Fed did not provide any surprises, U.S. dollar changed insignificantly

Last week, investors focused their attention on central banks around the world. Banks in the U.S., Japan, Britain and Switzerland gathered to decide on further monetary policy and interest rates. All decisions were in-line with investor expectations and market volatility was relatively low.

USD

The focus was on the U.S. Federal Reserve's meeting, where members decided to cut the interest rates by 0.25%. The market expected this, therefore the value of U.S. dollar changed quite insignificantly compared to similar situations in the past. Interestingly, Federal Reserve's members have very different perspectives on what lies ahead for the country's economy - 5 members were reluctant to cut interest rates even at the September meeting, the other 5 members supported the cut but did not see any further cuts in 2019 and the remaining 7 members spoke in favour of even more cuts this year. This shows that members have very different views on the current economic situation and prevailing trends in the country, therefore it is interesting how their position will change at the next meeting in the last days of October.

The U.S. did not publish much significant economic data, and among the most important were industrial production, which increased 0.4% per year, the slowest growth in the last 3 years. This data confirms the pessimistic sentiment in the manufacturing PMI trend. Existing home sales were also published, showing small annual growth and reflecting a reviving sentiment among residents to buy real estate as interest rates fell from 5.1% to 3.9% in the last 12 months.

Euro

The main currency pair EUR/USD reflected the consolidation sentiment in the U.S. dollar segment. Among the economic data was the ZEW index, which remained negative at -22.4 points in Europe and -22.5 points in Germany. The sentiment in the main economy remains bleak and investors are speculating when it will pass on to the service sector. In Europe, real annual inflation stood at 1.0% in August, well below central bank targets. EUR/USD has ended the week depreciating -0.5%.

JPY

The most important Asian pair in USD/JPY fluctuated near 108.0-point level. In Japan, central bank meeting was held, during which there were no monetary policy changes announced, although it was suggested that members would take into account the slowdown in the global economy and could possibly take appropriate measures during the October meeting. Economic data included the annual export result for August, which fell by -8.2%, and inflation, which stood at only 0.3%. USD/JPY has ended the trading week dropping -0.5%.

GBP

The British pound depreciated slightly against the U.S. dollar and largely reflected overall risk sentiment in the market. There have been no significant changes in the Brexit situation. The Bank of England held a meeting where members unanimously decided not to change the interest rate and to leave it at 0.75%. Among economic data was annual inflation, which dropped to 1.7% and was the lowest since early 2017. Meanwhile, retail sales increased by 2.7% year-on-year. GBP/USD closed the week depreciating -0.2%.

Economic Events

This week will start with preliminary results of manufacturing purchasing managers' indices from major economies. German Ifo index and U.S. consumer confidence data will be released on Tuesday. U.S. new home sales data will be released on Wednesday. No important data is scheduled for Thursday, and U.S. durable goods orders will be watched on Friday.

According to Admiral Markets market sentiment data, EUR/USD long positions are held by 68% of investors (increased +29 percentage points, compared to last week's data). In the main Asian pair USD/JPY 44% of investors hold long positions (increased +10 percentage points). In GBP/USD pair 52% of participants expect growth (increased +13 percentage points). This kind of market data is interpreted as a controversial indicator, therefore appreciation is likely in USD/JPY pair and depreciation in EUR/USD and GBP/USD pairs. 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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