Last week, financial markets carried a positive sentiment, largely driven by comments from Chinese and U.S. diplomats that international trade talks were nearing a partial agreement and even a gradual reduction in trade tariffs. While such news would be particularly good for the global economy and business confidence, optimism was dampened by U.S. President Donald Trump, who denied last Friday that import tariff cuts were under consideration.
Although sentiment in the market has been volatile due to changing political headlines, the U.S. dollar has risen modestly over the past week against major currencies. After rebounding from 3-month low and 200-day moving average on Monday, the U.S. dollar has returned to the middle of a rising trading channel that began to take shape in June 2018 and is still going strong.
Economic data in the world's largest economy was relatively positive. The service sector PMI index remained above 50 points and signalled continued expansion. It is important to note that the service segment tends to lag behind the industrial sector and if industry sentiment continues to be negative, service sector indices are likely to adjust more significantly. In the labour market, the number of new unemployed applications reached 211 thousand and remained at the low end of the cycle, but the job vacancy rate was 7.02 million and was the lowest in recent years.
The main currency pair EUR/USD has reflected the trend in the U.S. dollar segment and fell to the lows of the month. Economic data in Europe was mixed. Industrial indices remained in negative territory but remained stable compared to the previous month. Germany, Italy, Spain were below the 50-point level and indicated a decline of the sector, and out of major economies only France recorded a slight improvement and was in the expansion area. Other positive data came from Germany, where exports rose as much as 4.6% in September compared to the same month a year ago. We should not hurry to draw conclusions so far, as this has been nothing more than a rebound from recent years and no new trend is yet visible. EUR/USD has ended the week depreciating -1.3%.
The most important Asian pair, the USD/JPY was in positive sentiment last week and appreciated. At the end of the week, the pair appreciated and finished the trading above the 200-day moving average, which indicated stronger buyers. Relatively little economic data was published and among the most important was the service sector's PMI index, which unexpectedly fell below the 50-point mark to 49.7. USD/JPY has ended the week appreciating 1.0%.
The British pound has consistently depreciated over the past week. A meeting of the central bank of the country was held, which decided not to change interest rates, but 2 out of 9 members voted to cut interest rates, which surprised market participants. Also, interesting news was that the credit rating agency Moody's has worsened the country's rating outlook from stable to negative by arguing for Brexit and the resulting uncertainty in the country's economy. No important economic indicators were published. GBP/USD has ended the week depreciating -1.3%.
This week will begin with news from the UK announcing third-quarter economic growth and industrial output. Labour market data will be announced in UK on Tuesday, followed by European and German ZEW economic index data. Inflation figures for UK and the U.S. will be a big focus on Wednesday. Thursday will begin with Japan's preliminary third-quarter economic growth data, followed by Chinese investment, industrial production and retail sales data. Also on Thursday, investors will be tracking developments in German and European third-quarter economic growth as well as retail sales data for the UK. European inflation and U.S. retail sales are expected on Friday.
According to Admiral Markets market sentiment data, 71% of investors have long positions in EUR/USD pair (+48 percentage points up from last week). In the main Asian pair USD/JPY, 28% of investors have long positions (down -26 percentage points). In GBP/USD, 50% of participants expect a rise (+18 percentage points). This kind of market data is interpreted as a contraindicator, suggesting appreciation in USD/JPY and depreciation in EUR/USD, while GBP/USD sentiment is rather balanced. Analysis of positioning data should always be accompanied by fundamental projections and technical analysis.
Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com
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