Last week, financial markets saw significant changes in investor sentiment. With the rise of coronavirus cases outside of China and the emergence of the first infected patients in the U.S., many market participants began to take a different view of this risk and sold stocks and U.S. dollars. The outbreak of the virus has continued in South Korea, Iran and Italy, where the number of infected people is increasing every day. In addition, the first cases in Brazil, Mexico and Nigeria have added to the anxiety, which creates the conditions for the spread of the virus to all continents.
Economic data in the U.S. remained mixed - the industry results were not satisfying, but the sentiment of consumers remained positive. Investors have been tracking the number of durable goods orders, which recorded a -2.3% annual decline, which was the eighth drop over the past 9 months. Meanwhile, consumer sentiment, as measured by the University of Michigan, rose to 101 points - the highest point in this business cycle. The number of unemployment applications reached 219 thousand and slightly changed.
The main currency pair EUR/USD appreciated significantly, although the economic data in the Old Continent was not so positive to support this rise. In Germany, the Ifo index stood at 98.9 points, a slight change compared to recent months, but remained at a low level in this business cycle. In Germany, the unemployment rate was stable at 5% and the number of unemployed fell by -10 thousand, suggesting that the country's industrial companies are resisting the downward pressure on exports and are in no hurry to cut fixed costs and lay off workers. The influence of the overall slowdown in China is not yet visible in the results, but most of the results reflect the situation in January, and the impact of the virus should be visible in the next 2 months. EUR/USD has ended the week appreciating 1.6%.
Main Asian pair USD/JPY depreciated strongly, reflecting the return of investors to the yen, which is considered a safe asset amid uncertainty in the global economy. Economic data included domestic retail sales, which were down -0.4% yoy, and industrial output, which was down -2.5% yoy. Japan is actively fighting the coronavirus, so some of the workers are working at home and some schools are closed. It is very important for the country to control the spread of the virus, as the Olympics are due to take place in Tokyo this summer. USD/JPY has ended the week depreciating -3.1%.
The British pound has resisted general market sentiment and depreciated against the U.S. dollar to its lowest point since October 2019. Although no major economic indicators were released in the country, investors followed news from the political arena, where Britain and Europe held tense negotiations in international trade agreement. The parties have time to agree before the end of 2020, so explicit statements and loud headlines in the media will continue to influence the pound for some time. GBP/USD has ended the week depreciating -1.1%.
This week will begin with manufacturing PMI indices in key economies that should shed more light on the impact of the coronavirus on the global economy. On Tuesday, investors will be watching European preliminary inflation, while Wednesday will show German retail performance and service sector PMI indices. No major news are scheduled for Thursday, but German industry data and U.S. labour market results are expected on Friday.
According to Admiral Markets market sentiment data, 29% of investors have long positions in the EUR/USD pair (decreased -44 percentage points compared to last week). In the main Asian pair USD/JPY, 69% of investors have long positions (increased +43 percentage points). In the GBP/USD pair, 46% of participants expect a rise (down -7 percentage points). Such market data are interpreted as contraindicative, suggesting appreciation in EUR/USD and GBP/USD pairs and depreciation in USD/JPY. Analysis of positioning data should always be accompanied by fundamental projections and technical analysis.
Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com
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