Markets were affected by central banks and trade agreement
A lot of news came from the political arena last week. Most importantly, the first-stage international trade agreement between the U.S. and China. President Donald Trump said he approved the deal and welcomed it as the first major step towards a more ambitious solution to trade conditions. Although the market was optimistic about this news, the specific text and terms of the agreement have not yet been made public. The agreement is known to cover the following: new import duties on Chinese goods with a turnover of 156 billion USD per year, as planned not to be introduced earlier than December 15, as well as a reduction in the U.S. import tariff from 15% to 7.5% on commodities with a turnover of 120 billion USD a year, and China has pledged to buy U.S. agricultural production for 120 billion USD over 2 years. This agreement should alleviate the economic uncertainty in the business world to date.
In the world's largest economy, data was in-line with expectations. Inflation in the country stood at 2.1% per year, while energy and food prices were up 2.3% and were in-line with market expectations and Federal Reserve's targets. Retail sales growth was 3.5% year-over-year but lagged behind market expectations. Investors expected better results before the festive period. It is also interesting that the number of new unemployment claims rose to 252,000 last week, the highest level this year. Labour market performance is currently one of the key components in the overall economic cycle in the country.
The U.S. Federal Reserve also held a monetary policy meeting. It did not make interest rate decisions and interest rates remained unchanged. Chief Executive Jerome Powell said that no change in interest rates is expected for at least some time now, as economic performance is in-line with the set goals and reflects expansion.
Main currency pair EUR/USD has mirrored the U.S. dollar and even rose shortly to 1.12 level on Friday, but then returned below the 200-day moving average. There were no surprises at the European Central Bank meeting - interest rates remained unchanged and the bond purchase program will continue until the inflation targets are met. Among economic data was German export growth of 2.0% per year, the second positive month in a row, signalling a better situation in the main European economy. The same sentiment is also evident in the country's ZEW economic index, which rose from -2.1 to 10.7 points, while in Europe the index rose to 11.2 points. Worse news was European industrial production data, which showed a further decline of -2.2% per year. EUR/USD has ended the trading week appreciating +0.5%.
The main Asian pair USD/JPY appreciated and stood out in the currency market. Japan's economy grew 1.8% year-over-year in the third quarter, well above investor expectations. However, industry order data continued to show a downward trend, suggesting that the sector is not yet showing signs of recovery. USD/JPY closed the trading week appreciating +0.7%.
The British pound ended the trading week appreciating, after the announcement of Boris Johnson's early parliamentary elections. He and the Conservative Party secured a majority in Parliament, which means he will approve the withdrawal agreement by the end of January 2020, which will allow the prime minister to move on to the next round of talks and likely complete a full withdrawal by the end of 2020. Economic indicators included domestic growth in the third quarter, which stood at +0.7% per year, as well as industrial output, which dropped -1.3% per year. GBP/USD has ended the week appreciating +1.5%.
This week will kick off with important economic data from China, where industry volumes, investment and retail figures will be announced. Preliminary manufacturing PMI indices will also be expected. U.S. industrial production data will be monitored on Tuesday. European and British inflation figures will be released on Wednesday. Britain's retail figures and the results of the country's central bank meeting are expected on Thursday. There will also be a meeting of the Central Bank of Japan. On Friday, no important data was planned.
According to Admiral Markets market sentiment data, 44% of investors have long positions in EUR/USD pair (decreased -1 percentage points from last week). In the main Asian pair USD/JPY, 31% of investors have long positions (down -31 percentage points). In the GBP/USD pair, 27% of participants expect a rise (up 13 percentage points). Such market data are interpreted as contraindicative, therefore appreciation is likely in EUR/USD, GBP/USD and USD/JPY pairs. Analysis of positioning data should always be accompanied by fundamental projections and technical analysis.
Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com
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