Last week, the sentiment in currency markets has changed again. During the week, the U.S. dollar has regained part of its lost positions and appreciated, while uncertainty regarding future economic prospects dominated the market. Although the economic data indicates growth, it's tendencies show clear signs of a slowdown, which is increasing the concerns among market participants. The political situation did not make a positive influence either; when Donald Trump publicly stated that if China's president Xi Jinping will not meet him to discuss international trade issues at the G20 meeting in Japan in late June, he would take further action.
Economic data in the U.S. was ambiguous. A lot of attention was drawn to retail trade growth in the country, whose yearly change was 3.2% and it marginally slowed down, compared to the results from last month. Industrial production increased 2.0% per year, and the pace was faster compared to April. Inflation was at 1.8% per year, although this result was expected, and it did not raise any concerns. New unemployment claims were at 222 thousand, and marginally increased compared to last week. Market participants are hopeful towards U.S. Federal Reserve's meeting this week, during which investors will try to understand how members see the coming monetary policy, especially when market expectations are getting worse, economic growth is slowing down and international trade and politics issues remain unfavourable.
Main currency pair EUR/USD mainly reflected U.S. dollar tendencies and overall risk appetite in the market. The pair has retreated from a 3-month high and descended to 1.120 level without any significant rebound. Economic data was relatively stable and did not promise improvement. European manufacturing output fell -0.4% per week and Germany inflation was 1.4%. It is interesting, that Germany's 10-year bond yield was -0.25% and fell below the low point of 2016, which indicates growing investor demand for safe instruments, despite their price. EUR/USD has ended the trading week dropping -1.1%.
Most important Asian pair USD/JPY has demonstrated a calm sentiment and fluctuated near 4-month lows. Economic data was relatively positive – the country's economy grew 2.2% per year, bank loans' growth was at 2.2% per year, industrial production contracted -1.1%. USD/JPY has ended the trading week appreciating 0.3%.
Great Britain's pound has depreciated against the U.S. dollar, mainly due to positive sentiment among U.S. dollar buyers. There was no news regarding Brexit, because at the moment the focus is on the election of the new Prime Minister. Among the 11 candidates, one of the main favourites is Boris Johnson, who is a Brexit supporter and his election would not be very favourable in terms of soft withdrawal from the European Union. Nonetheless, the investors are not so negative and are rather cautious about this issue, because there is still some time left before the elections and the new prime minister must be announced in the third week of July. Among economic news was Britain's annual growth, which was at 1.3%, industrial production volumes, which have contracted -1.0% per year and labour market, which has remained strong. GBP/USD has ended the trading week dropping -1.2%.
This week will begin calmly, and on Monday there is no important news planned. On Tuesday, investors will wait for the results of European inflation and the German ZEW index. Wednesday will start with Japan's international trade figures, followed by Britain's inflation data, and in the evening, focus will be directed to U.S. Federal Reserve press conference and announcement of the decision on interest rates. On Thursday, meetings of the central banks in Japan and Britain will take place, with no major changes expected. Preliminary indices of industrial sector Purchasing Managers Indices are expected on Friday.
According to Admiral Markets market sentiment data, EUR/USD long positions are held by 72% of investors (increased +47 percentage points compared to last week's data). In the main Asian pair USD/JPY 64% of investors hold long positions (dropped -16 percentage points). In GBP/USD pair 85% of participants expect growth (increased +15 percentage points). This kind of market data is interpreted as a controversial indicator, therefore depreciation 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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