The foreign exchange market was in consolidation sentiment last week and the rates of most important currency pairs have changed only slightly. Investors waited for the meeting of the U.S. Federal Reserve, and its members' decision on interest rates and the country's monetary policy. The meeting will be held on September 17-18. According to the latest data, market participants attribute an 80% probability of seeing a 0.25% interest reduction.
U.S. macroeconomic data was mixed, while manufacturers' and consumers' sentiments showed further divergence. The country's retail sales increased 4.1% over the year in August and recorded the fastest growth since late 2018. U.S. consumers remain optimistic and are not yet signalling that they are worried about the slowdown in the industry and the increased risk of losing their jobs. Annual inflation stood at 1.7%, slightly below market expectations of 1.8%. The number of jobless claims was at 205 thousand, down from 219 thousand last week.
The main currency pair EUR/USD reflected the sentiment of the U.S. dollar, but its volatility increased in the middle of the week with the meeting and decisions of the European Central Bank. Its members took decisive action and announced a number of stimulus measures. The interest rate is being reduced by 0.1 percentage point to -0.5%, as well as the bond buyback program, which will buy bonds worth EUR 20 billion every month from 1 November 2019. This program is open-ended and will be implemented until inflation reaches the central bank's target. Interestingly, this incentive program is quite large-scale, but after its announcement, the euro began to appreciate, suggesting that investors were expecting to see even greater incentives. Among economic data was European industrial output, which declined by -2.0% year-over-year, while inflation in Germany was at 1.4%. EUR/USD has ended the week appreciating 0.5%.
Most important Asian pair USD/JPY has been rising steadily throughout the week and Friday's growth was the seventh positive day of the last eight. In Japan, among economic data was economic growth in Q2, which decelerated to 1.3% per annum, which was the lowest level this year. Industrial production rose 0.7% per year in July. USD/JPY has ended the week appreciating 1.1%.
The British pound has continued to rise against the U.S. dollar, with optimistic sentiment prevailing in the market that British prime minister Boris Johnson would not be allowed to implement Brexit without an agreement with the European Union. There was no significant news, the country's parliament was suspended and on Friday it was speculated that positive news could be heard at this week's meeting between Britain and the European Union, which fueled investors' expectations. Among economic data, there was industrial production, which decreased -0.9% per year, and average wage growth of 4.0% per year. GBP/USD has ended the trading week appreciating 1.0%.
This week will begin with important data from China, where changes in industry volumes, investments and retail sales will be announced. On Tuesday, investors will be watching European and German ZEW index results as well as U.S. industry volume data. Europe's and Britain's inflation figures and the U.S. Federal Reserve's decision on interest rates are expected on Wednesday. On Thursday there will be meetings between the central banks of Japan and Britain and the British retail sales data. On Friday, there are no important announcements planned.
According to Admiral Markets market sentiment data, EUR/USD long positions are held by 39% of investors (dropped -8 percentage points compared to last week's data). In the main Asian pair USD/JPY 34% of investors hold long positions (dropped -11 percentage points). In GBP/USD pair 39% of participants expect growth (dropped -14 percentage points). This kind of market data is interpreted as a controversial indicator, therefore appreciation is likely in EUR/USD, GBP/USD and USD/JPY 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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