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Consolidation took place in the currency markets

July 01, 2019 11:30

Last week, a fairly neutral sentiment persisted between investors, and they were trying to evaluate changes in the positions of the major central banks, trends in economic data, and comments from the politicians at the summit in Japan.

Investors paid close attention to the G20 summit in Osaka, which brought together the leaders of the world's largest economies and various international organizations. A very important meeting took place on Saturday, between the U.S. and Chinese presidents Donald Trump and Xi Jinping. The main topic of the discussion was the international trade agreement, which was deadlocked last month when the U.S. has increased import tariffs and China withdrew from the negotiations. During the summit, the presidents agreed on an interim truce, when tariffs would not be increased, and to prolong the negotiations on trading conditions in the near future. In the coming weeks, it is likely that markets will perceive this news positively, and show an increased risk appetite.

USD

Data in the U.S. was ambiguous. Investors were watching the consumer confidence index, which has significantly corrected from the last month's result. According to June data, index value was at 121.5 points and has dropped to the lowest point since mid-2017. It shows that the recovery in recent months was only temporary and the consumer confidence, which is a major driving force in U.S. economy, is deteriorating. Negative sentiment has also returned to the real estate market, while pending home sales decreased -0.8%, despite falling mortgage interest rates. Unemployment claims increased from 216 to 227 thousand. Overall, economic indicators continue to show a slowdown in activity, which is likely to drive the central bank to cut interest rates and investors to retreat from buying risky currencies in the long-run. Market participants are confident, that U.S. central bank members will cut interest rates at the end of July meeting with close to 100% probability.

EUR/USD

Principal currency pair EUR/USD has marginally appreciated and fluctuated near 3-month highs. This rise was more determined by overall risk appetite in global markets, rather than Europe's economic figures. Economic data has remained negative and in many cases indicated worsening expectations. Germany's lfo index was at 97.4 points and has dropped to the lowest point since December 2014. It is worth noting, that practically all indices, which calculate the expectations of market participants, have fallen to the lowest points since years 2014 and 2015, what indicates that sentiment in Europe is especially negative and economic data will continue to reflect it further. Germany's 10-year bond yield has reached a new low and was at -0.32%. The EUR/USD has ended the trading week appreciating 0.2%.

USD/JPY

Most important Asian pair, the USD/JPY, has appreciated from 14-month lows. Among economic data was retail trade volumes, which indicated 1.2% yearly growth and preliminary industrial production volumes, which decreased -1.8% per year. In general, the trends of the last six months in Japan persist, when industry data shows a moderate slowdown, but the country's consumers remain active and quite positive. USD/JPY has ended the trading week appreciating 0.4%.

GBP

Great Britain's pound has marginally depreciated, when uncertainty about the country's presidential election and the Brexit situation persisted. Economic data varied – annual GDP growth was 1.8%, but business investments shrank by -1.5% per year, which was the fourth negative quarter in a row, suggesting that business representatives remain very conservative, as there is still a lot of uncertainty in Brexit situation. GBP/USD has ended the trading dropping -0.3%.

Economic Events

This week will begin with news from Asia – on Monday investors will watch South Korea's export results and manufacturing purchasing managers' indices of the major economies. On Tuesday, Germany's retail trade volumes are expected. U.S. international trade data will be released on Wednesday and national markets will close earlier, before the Independence Day. On Thursday, attention will be drawn to Europe's retail trade data, while U.S. market will be closed. On Friday, investors will be watching U.S. labor market indicators and newly created jobs.

According to Admiral Markets market sentiment data, EUR/USD long positions are held by 26% of investors (increased +8 percentage points, compared to last week's data). In the main Asian pair USD/JPY 54% of investors hold long positions (dropped -27 percentage points). In GBP/USD pair 63% of participants expect growth (increased +8 percentage points). This kind of market data is interpreted as an opposite indicator, therefore appreciation is likely in EUR/USD and depreciation in GBP/USD and USD/JPY pairs. Analysis of positioning data should be always accompanied with fundamental projections and technical analysis.

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


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