The U.S. dollar consolidated
Investor sentiment was mixed last week, leading to consolidation in financial markets. News of the coronavirus remained rather negative, but in some states, changing trends in a positive direction were recorded, which sparked optimism among some investors.
In the epicentres of the virus in Europe, Italy and Spain, the number of new infections slowed moderately during the last week, and the number of active patients became stable, meaning that they recover as much as they get sick, which is a crucial step in controlling the spread of the virus. The Italian authorities have announced plans and concrete steps to ease quarantine in the coming months, but no dates have yet been announced. Austria has already announced the first businesses to open after quarantine, when small retailers, household and garden stores will open after Easter. Catering establishments and hotels are expected to resume operations in early May.
Meanwhile, U.S. news only worsened, with the total number of infections exceeding 500 thousand and deaths reaching 2,000 per day. Life in the world's largest economy is increasingly stagnant as the virus spreads to smaller cities and less populated states. This has also led to a further deterioration in economic data.
Investors continued to focus on the number of new jobless claims, which again reached 6.6 million per week. That many people applied for unemployment benefits because they lost their jobs. The situation in the country is deteriorating rapidly as more and more businesses are stopping operations and factories, forcing them to lay off workers or at least temporarily terminate their employment in order to avoid liquidity problems.
The main currency pair EUR/USD appreciated slightly to 1.09 level. No relevant economic data was published in Europe, as much of the information was for February and therefore did not show the impact of quarantine. In general, the economy of Europe remains stagnant and is likely to begin to gradually return to normal from early or mid-May. EUR/USD closed the week appreciating 1.2%.
The main Asian pair, USD/JPY, continued to stand out with high volatility and fluctuated at a 200-day moving average. No significant economic indicators were announced in the country, and USD/JPY has ended the week unchanged.
The British pound reflected trends in the U.S. dollar and the GBP/USD pair appreciated moderately over the past week. The country has experienced a rapid spread of the virus and a growing number of deaths that has reached nearly 1 thousand a day. Also, significant concern was caused when the country's prime minister Boris Johnson, was placed in the intensive care unit when the virus's symptoms did not subside. But at the end of the week, he was released. In February, industrial production contracted by -2.8% year on year. GBP/USD ended the week appreciating 1.5%.
This week will begin with a holiday on Monday in Europe due to Easter. No important data is planned for Tuesday, and international trade and March export figures for China and South Korea will be monitored on Wednesday, which is expected to better reflect the impact of quarantine. Also, March retail sales in the U.S. will be announced on Wednesday, which may surprise investors. There won't be much data on Thursday, but on Friday morning investors will watch China's economic, investment and retail performance for the first quarter of 2020 and March.
According to Admiral Markets market sentiment data, 58% of investors have long positions in the EUR/USD pair (increased +1 percentage point from last week). In the main Asian pair USD/JPY, 33% of investors have long positions (decreased -13 percentage points). In the GBP/USD pair, 47% of participants expect a rise (increased +11 percentage points). Such market data is interpreted as contraindicative, therefore EUR/USD is expected to depreciate and USD/JPY and GBP/USD to appreciate. Positioning data analysis 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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