Last week, two strong tendencies could be felt in the market – investors were active buyers of the U.S. dollar and of stocks. Data from the U.S., the biggest economy, was positive and encouraged investors to increase their risk related to the U.S. Meanwhile, that kind of optimism was not present in other global economies, where many recorded worse results.
U.S. economic indicators were strong and exceeded market expectations. This positive result was especially demonstrated by the country's first-quarter growth rate, which was at 3.2% per year, and significantly exceeded the 2.3% market expectation. A month ago, banks and investors reduced their economic growth forecasts, and at the same time, they had reached 0.5% per year - despite the actual data being very positive. It is important to note, that the economic growth has been marked by a decline in trade deficits and an increase in stockpiling, which are only short-term, unsustainable factors, and the country's consumer and business investment components have fared far worse than expected, which raises doubts as to whether final growth data will be higher than 3% for 2019. Manufacturing orders after the elimination of aircraft and defense equipment increased 2.8% per year, which was in line with market expectations. Unemployment applications increased from 192 to 230 thousand last week, which was the sharpest increase over the last 18 months. Although this level is not very high, it is important to note that labour market data is showing consistent slow-down of growth.
Principal currency pair the EUR/USD, has reflected the increased investor demand for the U.S. dollar, and the pair has depreciated to the lowest point since 2017 June. Among Europe's economic data releases, most significant being the consumer confidence index which has dropped from -7.2 to -7.9 points and remained in the last 2-year low, and Germany's lfo business index, which depreciated from 99.6 to 99.2 points. Although the indicators did not show any significant deterioration, they indicated that Europe's economic situation remains difficult, and consistently poor manufacturing data negatively affects business and consumer expectations. The EUR/USD has ended the trading week by dropping -0.9%.
The most prominent Asian currency pair, the USD/JPY, was further marked by low volatility, mostly fluctuating around the 112-point mark. Japan's retail sales increased 1.0% per year, and indicated that sentiment among consumers remains positive. Meanwhile, the central bank has not changed its monetary policy, stating that interest rates will remain low at least until 2020, and according to the updated forecast, inflation will not reach 2.0% in the upcoming three years. The USD/JPY has ended the trading week dropping -0.3%.
Great Britain's pound also surrendered to the weakening of the U.S. dollar. The pair's value adjusted to 1.29 and settled below the 200-day moving average. There were no significant changes in Brexit negotiations, and no important economic data was published. The GBP/USD has ended the trading week dropping -0.6%.
This week will begin with news from Spain, where government elections took place on Sunday. On Monday, investors will be watching for the growth results of the European money and loan markets and manufacturing and business sentiment indices. On Tuesday, investors' attention will be drawn to China's Purchasing Managers Indices results, which can have an effect on risk sentiment. In Europe, preliminary economy growth in the first quarter will be published. Wednesday will be a holiday in most of the economies, although the Purchasing Managers Indices will be announced in the U.S., which will provide additional perspective on the current sentiment in the country's manufacturing sector. The U.S. Federal Reserve's meeting will also be held on Wednesday, which will provide cues as to what tone the bank members will assume after last month's positive economic results - therefore increased volatility is likely. On Thursday, the Purchasing Managers Indices will be announced in Europe, and Britain's central bank meeting regarding monetary policy will be held, although significant changes are not expected. On Friday, Europe's preliminary inflation result will be published, although most of attention will be drawn to U.S. labor market data.
According to Admiral Markets market sentiment data, in the EUR/USD long positions are held by 83% of investors (increased +17 percentage points, compared to last week's data). In the main Asian pair, the USD/JPY, 29% of investors have long positions (+15 percentage points). In the GBP/USD, pair 74% of investors expect appreciation (-3 percentage points). This kind of market data is interpreted as a controversial indicator, therefore appreciation is likely in USD/JPY pair and depreciation in EUR/USD and GBP/USD pairs. Analysis of positioning data should always be accompanied with fundamental projections and technical analysis.
Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com
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