Last week the foreign exchange market was optimistic, as were other segments of the financial markets, prompting investors to move away from safer currencies and depreciate the U.S. dollar, which closed Friday's trading session below a 50-day moving average.
U.S. economic data was mixed, with sentiment indicators indicating improvement and actual hard data suggesting a slowdown in recovery:
- The service PMI index was 57.8 points and showed rapid growth sentiment among business representatives
- The country's consumer loan volumes fell by -7.2 billion USD, indicating a more cautious outlook for the population
- The number of new jobless claims remained at 0.84 million a week
Without credit growth, it will be difficult to achieve higher consumption and overall economic growth.
Trends in the coronavirus show signs of escalation and a record number of new cases per day worldwide was reached last week:
- The number of cases in the U.S. grew from 43 to 48 thousand a day, based on the 7-day average
- In India, the spread of the virus continued to slow and the weekly average fell from 82 to 72 thousand
- Brazil is also seeing a slowdown, but only a very small one, from 27 to 26 thousand a day
- In Russia, the sudden spread continued with the curve continuing to grow rapidly from 9 to almost 13 thousand cases per day
In Europe, a sharp rise was observed in Italy and England, where about 6 and 15 thousand new cases per day were recorded in the last days, respectively, which is a relatively big increase compared to the first wave in the spring.
The major currency pair EUR/USD appreciated to 1.183 and ended the week above the 50-day moving average. In Europe, economic data was relatively positive:
- The service sector PMI index was at 48.0 points and fell into negative territory, indicating a continuing negative impact of the virus on the economy
- European retail sales grew 3.7% year-on-year
- German export volumes rose 2.4% in August from the previous month, while industrial production remained stable
Christine Lagarde, head of the European Central Bank, said at a press conference that the bank is ready to bring more incentives to the market to support economic activity.
The EUR/USD pair ended the week appreciating 1.0%.
The main Asian pair, USD/JPY, appreciated slightly and tested the 50-day moving average several times, but ended the week without breaking through. Among the economic data was the change in wages, which was negative at -1.3%. Household expenditure decreased by -6.9%.
USD/JPY ended the week appreciating 0.3%.
The British pound appreciated against the U.S. dollar and reflected growing market demand for risk. Among the economic data was a change in the volume of industry, which was negative and amounted to -6.4% per year. In the service and construction sectors, PMI indices were around 56 points, suggesting positive sentiment among business representatives.
GBP/USD ended the week appreciating +0.8%.
This week will start quietly and there is no important data scheduled for Monday. On Tuesday, U.K. labour market indicators, the results of the European and German ZEW index and September inflation in the USA will be in focus.
Wednesday will begin with China's international trade data, which was carried over to this week, with Japanese and European industrial production figures. Changes in Chinese loan volumes are expected on Thursday, and U.S. retail sales and industrial production volumes on Friday.
According to Admiral Markets market sentiment data:
- 18% of investors have long positions in the EUR/USD pair (down -28 percentage points from last week)
- In the main Asian pair USD/JPY, 53% of investors have long positions (increased 23 percentage points)
- In the GBP/USD pair, 37% of participants expect a rise (down -6 percentage points)
Such market data is interpreted as contraindicative, therefore EUR/USD and GBP/USD pairs are expected to rise and USD/JPY is expected to fall. The 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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