U.S. dollar appreciated significantly to 3-month highs
Last week, the coronavirus and news from China, where the vast majority of infected patients are present, remained in the spotlight of investors. Authorities in this country have increased the scale of quarantine that now covers 3 provinces and has about 400 million inhabitants. Currently, just over 30,000 people are infected and over 700 deaths are officially recorded. Many doubt that official figures reflect the truth and believe that China offers a more positive outlook than it really is. Nevertheless, the spread of the virus to other countries is very insignificant and only isolated cases have been recorded. Soaring anxiety has prompted investors to choose safer currencies, which has pushed the U.S. dollar up throughout last week.
Among the economic data in the largest economy were the manufacturing PMI indices: the ISM index jumped from 47.8 to 50.9, while the Markit one fell from 52.4 to 51.9. Overall, both indices are currently in positive territory, which is a good sign for investors. Labor market data also exceeded expectations: the number of newly created jobs reached 225 thousand and exceeded the forecast of 160 thousand investors. Wage growth was 3.1% yoy. Overall, the U.S. labor market remains strong and shows resilience to global pessimism. The number of new unemployed applications reached just 202,000 and fell to the lows of the business cycle.
The main currency pair EUR/USD reflected poor data from Europe and a strengthening sentiment on the U.S. dollar segment, depreciating to its lowest level since October 2019. Among the economic news in the Old Continent was the manufacturing PMI index, which rose to 47.9 points in Europe and 45.3 points in Germany, both of which recorded quite strong growth, but that was not enough to leave the negative territory. The outbreak of the virus in China and the resulting stoppage of domestic factories and stagnant consumption will undoubtedly affect the scale of European industry, for which China is one of the main markets. European retail sales grew 1.3% year-over-year, showing continued deceleration in the last half. Meanwhile, German industrial orders fell by -8.7% year-over-year, suggesting that the situation in the main European economy remains relatively tense. EUR/USD ended the week depreciating -1.4%.
The most important Asian pair, USD/JPY, reflected a strengthening sentiment in the U.S. dollar, reaching 110.0 points. Among the economic news was the manufacturing PMI index, which stood at 48.8 points and remained in negative territory, but the sector PMI recorded a positive rise to 51.0 points. Household consumption shrank by -4.8% per year, which has been the third negative month in a row, indicating an emerging negative trend in the population. USD/JPY has ended the week appreciating +1.3%.
The British pound showed the same trends as the rest of the currency market. Among the economic news was the manufacturing PMI index, which rose from 47.5 to 50.0 points, while the services segment remained in positive territory and reached 53.9 points. GBP/USD has ended the week appreciating 0.5%.
This week will start off rather calmly and Monday is not scheduled for major economic indicators, so investors will remain focused on the virus news from China. On Tuesday, the results of Britain's economic growth and industry data will be in spotlight. There will also be a speech by Christine Lagarde, President of the European Central Bank, and a report by head of U.S. Federal Reserve, Jerome Powell, on the economic situation in the country, which will last until Wednesday afternoon and will be hosted in Washington. U.S. inflation figures will be monitored on Thursday and U.S. retail sales on Friday.
According to Admiral Markets market sentiment data, 86% of investors have long positions in the EUR/USD pair (increased +46 percentage points compared to last week). In the main Asian pair USD/JPY, 21% of investors have long positions (down -51 percentage points). In the GBP/USD pair, 70% of participants expect a rise (+40 percentage points since last week). Such market data is interpreted as contraindicative, suggesting appreciation in USD/JPY and depreciation in EUR/USD and GBP/USD pairs. 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
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