Last week, financial markets experienced a pre-holiday calm and as a result, volatility was quite low. However, economic data had different plans – the U.S. and China have exceeded market participant expectations, while Europe continued to disappoint and shows no signs of recovery. Once again, when a difference occurs between positive economic developments in the U.S. and significantly worse indicators in other developed countries emerges, the U.S. dollar appreciates.
In the political arena, most of the attention was drawn to U.S. and China negotiations regarding ongoing international trade deliberations. Both sides have stated that they are committed to arriving at an agreement, and planning a new stage of meetings. At the end of April, the U.S. delegation will visit Beijing, and in the first week of May, Chinese negotiators will go to Washington. It is expected that a final agreement will be announced after this meeting, and the two nations' presidents will have it in writing by the end of May.
In regards to positive economic data from the U.S., focus was primarily on the retail sales data, which showed 3.6% yearly growth, exceeding market expectations. After several less-than-positive months, investors expected to see a very good result - particularly given that citizens received their tax refunds, which often results in an influx of cash into the goods market. The preliminary Manufacturing Purchasing Managers Index remained stable at 52.4 points, which indicated fairly consistent expectations for the upcoming several months. Meanwhile, industrial growth has slowed from 3.6% to 2.8% per year. The unemployment claims count last week decreased further, reaching 192 thousand. This is the lowest result since 1969, which shows that the U.S. labour market remains strong, and fewer people are seeking help from the state when they lose their jobs.
Principal currency pair, the EUR/USD has depreciated. The most significant decline was recorded on Thursday, when Europe's economic data did not show evidence of the expected recovery in economic activity. The preliminary manufacturing sector's Purchasing Managers Index marginally increased from 47.5 to 47.8 points, although remained in negative territory and signalled a possible economic contraction. In Germany, this indicator was at 44.5 points and has remained at a long-term low point. That indicates, that the automotive industry is experiencing a difficult period. Nevertheless, it is important to consider that China has announced incentives for car sales, which will likely let German automakers relax a bit over the next few months. Among other news, Europe's economic expectations index ZEW increased from -2.5 to 4.5 points, which is a positive sign. European inflation indicators remained stable, and yearly price growth was 1.4%. The EUR/USD ended the last trading week by dropping -0.5%.
The most important Asian currency pair the USD/JPY has consolidated at 112.0-point level, which is its highest point since last December. Economic data continues to disappoint market participants. Manufacturing sector's preliminary Purchasing Managers Index came in at 49.5 points, remaining below the neutral 50-point limit. Manufacturing production in February has declined -1.1% per year, and exports have decreased by -2.4%. The USD/JPY has ended the trading week by depreciating -0.1%.
In the British pound market, negative sentiment prevailed and the GBP/USD depreciated to a 200-day moving average. There were no significant Brexit developments, and economic data, despite being relatively positive, did not encourage any recovery of the pound. Retail trade growth surprised and significantly exceeded expectations, increasing 6.7% per year, indicating that consumer sentiment has not been affected by Brexit uncertainty. Inflation has remained stable at 1.9% per year, and in the labour market, wage growth remained strong at 3.5% per year. The GBP/USD has ended the trading week dropping -0.6%.
This week will begin calmly, as Monday is a holiday in most of the major economies due to Easter. On Tuesday and Wednesday, there are no significant economic events planned. On Thursday morning, investors will closely watch the Bank of Japan's press conference, looking for any hints of possible monetary policy changes, and at the end of the trading session, will focus on US long-term industry orders. On Friday morning, Japanese industrial indicators will be released, followed by preliminary U.S. first-quarter economic growth results.
According to Admiral Markets market sentiment data, 66% of investors hold long positions in the EUR/USD (increasing +34 percentage points compared to last week's data). In the USD/JPY, 14% of investors have long positions (+4 percentage points). In the GBP/USD, 77% of participants expect growth (+19 percentage points). This kind of market data is interpreted as a controversial indicator, therefore appreciation is likely in the USD/JPY, while depreciation is likely in the EUR/USD and GBP/USD 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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