Investors continued to increase risk
Optimism persisted in the markets last week, prompting investors to remain buyers of riskier assets and the U.S. dollar to depreciate. While market participants maintain high risk appetite, economic data and virus numbers remain too ambiguous to support this trend.
U.S. economic data was scarce. Investors discussed a lot about the change in industrial commodity prices, which fell by -0.8% over the year, for the third month in a row. This encourages discussions among market participants that deflationary pressures may increase. The number of new jobless claims stood at 1.3 million a week and still shows a growing number of people claiming unemployment benefits.
Coronavirus data changed insignificantly. The number of new cases in the U.S. market has maintained an upward trend and has revolved around the level of 60 thousand last week. In Brazil, meanwhile, there has also been an upward trend, with around 45,000 new cases recorded. Both of these countries impose very limited restrictions on the country's population, so the spread of the virus remains active and demonstrates further growth. In India, growth continued and the number of cases reached 27,000. Overall, India rose to 3rd place in terms of the number of cases recorded and overtook Russia, where the number of cases stabilized at 6.5 thousand per day.
The main currency pair EUR/USD rose moderately and established itself at 1,130-point level. Economic indicators in Europe showed a moderate recovery. Retail sales remained down -5.1% year-on-year, but grew 17.8% month-on-month. In May, German exports grew by 9.0% month-on-month, and industrial orders rose by 10.4%, suggesting that Europe is gradually returning to previous levels. EUR/USD pair closed the week appreciating 0.5%.
The most important Asian pair, USD/JPY, depreciated to 107.0. There was not much economic news, and among the most important was the change in the country's household expenditure, which fell by as much as -16% in May compared to the period a year ago, reflecting the impact of the virus. Employee incomes declined slightly -2.1%, likely due to lower workloads during the virus. USD/JPY ended the week with a fall of -0.5%.
The British pound indicated positive investor sentiment and reached a level of 1,260 against the U.S. dollar. No relevant data were published in the country. The country's finance minister, Rishi Sunak, has announced a 30 billion GBP economic stimulus program. The country's biggest challenge is the labour crisis, where companies are downsizing to reflect falling demand. Under the new program, the state will allocate 1,000 GBP to the company if it returns an employee from downtime to a previous job. This initiative is expected to account for about a quarter of the total program. GBP/USD ended the week up 1.1%.
This week will start quietly and important indicators are not scheduled for Monday. Changes in industrial volumes in Japan, Europe and England will be expected on Tuesday. Also the results of the English labour market and the monthly change in the country's economy. China's international trade results, which will provide a better understanding of the global economic activity, as well as data on U.S. industrial production, are expected on Wednesday. On Thursday, investors will turn their attention again to China, where the results of investment, economic growth, industrial volumes and retail trade will be announced, which is likely to give investors a better outlook on the country's recovery from the virus. A meeting of the European Central Bank will also be held on Thursday and the results of U.S. retail sales will be announced. Friday will be relatively calm and investors will only watch the June European inflation data.
According to Admiral Markets market sentiment, 37% of investors have long positions in the EUR/USD pair (down -4 percentage points from last week). In the main Asian pair USD/JPY, 57% of investors have long positions (up 9 percentage points). In the GBP/USD pair, 44% of participants expect a rise (up 10 percentage points). Such market data is interpreted as contraindicative, so EUR/USD and GBP/USD are expected to rise and USD/JPY to fall. 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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