Positive sentiment against the U.S. dollar continued to dominate the currency market last week as investors bought the world's reserve currency as a secure alternative due to China's raging coronavirus, which threatens to slow down global economic growth significantly. The number of people infected continues to rise, with official figures reaching around 70 thousand, and deaths rising to over 1.5 thousand. Although the spread of the virus to other countries is insignificant, China's daily life is virtually stalled - factories are shut down, people in many cities are avoiding the street, extremely restricted traffic and transport between cities, which will undoubtedly slow down economic growth at least in Q1 2020.
U.S. economic indicators were in-line with market expectations. Retail sales growth was 4.4% year-over-year in January, although slower than the 5.5% annual growth rate in December. As the labor market and expectations remain strong, the population continues to actively increase consumption. Worse news was the number of open job positions in the country (JOLTS), which have fallen from 6.8 million to 6.4 million, one of the biggest shifts in the last decade. This indicator shows the number of open job positions in the country and the continuing fall in recent years is signalling worsening sentiment among employers. The country's industrial output was down by -0.8% per year and was your fifth negative month in a row. The number of new unemployed applications reached 205,000 and remained at the low end of the business cycle.
The main currency pair EUR/USD largely reflected the positive in the U.S. dollar, but the depreciation of the pair to its lowest point since April 2017 is also due to poor European economic data. In December, the continent's industrial output fell as much as -4.1% per year, which was the 14th consecutive month of decline. In the last quarter of 2019, the European economy grew 0.1% per year, while Germany remained unchanged, suggesting that the economic situation remains relatively tense. Given the stagnation of China's economy, one of Europe's major trading partners, first-quarter 2020 data may be even worse. An interesting situation also occurred during a speech by Christine Lagarde, President of the European Central Bank, in which she said that members of the bank are aware of the negative side-effects of the economy and are watching the consequences. It has been mentioned that this has a negative impact on the population's savings and risk appetite and increases real estate prices. The EUR/USD has ended the week depreciating -1.1%.
The key Asian pair, USD/JPY, was in a consolidation sentiment, hovering at 110.0-point level. There were no major news releases in Japan. USD/JPY has ended the week unchanged.
The British pound resisted the appreciation of U.S. dollar and the pair appreciated last week despite the poor performance of the English economy. Among them was economic growth, which was 0.1% per year compared to the third quarter, while industrial output was down -1.8% per annum. GBP/USD finished trading appreciating +1.2%.
This week will begin with Japan's economic growth results and China's new lending data, while the U.S. will have a day off. Britain's labor market data and European and German ZEW index results will be released on Tuesday. On Wednesday, the focus will shift to Japan's export volumes and Britain's inflation figures, as well as minutes from the latest meeting of the U.S. central bank, where investors will look for clues about further monetary policy. English retail sales will be announced on Thursday, and preliminary results for industry managers' purchasing indices will be released on Friday.
According to Admiral Markets market sentiment data, 86% of investors have long positions in the EUR/USD pair (unchanged from last week). In the main Asian pair USD/JPY 20% of investors have long positions (down -1 percentage points). In the GBP/USD pair, 36% of participants expect a rise (-34 percentage points). Such market data is interpreted as contraindicative, suggesting appreciation in USD/JPY and GBP/USD pairs and depreciation in EUR/USD pair. Analysis of positioning data should always be combined with fundamental projections and technical analysis.
Sources: bloomberg.com, reuters.com, Admiral Markets MT4 Supreme Edition, investing.com
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