albeit remaining stable over the past 4 months. The number of new unemployed applications reached 222 thousand and normalized over the last year.
The U.S. Federal Reserve released minutes of its last meeting, which mentioned that its members plan to remain conservative in 2020 and keep interest rates unchanged if the economic situation does not deteriorate significantly compared to the latest data.
The main currency pair EUR/USD slightly depreciated and tested its 200-day moving average on Friday. Among economic data, investors were observing manufacturing PMI index results who showed no signs of recovery. In Europe, the index stood at 46.3 points, while in Germany it was 43.7 points, both of which remained in long-term lows and in the negative zone. Less than 50 points were recorded in Spain, Spain, the Netherlands, Austria, Ireland and other smaller countries, suggesting that negative sentiment is prevalent in many economies in the Old Continent. In Germany, labour market figures were published, showing that the number of unemployed increased by 8 thousand. EUR/USD pair closed weekly trading dropping -0.2% during the week.
The main Asian pair, USD/JPY, exhibited a moderate depreciation trend, where the pair finished the last 2 trading sessions of the week below the 200-day moving average and at its lowest point in the last 2 months. No relevant data was published in Japan. The USD/JPY ended the week depreciating -1.2%.
The British pound gained more at the beginning of the week but then lost all gains. Economic data was scarce, with the manufacturing PMI index reaching 47.5 points and returning to multi-year lows, while the same index for the construction sector was only 44.4 points and plummeting. There was no news on Brexit. GBP/USD finished the week unchanged.
This week will begin with the results of service PMI indices. European inflation and retail sales will be monitored on Tuesday. German industrial order data and European business sentiment and consumer confidence indices are expected on Wednesday. On Thursday, important data has not been scheduled, and on Friday, results from the U.S. labour market, which historically had a major impact on market volatility, will be the focus of attention.
According to Admiral Markets market sentiment data, 34% of investors have long positions in the EUR/USD pair (up 16 percentage points compared to last week). In the main Asian pair USD/JPY, 65% of investors have long positions (up 39 percentage points). In the GBP/USD pair, 52% of participants expect a rise (increased 7 percentage points). Such market data is interpreted as contraindicative, suggesting a rise in EUR/USD and a fall in GBP/USD and USD/JPY pairs. Analysis of positioning data analysis 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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