Last week, tensions dominated the stock market in response to U.S. president Donald Trump suggesting that negotiations with China, regarding international trade questions, were not going as smoothly as previously reported. After the last meeting between the U.S.' and China's representatives last Friday in Washington, the U.S. has increased import tariffs on Chinese goods entering the country. This solution will impact goods with an annual volume of about $200 billion, and their tax rate will increase from 10% to 25%. In the long run, this will negatively affect consumption and production, as the price of goods will increase and demand will decrease. The U.S. negotiators also said that China has been given a 3-4-week period to reach a trade agreement, otherwise an additional 25% tariff on 325 billion USD worth of goods would be introduced.
Data was scarce in the U.S., although it was positive and in-line with expectations. Most of the attention was drawn to inflation, which was at 2.0%. This level is in line with Federal Reserve's policy, and is not putting pressure on its' members to raise interest rates, which provides investors with an opportunity to take positions in more risky asset classes. Unemployment claims last week remained stable at 228 thousand.
Principal currency pair the EUR/USD has reflected a tendency of increased demand for risky assets. Economic data from Europe was ambiguous– Germany's indicators showed stabilization, although other countries recorded further slowdown in activity. According to data from March, Germany's industrial production has increased by 0.5% compared to a month ago, manufacturing orders increased by 0.6% and export increased 1.5%, which indicates that the biggest European economy was able to take a breather for a moment, outside of the slowdown of global growth and the growth of major trading partners. Meanwhile, other large and significant countries, such as Italy and Spain, have recorded an insignificant decline of economic indicators. It is important to note, that larger trade tariffs between the U.S. and China will negatively affect China's business sentiment and manufacturing volumes, which in the long-run will affect Germany and the whole of Europe - therefore long positions in this pair should be more tactical than long-term. The EUR/USD has ended the trading week appreciating 0.3%.
Principal Asian pair, the USD/JPY, has demonstrated particularly negative sentiment. When investors, while anxious regarding continually increasing tensions between the biggest global economies, chose Japanese Yen, they assumed it was a safe alternative. Data in Japan was scarce, among which one of the most important was household expenses, which increased 2.1% per year and indicated positive tendencies between consumers. The USD/JPY has ended the trading week depreciating -1.0%.
The British pound has surrendered to negative sentiment, and the pair has depreciated despite weakening U.S. dollar. This was largely due to ongoing talks between the Tories and Labour on a possible coalition in an attempt to ratify a Brexit agreement. This solution requires a stable 320 vote coalition, which would allow the acceptance of all of the Brexit proposals. Therefore, Theresa May needs strong and significant support from the Labour party, with whom negotiations are still ongoing. There was no important economic news published. The GBP/USD has ended the trading week dropping -1.3%.
This week will begin with labour market data from Britain, and manufacturing data from Europe. On Tuesday, China will announce indicators of retail sales, manufacturing, and investments which will be closely monitored by investors, while waiting for signs of economic growth stabilization. On Wednesday, Germany's and Europe's preliminary first-quarter growth results will be announced, and later, U.S. retail sales and manufacturing volumes will be published. On Thursday, investors will be expecting news from the U.S. real estate sector, and Friday will be fairly calm and only European inflation will be announced.
According to Admiral Markets market sentiment data, the EUR/USD long positions are held by 40% of investors (dropped -8 percentage points, compared to last week's data). In the main Asian pair USD/JPY 72% of investors hold long positions (increased +22 percentage points). In GBP/USD pair 71% of participants expect growth (increased +48 percentage points). This kind of market data is interpreted as a controversial indicator, therefore appreciation is likely in EUR/USD pair and depreciation in 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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