The financial market was volatile last week, with concerns over a stalemate in international trade in the first days of week, but later Donald Trump communicated positive progress in the negotiations. Nonetheless, no specific agreement was reached and the markets were driven by positive expectations.
The U.S. Federal Reserve has also added to positive sentiment in the second half of the week, announcing a resumption of its quantitative easing program and buying 60 billion domestic bonds every month since October 15. Investors were not expecting this move, so they were selling U.S. dollars, the supply of which should increase in the market.
The largest economy in the world did not publish many economic indicators and investors watched the comments of Federal Reserve's members more closely. Members discussed in the minutes of the last meeting about further interest rate cuts until the end of year, although considerable uncertainty persists about what decisions will be made. Among economic data, the key figure was inflation in September, which stood at 1.7% per year and has remained fairly stable at just below the 2% threshold for the past 9 months. The number of new unemployment applications reached 210,000 and remained stable in the lows of the cycle.
The main currency pair EUR/USD reflected increased investor optimism over the trade agreement and the U.S. Federal Reserve's unexpected decision, pushing it to its highest level in the last month. Among economic data in Germany was August industrial data, which showed -4.0% drop from the same month a year ago. Exports also contracted -3.9% year-over-year, signaling a worsening situation in foreign markets. Similar negative sentiment was observed in the industrial sector in all major economies – especially Italy and France. The EUR/USD has ended the week appreciating 0.6%.
The most important Asian pair USD/JPY showed positive trends, rising throughout the week and reaching a peak of the last 2 months. Economic data was scarce with main focus on household consumption, which had been growing at 2% per year for the 9th consecutive month. Interestingly, in recent weeks, representatives of the central bank of the country have hinted that negative interest rates could have a negative impact on consumers and commercial banks, although this topic and the general debate over the impact of negative interest rates have always been avoided. The Central Bank of Japan is by far the first to start talking about it, wondering how other central banks will change their minds. The USD/JPY has ended the week appreciating 1.4%.
The British pound also provided some surprises. There have been positive headlines in the media that Brexit talks are showing positive progress. The European Commission has granted a permission to its negotiator to intensify negotiations hoping that will help to prepare a possible draft agreement ahead of the European Union summit on 17-18 October, which will be the last opportunity to find a compromise before the deadline for negotiations on 31 October. Among economic data was industrial production, which declined by -1.8% per year. GBP/USD has ended the week appreciating 2.5%.
This week will begin with international trade data from China, which will shed light on the impact of the trade war with the U.S. European and German ZEW economic index results will be monitored on Tuesday. European and English inflation figures, as well as U.S. retail data, are expected on Wednesday. Investors will be watching Britain's retail sales on Thursday, followed by U.S. industrial volumes. China's retail, investment and industry data will be watched on Friday.
According to Admiral Markets market sentiment data, EUR/USD long positions are held by 25% of investors (dropped -10 percentage points, compared to last week's data). In the main Asian pair USD/JPY 27% of investors hold long positions (dropped -36 percentage points). In GBP/USD pair 46% of participants expect growth (dropped -12 percentage points). This kind of market data is interpreted as a counter-indicator, therefore appreciation 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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