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U.S. dollar appreciated amid market tensions

September 02, 2019 12:30

Last week sentiment on financial markets was mixed. There was no major news in the political arena, but tensions and uncertainties prevailed, encouraging investors to be cautious and to choose safe currencies, therefore U.S. dollar appreciated to 2-year highs.


Data in the U.S. remained mixed and not much data was published overall. Second-quarter economic growth was 2.0% per year and was in-line with expectations, although it was the slowest growth in the last 24 months, confirming investor fears of slowing growth. Meanwhile, the consumer confidence index was 135.1 points in August and remained at the highs of the decade, suggesting that the population is keen to continue to actively consume and support the country's economy. Overall, U.S. indicators remain strongest among developed countries, encouraging investors to divert capital to the U.S., which is increasing demand for the U.S. dollar.


Main currency pair EUR/USD reflected U.S. dollar sentiment and depreciated below the 1.10 level, its lowest point since May 2017. Members of European Central Bank commented on monetary policy and expressed different opinions - Governor Christine Lagarde hinted that interest rates still have room to fall if the situation requires, while Klaas Knot, a member of the bank, said the economy is not weak enough, that a quantitative easing program needed to be resumed. The next bank meeting will be held on 12th September. In Italy, there have been no major changes and politicians have continued to resolve internal disagreements over the ruling coalition. Among the economic results was the German business climate index lfo, which reached 94.3 points in August, the fifth consecutive month of decline and a 7-year low. Also, the number of unemployed in the country has increased by 4 thousand, which is not much, but shows that negative trends in the industrial sector are noticeable nationwide. In order to curb the worsening sentiment in Germany, the country's finance minister hinted that a corporate tax reduction up to 25%, which now ranges from 30-33%, is being considered. EUR/USD has ended the week dropping -1.3%.


Most important Asian pair USD/JPY marginally increased to the 106.5-point level last week. Earlier last week, it was announced that the G7 has reached an important agreement on international trade between the U.S. and Japan. Japan has committed to importing more agricultural and food products from the U.S., such as wheat, corn, beef, pork. Meanwhile, the U.S. will not impose tariffs on Japanese manufacturers and their imports of vehicles from Japan to the U.S. Economic indicators were scarce in the country, with the most significant being the preliminary change in industrial volumes, which recorded annual growth of 0.7%. USD/JPY has ended the week increasing by 0.8%.


The British pound was in a bad sentiment when the country's new prime minister, Boris Johnson, asked the Queen a right to suspend the Parliament work, which was given to him. As a result, Parliament will not work until 14 October, which will give members very little time to decide on the Brexit situation, as the deadline for leaving the European Union is 31 October. Uncertainty and tensions over Brexit continue, but as Britain tightens its domestic decision-making power, more pressure is being placed on the EU. No important data was published. GBP/USD has ended the week dropping -1.0%.

Economic Events

This week will begin with purchasing managers indices results from major economies, and in U.S. it will be a national holiday. Purchasing managers index will be released in the U.S. on Tuesday, due to the former holiday, and no other major news is scheduled. European retail data and U.S. international trade figures will be released on Wednesday. No major news is planned for Thursday, and investors will be tracking U.S. labour market on Friday.

According to Admiral Markets market sentiment data, EUR/USD long positions are held by 82% of investors (increased +32 percentage points, compared to last week's data). In the main Asian pair USD/JPY 56% of investors hold long positions (dropped -18 percentage points). In GBP/USD pair 59% participants expect growth (increased +5 percentage points). This kind of market data is interpreted as a controversial indicator, therefore depreciation is likely in all three major pairs - EUR/USD, GBP/USD and USD/JPY. 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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