In the currency markets, pressure on the U.S. dollar persisted last week. Investors have been actively selling the world's reserve currency, which has depreciated to its lowest level since June 2019, in anticipation of further easing of monetary policy by market participants.
On Tuesday, the U.S. central bank unexpectedly announced a 2-step cut in interest rates, or 0.5%. The decision was not made at a scheduled meeting during March 17-18th, but at a special meeting, fearing that the coronavirus could significantly slow U.S. economic growth and bring uncertainty. To mitigate the negative effects, members eased the monetary policy to stimulate economic activity. Interestingly, such a decision, at an unscheduled meeting and a 2-step reduction immediately, was made for the first time since the global financial crisis in 2008.
Data in the world's largest economy was relatively positive. The ISM manufacturing PMI index fell from 50.9 to 50.1 and remained at a neutral level. The job market created 273,000 new jobs, and wages increased +3.0% per year, which suggests that U.S. companies are in no hurry to lay off their workers despite the virus uncertainty.
Meanwhile, globally, the coronavirus has pushed industry sentiment into negative territory for the first time since 2009, according to last week's manufacturing PMI indices from major economies. JPMorgan's aggregated global PMI index dropped to 47.2 points, below the neutral 50-point level. This signals that a stalled Chinese industry is also adversely affecting other major economies, which significantly increases the risk of an economic recession.
The main currency pair EUR/USD reflected depreciation of the U.S. dollar and reached its highest point since July 2019. Economic data included manufacturing PMI indices, which remained mostly in negative territory and reflected slowing trends, particularly in China. Also, more and more regions of Europe are being affected by the coronavirus, which will lead to ever more restrictions and will undoubtedly affect economic activity in the coming period. Preliminary February inflation was 1.2% in Europe and retail sales in January were 1.7%. EUR/USD has ended the week appreciating +2.3%.
The main Asian pair USD/JPY continued its strong depreciation and depreciated to its lowest point since August 2019. Economic data did not promise anything positive and reflected signs of a slowdown from the coronavirus threat. The manufacturing PMI index remained in negative territory at 47.8 points. Interestingly, the service segment index has dropped to 46.8 points and is also in a negative territory. Household consumption fell by -3.9% yoy. USD/JPY has ended the week depreciating -2.4%.
The British pound appreciated against the U.S. dollar like many other currencies. In Britain, economic data was scarce. Among the most important data was manufacturing PMI index, which reached 51.7 points and was in positive territory. GBP/USD finished the week appreciating +1.8%.
This week will begin with German January export figures and industry volumes. Preliminary European Q4 2019 growth figures will be released on Tuesday. On Wednesday, investors will be watching Britain industry volumes and U.S. inflation data. On Thursday, investors will focus their attention on the European Central Bank's meeting and its decisions, in particular on measures to mitigate the impact of the virus on the economy. On Friday, February inflation data in major European economies will be monitored.
According to Admiral Markets market sentiment data, 22% of investors have long positions in the EUR/USD pair (decreased -7 percentage points, compared to last week). In the USD/JPY pair, 73% of investors have long positions (increased +4 percentage points). In the GBP/USD pair, 34% of participants expect a rise (decreased -12 percentage points). Such market data is interpreted as contraindicative, suggesting appreciation in EUR/USD and GBP/USD pairs and depreciation in USD/JPY. 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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