Consolidation sentiment continued to dominate markets last week as investors prepared for important economic data, as data has reflected the results for March and in part for the first weeks of April, and the data was mostly very weak. So far, the global economy is showing no signs of recovery and indicators are only further deteriorating. As an example, the forecast for the change in GDP prepared by the Atlanta branch of the U.S. Federal Reserve after Friday's data showed a -35% decline in the country's economy in the second quarter of 2020.
Among the published economic news was the focus on labour market performance. The number of new jobless claims was 3.2 million, and the declining trend in nominal terms has persisted, but overall the number remains in the seven-figure range, which is a huge loss to the country's economy. April data was also released on Friday, showing 20.5 million job losses and rising unemployment to 14.7%. It should be noted that these data do not reflect the full month of April, as they are prepared in the middle of the month, so there is no change in recent weeks. Interesting data came from the consumer loans segment, where a 12 billion USD decline in total credit was recorded in March, the first such decline since 2011 and the global financial crisis. This shows that consumers are reducing their purchases and repaying loans, but at the same time, banks are taking a more responsible approach to the situation and financing the population more conservatively in the event of job losses. Given that domestic consumption accounts for 2/3 of the economy, this is very bad news.
News of the coronavirus did not show significant changes. In Europe, the situation continued to improve, with quarantine relaxed in Italy and Spain. U.S. trends were stable, with about 30,000 new cases recorded each day, and mortality remains high at about 2,000 per day. Among the biggest changes was Russia, where 10,000 new cases were recorded per day and the curve continues to rise.
The main currency pair EUR/USD depreciated to 1.08-point level and reflected the trend of the U.S. dollar. Among the economic indicators was the manufacturing PMI Index, which fell to 33.4 points, with Spain and Italy showing the worst performance, where the restrictions were the most severe. German industrial orders fell -15% in March from February, while industrial output contracted -9.2% from the previous month. European retail sales decreased by -9.2% compared to last year. EUR/USD pair has ended the week depreciating -1.3%.
The most important Asian pair, USD/JPY, depreciated slightly and reached a level of 106 points for a short time. Among the economic data was household consumption, which fell -6.0% year-on-year in March and the service sector PMI index, which stood at just 21.5 points and fluctuated at historic lows. USD/JPY has ended the week depreciating -0.3%.
The British pound has fluctuated in the consolidation range over the last 6 weeks. The outbreak of the virus in the country had a significant impact on the economy, with very severe restrictions, although they did not help as expected and the number of victims surpassed Italy. Economic data were not promising: the service sector PMI index fell to 13.4 points, the construction sectors to 8.2 points. At the Central Bank meeting, all members voted in favour of unchanged interest at the 0.1% level. GBP/USD ended the week dropping -0.7%.
This week will start relatively calmly, and on Monday, investors will watch the results of Italian industrial production in March. Due to the fact, that even unnecessary industrial activities were banned in Italy, the results may come as a surprise. Chinese inflation will be announced early on Tuesday morning, followed by U.S. inflation. U.K. first quarter economy data and the country's industrial output will be expected on Wednesday. Inflation figures will be announced in Germany and Spain on Thursday, and the number of new jobless claims in the U.S. will be announced later that day. Friday will start with data on South Korean exports and Chinese industrial production, retail sales and investment. This will show how China is recovering from the virus outbreak. Economic developments in Europe and Germany in the first quarter and U.S. retail and industrial output results will also be announced later that day.
According to Admiral Markets market sentiment data, 70% of investors have long positions in the EUR/USD pair (increased +32 percentage points from last week's data). In the main Asian pair USD/JPY, 60% of investors have long positions (increased +2 percentage points). In the GBP/USD pair, 62% of participants expect a rise (down -1 percentage point). Such market data is interpreted as contraindicative, therefore EUR/USD, USD/JPY and GBP/USD are likely to depreciate. Positioning data 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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