During last week, volatility in the U.S. currency remained high. On Monday and Tuesday, the greenback has consistently appreciated, while optimism regarding positive labor market data persisted and investors waited for news from the Federal Reserve.
Federal Reserve's chair Jerome Powell in his press conference on Wednesday has maintained a dovish tone on monetary policy, which encouraged appreciation of risky assets and depreciation of the U.S. dollar. Market participant expectations to see a 0.25% interest rate decrease at the end of July remain high, around 100%.
U.S. economic data was ambiguous, although did not provide strong arguments to the central bank to cut interest rates. Mostly tracked indicator was inflation, which remained 1.6% per year. Excluding gas, energy and food components, price change was 2.1% per year, stable and in-line with past 14-month results and in-line with Federal Reserve's targets. Unemployment claims have decreased from 221 to 209 thousand and indicated about persisting positive sentiment in the labor market. Investors notice, that the economic data shows slowdown of growth, however, they are not as negative as it would be usual for monetary policy softening. Meanwhile, Federal Reserve's chair Jerome Powell in his press conference discussed increased uncertainty in the global economy, which was the main argument behind the need for lower rates.
Main currency pair EUR/USD has reflected changes in investors' expectations regarding U.S. monetary policy. It has encouraged depreciation of the U.S. dollar and appreciation of EUR/USD pair. Economic data in Europe remained consistent with recent weeks' results. Europe's manufacturing production volumes have decreased -0.5% per year and in the main economies – Germany, Italy, France, tendencies remained negative. Annual inflation in Germany was at 1.6% and in France, 1.2% and both countries were in-line with expectations. Also, meeting minutes of the latest European Central Bank meeting was announced, in which it was mentioned, that the members have discussed slowing economic growth and possible additional stimulus from monetary policy. Investors should take into account, that European Central Bank in the upcoming months may announce additional economic stimulation measures, especially if economic data maintains current trends. EUR/USD has ended the trading week appreciating 0.4%.
Most important Asian pair USD/JPY further fluctuated and remained at 108-point level. The pair briefly touched 109-point level, but a soft tone from the Federal Reserve pushed it down to 108 points. Amount of economic data was minimal in Japan, and most of the data indicated the slowdown of growth. Industrial production volumes dropped -2.1% per year, average wages remained unchanged and lending by commercial banks increased 2.3% and did not meet market expectations. USD/JPY has ended the trading week dropping -0.5%.
The British pound reached its 2-year lowest point at the beginning of the week, however, U.S. Federal Reserve has come into rescue and the pair has rebounded from 1.245-point level and ended the week appreciating. According to preliminary votes, Boris Johnson will be elected as the new Prime Minister of England, as 75% of party voters are in favour of his candidacy. B. Johnson advocates an attempt to revise the existing agreement with European Union, with a particular focus on the issue of the border with Ireland, which has so far been one of the major obstacles to ratifying the agreement in the British Parliament. Among the most important economic data was industrial production volumes, which increased by 0.9% per year. GBP/USD has ended the trading week appreciating 0.4%.
This week will begin with important data from China, where economic growth, investment, industrial production and retail sales figures will be released. On Tuesday in Europe and Germany, ZEW index will be announced and in U.S. retail trade data will be published. On Wednesday, Britain's and Europe's inflation indicators will be expected. Thursday will begin with Japan's export results and later Britain's retail trade indicators will be announced. Friday should be fairly calm and no important announcements are planned.
According to Admiral Markets market sentiment data, EUR/USD long positions are held by 43% of investors (dropped -30 percentage points, compared to last week's data). In the main Asian pair USD/JPY 68% of investors hold long positions (increased +19 percentage points). In GBP/USD pair 61% of participants expect growth (dropped -15 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 be always accompanied by fundamental projections and technical analysis.
Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com
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