Foreign exchange market continued consolidation
There were no major changes in the currency market last week. The U.S. dollar depreciated in the first half, but regained some of its lost positions in recent days. The bad news continued to dominate the market last week, with addition of car rental giant Hertz to the list of retailers in restructuring process - JCPenney, Neiman Marcus and J. Crew. It is a company with a history of more than 100 years, with about 38 thousand employees, whose activities were severely affected by the virus and quarantine, and the suspended activities did not allow it to settle with creditors, so a debt restructuring procedure was announced. This is another example that the current economic situation is very difficult in the country and even the largest companies are facing significant difficulties in meeting their obligations and keeping jobs.
The indicators of the world's largest economy were not gratifying. The number of new jobless claims fell from 3.0 million to 2.4 million, indicating an impending stabilization, but redundancies are still ongoing. As many as 38 million workers have applied for unemployment since the virus began. The preliminary manufacturing PMI index was 39.8 points and suggested a contraction, as was the services sector, which stood at 36.9 points. Sales volumes in the secondary real estate market fell by -17.8% compared to the previous month.
The situation of the virus has changed insignificantly. In Europe, trends remained unchanged, with Spain, Italy and France continuing to reduce the number of cases. The U.S. situation has stagnated, with the number of new cases stabilizing at 20,000 a day and the number of deaths at 1,000. The epicenters of the virus remain Russia and Brazil, which record 10 and 20 thousand new cases a day, respectively. In terms of the number of cases, Brazil has already risen to second place in the world.
The main currency pair EUR/USD reflected the trends of the U.S. dollar and changed insignificantly within trading channel. Among economic news was annual inflation in Europe in April, which fell to 0.3% and is approaching deflation. The preliminary manufacturing PMI index was 39.5 points and remained in negative territory. In Europe, the number of new car registrations fell by -76% in April, the most in history. The EUR/USD pair closed the week appreciating 0.7%.
The top Asian pair, USD/JPY, traded very slightly at 107.5 below the 200-day moving average. In April, Japanese exports fell -21.9% year-on-year, reflecting declining global demand. The preliminary manufacturing PMI index was 38.4 points. The country's annual inflation slowed to 0.1% and approached deflation. USD/JPY ended the week up 0.5%.
The British pound also traded according to the sentiment of the U.S. dollar. About 850,000 new unemployed have been recorded in the country, reflecting quarantine sentiment in U.K. Inflation slowed from 1.5% to 0.8%, which increases the pressure on the central bank. Retail sales in April fell -22% year-on-year. GBP/USD ended trading up 0.5%.
This week will be the last of May, so there won't be very many economic indicators published. On Monday, Ifo index will be published in Germany, U.S. consumer confidence data will be released on Tuesday and no major news is scheduled on Wednesday. U.S. industrial orders and preliminary first-quarter growth data are expected on Thursday, and Japanese industrial production, retail sales and May preliminary inflation are expected on Friday.
According to Admiral Markets market sentiment data, 49% of investors have long positions in the EUR/USD pair (down -15 percentage points from last week). In the main Asian pair USD/JPY, 39% of investors have long positions (fell by -9 percentage points). In the GBP/USD pair, 49% of participants expect a rise (down -20 percentage points). Such market data is interpreted as contraindicative, therefore appreciation in EUR/USD, GBP/USD and USD/JPY is expected. The analysis of positioning data needs to be combined with fundamental projections and technical analysis.
Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com
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