U.S. dollar depreciated to 8-month lows
In the currency markets, pressure on the U.S. dollar persisted last week. Investors have been actively selling the world's reserve currency, which has depreciated to its lowest level since June 2019, in anticipation of further easing of monetary policy by market participants.
On Tuesday, the U.S. central bank unexpectedly announced a 2-step cut in interest rates, or 0.5%. The decision was not made at a scheduled meeting during March 17-18th, but at a special meeting, fearing that the coronavirus could significantly slow U.S. economic growth and bring uncertainty. To mitigate the negative effects, members eased the monetary policy to stimulate economic activity. Interestingly, such a decision, at an unscheduled meeting and a 2-step reduction immediately, was made for the first time since the global financial crisis in 2008.
Data in the world's largest economy was relatively positive. The ISM manufacturing PMI index fell from 50.9 to 50.1 and remained at a neutral level. The job market created 273,000 new jobs, and wages increased +3.0% per year, which suggests that U.S. companies are in no hurry to lay off their workers despite the virus uncertainty.
Meanwhile, globally, the coronavirus has pushed industry sentiment into negative territory for the first time since 2009, according to last week's manufacturing PMI indices from major economies. JPMorgan's aggregated global PMI index dropped to 47.2 points, below the neutral 50-point level. This signals that a stalled Chinese industry is also adversely affecting other major economies, which significantly increases the risk of an economic recession.
The main currency pair EUR/USD reflected depreciation of the U.S. dollar and reached its highest point since July 2019. Economic data included manufacturing PMI indices, which remained mostly in negative territory and reflected slowing trends, particularly in China. Also, more and more regions of Europe are being affected by the coronavirus, which will lead to ever more restrictions and will undoubtedly affect economic activity in the coming period. Preliminary February inflation was 1.2% in Europe and retail sales in January were 1.7%. EUR/USD has ended the week appreciating +2.3%.
The main Asian pair USD/JPY continued its strong depreciation and depreciated to its lowest point since August 2019. Economic data did not promise anything positive and reflected signs of a slowdown from the coronavirus threat. The manufacturing PMI index remained in negative territory at 47.8 points. Interestingly, the service segment index has dropped to 46.8 points and is also in a negative territory. Household consumption fell by -3.9% yoy. USD/JPY has ended the week depreciating -2.4%.
The British pound appreciated against the U.S. dollar like many other currencies. In Britain, economic data was scarce. Among the most important data was manufacturing PMI index, which reached 51.7 points and was in positive territory. GBP/USD finished the week appreciating +1.8%.
This week will begin with German January export figures and industry volumes. Preliminary European Q4 2019 growth figures will be released on Tuesday. On Wednesday, investors will be watching Britain industry volumes and U.S. inflation data. On Thursday, investors will focus their attention on the European Central Bank's meeting and its decisions, in particular on measures to mitigate the impact of the virus on the economy. On Friday, February inflation data in major European economies will be monitored.
According to Admiral Markets market sentiment data, 22% of investors have long positions in the EUR/USD pair (decreased -7 percentage points, compared to last week). In the USD/JPY pair, 73% of investors have long positions (increased +4 percentage points). In the GBP/USD pair, 34% of participants expect a rise (decreased -12 percentage points). Such market data is interpreted as contraindicative, suggesting appreciation in EUR/USD and GBP/USD pairs and depreciation in USD/JPY. Analysis of positioning data should be combined with fundamental projections and technical analysis.
Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com
Discover the world's #1 multi-asset platform
Admiral Markets offers professional traders the ability to trade with a custom, upgraded version of MetaTrader 5, allowing you to experience trading at a significantly higher, more rewarding level. Experience benefits such as the addition of the Market Heat Map, so you can compare various currency pairs to see which ones might be lucrative investments, access real-time trading data, and so much more. Click the banner below to start your FREE download of MT5 Supreme Edition!
Disclaimer: The given data provides additional information regarding all analysis, estimates, prognosis, forecasts or other similar assessments or information (hereinafter "Analysis") published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:
- This is a marketing communication. The analysis is published for informative purposes only and are in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
- Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
- Each of the Analysis is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter "Author") based on the Author's personal estimations.
- To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
- Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures refer that refer to any past performance is not a reliable indicator of future results.
- The contents of the Analysis should not be construed as an express or implied promise, guarantee or implication by Admiral Markets that the client shall profit from the strategies therein or that losses in connection therewith may or shall be limited.
- Any kind of previous or modeled performance of financial instruments indicated within the Publication should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
- The projections included in the Analysis may be subject to additional fees, taxes or other charges, depending on the subject of the Publication. The price list applicable to the services provided by Admiral Markets is publicly available from the website of Admiral Markets.
- Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, you should make sure that you understand all the risks.