Last week was full of important economic data, which signaled a continuing slowdown and prevented investors from relaxing, maintaining anxiety about future trends. Industrial sector data around the world has recorded another downturn and many countries have reached recession territory in this business segment. A new Brexit proposal was announced in the political arena and the U.S. introduced trade tariffs on European food products.
Economic data in the U.S. has disappointed investor expectations. The most notable and most influential was the manufacturing PMI index, which dropped to 47.8 points and reached its lowest point since June 2009. A value of less than 50 is indicative of sector retreat and negative sentiment among business participants. The main components of the index were negative: new orders and production reached 47.3 points, existing orders 45.1, new export orders 41.0, and employment was at 46.3 points. 136 thousand new jobs were created in the labor market and the actual result was almost in-line with market expectations of 140 thousand. The country's unemployment rate dropped to 3.5% and it was the lowest since December 1969.
Main currency pair EUR/USD mainly reflected the trend in U.S. dollar segment and fell to new lows of 1.0880 in the beginning of the week, before rising in the second half. Economic data in Europe was not promising. Manufacturing PMI was at 45.7 points, and the sector's weakness was felt in all major economies and the index was below 50 points in Germany, Spain, Italy, and Switzerland. Meanwhile, in France, where the indicator showed the best results to date, it has reached 50.1 points. Preliminary European inflation stood at 0.9% per year and continued to fall, far from central bank targets. More positive news was German retail sales, which continued to grow at 3.2% per year, and 10,000 new jobs were created in the labor market, which allowed investors to relax slightly since the industry does not make massive layoffs yet. EUR/USD has ended the week appreciating 0.5%.
Most important Asian pair USD/JPY appreciated to 108.5 at the beginning of the week, but later it lost support and fell to 106.5. Among the economic data was the manufacturing PMI, which stood at 48.9 points, and the preliminary change in industry volumes in August, which was at -4.7% per year. USD/JPY has ended the week dropping -0.9%.
The British pound has been consolidating while investors waited for the European Union to decide on a new Brexit proposal. The Brexit situation has undergone a change, with English Prime Minister Boris Johnson presenting his new exit plan. Negotiators and politicians believe the plan has offered enough compromises to keep the European Union at the negotiating table. Meanwhile, European Commission President Jean-Claude Juncker said he still sees problems and European lawyers will look into the text of the proposal in detail and give their opinion. Economic data included manufacturing PMI index, which stood at 48.3 points and improved slightly, but still remained in a negative zone. Business investment declined -1.4% year-on-year and negative sentiment in investments is being recorded for the last 12 months already, largely due to uncertainty about Brexit. According to preliminary data, economic growth in the second quarter was 1.3% per year. GBP/USD has ended the week appreciating 0.4%.
This week will start off rather calmly and on Monday, German industrial orders will be announced. On Tuesday, investors will be watching consumer figures for Japan and U.S. manufacturing prices data. No important data is planned for Wednesday, except for the minutes of the last meeting of U.S. Federal Reserve, which will be announced in the evening. British manufacturing output and actual U.S. inflation will be monitored on Thursday. No important data is planned for Friday.
According to Admiral Markets market sentiment data, EUR/USD long positions are held by 35% of investors (dropped -41 percentage points compared to last week's data). In the main Asian pair USD/JPY 63% of investors hold long positions (increased +25 percentage points). In GBP/USD pair, 58% of participants expect growth (dropped -5 percentage points). This kind of market data is interpreted as a controversial indicator, therefore appreciation is likely in EUR/USD pair and depreciation in USD/JPY 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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