Last week, the global reserve currency reversed its downward trend and recorded a moderate rise after the U.S. Federal Reserve meeting. Investors also returned to safe-haven currencies after negative sentiment prevailed in markets from Thursday, fearing a second wave of the virus and worries about the economic situation.
The data in the world's largest economy was mixed. The Redbook index, which shows consumer sentiment, recorded a drop of -9.7% compared to the same period a year ago, which suggests that the country is still feeling the effects of the virus and the population is spending less. The number of job vacancies fell from 6.0 to 5.0 million and still indicated a further deterioration in sentiment in the labour market. Inflation in the country fell to 0.1% per year, and after eliminating energy prices to 1.2%, indicating growing pressure on the Federal Reserve to avoid deflation. The number of new jobless claims was 1.5 million a week.
A meeting of the U.S. Federal Reserve was also held. Members see interest rates at 0% at least until 2022, and the quantitative stimulus program will continue at the current pace and will be increased as needed. The bank's economic forecasts were also published: unemployment will reach 9.3% in 2020, and the economy will shrink by -6.5%.
The situation of the coronavirus has deteriorated slightly, and most of the attention was directed to the U.S. At the end of the week, the number of new infections in the country began to grow rapidly and reached almost 30 thousand per day. The state of Texas has even begun to reintroduce quarantine to control the situation. In Brazil and Russia, the number of new infections remains stable, with India rising to fourth place, which is now experiencing a rapid rise in the number of cases.
The main currency pair EUR/USD tried to break through the resistance level of 1,140 at the beginning of the week, but failed and the pair fell to 1,125 on the last days of the week. Among the economic indicators was German exports, which fell by -24% in April compared to the same period a year ago. Italian industrial production fell -42% in April, during the very peak of the virus, compared to 2019. EUR/USD has ended the week depreciating -0.3%.
In the most important Asian pair, USD/JPY, sentiment has changed significantly and the pair has depreciated from a 2-month high and returned to the usual trading range. Economic data were scarce and included a change in industrial production prices, which fell to -2.7%, and suggested negative pressures on headline inflation in the coming months. USD/JPY ended the week with a fall of -2.0%.
The British pound largely reflected the trend in the U.S. dollar and capital flows between risky and safe-haven currencies, so the pair appreciated in the first half of the week and then depreciated. Among the data was the change in the country's economic results in April, when GDP contracted by as much as -24% compared to the same period a year ago. The volumes of industrial production decreased by -24.4%. GBP/USD has ended the week depreciating -1.0%.
This week will start with important economic data from China, where industrial production, retail trade and investment figures will be released. English labor market data and U.S. retail and industrial output results will be monitored on Tuesday. The Bank of Japan's decision on interest rates and changes in the country's export volumes in May is scheduled for Wednesday, and inflation rates in U.K. are expected on the same day. On Thursday, the focus will shift to a meeting of the Bank of England and its press conference. Retail sales results in U.K. are scheduled on Friday.
According to Admiral Markets market sentiment data, 29% of investors have long positions in the EUR/USD pair (down -1 percentage point from last week). In the main Asian pair USD/JPY, 65% of investors have long positions (up +36 percentage points). In the GBP/USD pair, 39% of participants expect a rise (down -6 percentage points). Such market data is interpreted as contraindicative, therefore EUR/USD and GBP/USD appreciation and USD/JPY depreciation are expected. 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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