U.S. dollar depreciated to 2-month low
The global reserve currency fell steadily last week, reaching its lowest level since mid-March on Friday and ending the week below 200-day moving average. Although sentiment in financial markets remains positive, the situation in the real economy is showing no signs of improvement. Among the news was a report from carmaker Nissan, which is considering downsizing by -20 thousand employees due to falling demand for cars worldwide. The regions most affected by the lay-offs are expected to be Europe and emerging markets. This is a good indicator that large businesses no longer have expectations of V-form recovery and are seriously considering downsizing of as much as 15% of all employees in order to reduce fixed costs and avoid unprofitable activities.
Among the economic news in the U.S., was the economic change in the first quarter of 2020, which was adjusted, reaching -5.0%. The number of industrial orders fell by -19% compared to the same period a year ago, which was the worst result since the 2008 financial crisis. The Consumer Confidence Index compiled by the University of Michigan was stable at 72.3 points, but remained at its lowest level since the end of 2013. In the real estate sector, the number of preliminary transactions fell by -34.6% compared to the same period a year ago, indicating that residents are terminating property purchase agreements due to changing sentiment, rising unemployment and tightening bank lending requirements. Last week, 2.1 million new jobless claims were registered in the country.
The United States, Russia and Brazil remained in the centre of the coronavirus. The number in the U.S. remained stable at 20,000 new cases a day, in Russia it fell below 10,000, but in Brazil the situation only got worse and as many as 30,000 new cases were recorded on Friday.
The main currency pair EUR/USD rose to the level of 1.11, reflecting the falling U.S. dollar. Preliminary inflation in Europe fell to 0.1% per year in May, the lowest level since 2016, reflecting pressure on the central bank due to the growing threat of deflation. German retail sales fell -6.5% in April, reflecting the impact of quarantine. A 750 billion stimulus program has also been announced in Europe to help the Old Continent's economy recover from the virus. The EUR/USD closed the week appreciating 1.9%.
The most important Asian pair USD/JPY, continued to consolidate at 107.5-point level, below the 200-day moving average. The Japanese cabinet has approved a stimulus program worth as much as 1.1 trillion USD, and the total volume of stimulus programs announced at the outbreak of the virus is as high as around 40% of the country's gross domestic product. Economic data included industrial production in April, which fell by -14.4% year-on-year. Retail sales fell -13.7%, while the unemployment rate rose slightly to 2.6%. USD/JPY has ended the week appreciating +0.2%.
The British pound has appreciated against the U.S. dollar to 1.235-point level, the highest level in the last 3 weeks. No economic news was published in the country. GBP/USD has ended the week appreciating +1.6%.
This week will begin with data from the manufacturing PMI indices, which will allow investors to better understand the moods of global business. No important data is planned for Tuesday, while German labour market indicators are expected on Wednesday. The meeting of the European Central Bank and the decisions on further monetary and quantitative stimulus policy will be in the spotlight on Thursday. On Friday, investors will focus on U.S. labour market data, which will show more accurately the situation in the country and the real unemployment rate.
According to Admiral Markets market sentiment data, 25% of investors have long positions in the EUR/USD pair (decreased -24 percentage points from last week). In the main Asian pair USD/JPY, 30% of investors have long positions (decreased by -9 percentage points). In the GBP/USD pair, 43% of participants expect a rise (down -6 percentage points). Such market data is interpreted as contraindicative, therefore EUR/USD, GBP/USD and USD/JPY appreciation is expected. Analysis of positioning data needs to be combined with fundamental projections and technical analysis.
Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com
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