The U.S. dollar has changed direction and appreciated significantly
At the beginning of last week, the U.S. dollar turned around unexpectedly and began to rise rapidly, eliminating the losses of the last few weeks. Negative sentiment in the markets over the coronavirus has prompted investors to return to safe currencies.
U.S. economic data was mostly in-line with market expectations but was not in the spotlight. February inflation stood at 2.3% per year and remained stable in recent months. The University of Michigan consumer confidence index fell from 101.0 to 95.9 and reached a 5-month low. As the media extensively analyzes the situation of the corona virus and the number of infected increases, anxiety among the population is also increasing, which is worsening general sentiment and is damaging the economy.
The main currency pair, EUR/USD, continued to be driven by U.S. sentiment, depreciating to a level of 1,110, which is a 200-day moving average. The European Central Bank has announced that it will not change interest rates, but will increase the volume of the bond purchase program and has allocated an additional EUR 120 billion for the purchase of private business debt instruments. It has also been announced that soft loans will be made available to European commercial banks to enable them to lend more actively to small businesses, which are now facing the greatest financial pressures. Economic data included German exports, which dropped -2.1% YoY in January and considering exports to China, the y have dropped as much as -6.5%. Industrial output in the largest European economy declined -1.3% over the year, although the decline was lower than expected and overall the data showed at least a temporary stabilization. Meanwhile, European industry as a whole fell by -1.9% and retained the negative sentiment in the sector. EUR/USD has depreciated -1.6% during the week.
The key Asian pair USD/JPY has also stabilized and appreciated, signaling a strengthening of the U.S. dollar. Amount of significant data was minimal, with investors observing actual economic performance in Q4 2019, with a -1.8% year-over-year decline, compared to Q3 and even -7.1% compared to same quarter a year ago. Market participants expect to see Japan in recession, as lower activity in the first quarter of 2020 is likely to spur further contraction. USD/JPY has ended the week appreciating +2.4%.
The British pound depreciated against the U.S. dollar to its lowest point in the last half. Economic data was limited, and the most significant indicator was the -2.9% annual decline in manufacturing. However, unscheduled meeting of the country's central bank last Wednesday caught investors' attention. It decided to cut the interest rate from 0.75% to 0.25% and announced additional financing tools for small and medium-sized businesses. GBP/USD has ended the week depreciating -5.9%.
This week will begin with important economic indicators from China, which will point to the situation in February, when there was the biggest outbreak of the virus. U.S. retail and industry volumes will be released on Tuesday. Wednesday will begin with Japanese export performance, followed by a meeting of the U.S. central bank, where investors look forward to further interest rate cuts. On Thursday and Friday no important data is scheduled. Apart from the economic indicators calendar, investors will also be very focused on various policy meetings as they will discuss quarantine measures and various incentive packages that will undoubtedly affect markets and sentiment.
According to Admiral Markets market sentiment data, 38% of investors have long positions in the EUR/USD pair (increased +16 percentage points compared to last week). In the main Asian pair USD/JPY, 51% of investors have long positions (down -21 percentage points). In the GBP/USD pair, 68% of participants expect a rise (increased +34 percentage points). Such market data is interpreted as contraindicative, suggesting appreciation in EUR/USD pair, depreciation in GBP/USD pair, and USD/JPY in a neutral position. Analysis of positioning data should be combined with fundamental projections and technical analysis.
Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com
Discover the world's #1 multi-asset platform
Admiral Markets offers professional traders the ability to trade with a custom, upgraded version of MetaTrader 5, allowing you to experience trading at a significantly higher, more rewarding level. Experience benefits such as the addition of the Market Heat Map, so you can compare various currency pairs to see which ones might be lucrative investments, access real-time trading data, and so much more. Click the banner below to start your FREE download of MT5 Supreme Edition!
Disclaimer: The given data provides additional information regarding all analysis, estimates, prognosis, forecasts or other similar assessments or information (hereinafter "Analysis") published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:
- This is a marketing communication. The analysis is published for informative purposes only and are in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
- Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
- Each of the Analysis is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter "Author") based on the Author's personal estimations.
- To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
- Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures refer that refer to any past performance is not a reliable indicator of future results.
- The contents of the Analysis should not be construed as an express or implied promise, guarantee or implication by Admiral Markets that the client shall profit from the strategies therein or that losses in connection therewith may or shall be limited.
- Any kind of previous or modeled performance of financial instruments indicated within the Publication should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
- The projections included in the Analysis may be subject to additional fees, taxes or other charges, depending on the subject of the Publication. The price list applicable to the services provided by Admiral Markets is publicly available from the website of Admiral Markets.
- Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, you should make sure that you understand all the risks.