Last week, the sentiment in financial markets was ambiguous. Among positive news was Brexit, when the European Union reached an agreement with the English negotiators. This provided a flash of optimism that the hard exit option was no longer in a range of alternatives. Among negative news was U.S.-China talks, with signs that China was not going to increase U.S. agricultural imports unless the U.S. cuts tariffs. The international trade conflict remains in deadlock.
Economic data in the U.S. has disappointed expectations. Retail sales were the main focus, with annual growth of 4.1% and a slight slowdown, but a -0.3% drop over the previous month, the first negative since February. This has prompted speculation among investors that this is perhaps the first sign that residents will be more cautious in raising their consumer spending. Industrial output declined -0.14% over the year, reflecting worsening sentiment seen in PMI indices. The number of new unemployment applications reached 214 thousand and remained stable in the lows of the cycle.
The main currency pair EUR/USD has reflected market optimism over Brexit, rising to the level of 1.117, the highest since mid-August. Economic data included European industrial production, which declined by -2.8% year-over-year in August, the 10th consecutive month in a row. European and German ZEW economic indices remained below -20 points and reflected ongoing negative sentiment among market participants. Actual inflation in Europe in September was just 0.8%, below both preliminary and market expectations. This puts the pressure on the central bank as the threat of deflation grows. EUR/USD closed at 1.2% over the course of the week.
The most important Asian pair USD/JPY changed slightly last week. Increasing to 109.0 in the early days, later it returned below 108.5. Economic news included inflation data and September price growth slowed to 0.2% per year. This increases the pressure on the central bank for domestic deflation, but it is interesting that bank members are not continuing to reduce interest rates to negative territory and increase quantitative stimulus. Interestingly, market analysts estimate that if the central bank does not increase the volume of its quantitative easing program, the bank balance will start to decline gradually by 2020, which may be another sign of changing long-term central bank policies. USD/JPY ended the week unchanged.
The British pound continued to appreciate, reaching almost 1.30 level, the highest since May. Prime Minister Boris Johnson has reached an agreement with European Union diplomats on a new exit project. For the most part, there was no change, with most of the negotiations on the border in Ireland. Despite the positive breakthrough, a vote in the English Parliament took place on Saturday, with a decision to postpone the vote on the new agreement and, in the meantime, to request an extension of the European Union's negotiations. Mr. Johnson opposed this and accompanied the letter requesting an extension, which had to be sent under a recent law, another letter, describing the situation and proposing not to extend the negotiation deadline. This week we will find out the position of the European Union. Economic data was somewhat disappointing as wage growth slowed and unemployment rose slightly. Annual inflation stood at 1.7% and retail sales growth was 3.1%. GBP/USD ended the week appreciating 2.6%.
The last week of the month will be quite calm and will start with Japanese exports data. U.S. home sales will be announced on Tuesday. No major announcements were scheduled for Wednesday. On Thursday, the focus will be on preliminary PMI indices, as well as a meeting of the European Central Bank to decide on interest rates and further monetary policy. German Ifo Business Index and U.S. Michigan Consumer Confidence Index are scheduled for Friday.
According to Admiral Markets market sentiment data, EUR/USD long positions are held by 15% of investors (dropped -10 precentage points, compared to last week's data). In the main Asian pair USD/JPY 35% of investors hold long positions (increased +8 percentage points). In GBP/USD pair 27% of participants expect growth (decreased -19 percentage points). This kind of market data is interpreted as a contraindicator, 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
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.