Consolidation sentiment prevailed in the foreign exchange market last week:
- The U.S. dollar index adjusted slightly and lost -0.3% over the week
- The reserve currency still remains in the trading channel that began to take shape in early August
- The U.S. dollar index has also caught up with the 50-day moving average
This will likely act as a level of resistance in the near term and allow for a better assessment of price developments.
In the largest economy, the results suggested a slight slowdown in the recovery:
- Retail sales grew 2.6% year-on-year and 0.6% month-on-month, but both fell short of market participants 'expectations
- Industrial production in August was -7.7% lower than a year ago
- The number of new jobless claims fell slightly from 0.89 to 0.86 million a week.
A meeting of members of the U.S. Federal Reserve was also held. It did not make important decisions, and the interest and quantitative incentive program were not changed. Interestingly, based on members' expectations, interest rates in the country will remain around zero until at least 2023.
The number of new cases of coronavirus in the world has remained high. The number of cases in the US rose again, with the 7-day average reaching 47,000, up from 35,000 last week. California, Texas and Florida are the most infected.
In Europe, the situation improved slightly:
- In Spain, the number of cases dropped to 4.2 thousand
- In Germany it remained low at 1.7 thousand
- In France and England a faster rise was recorded, to 9.8 and 3.6 thousand, respectively.
In India, the rate of spread stabilized and the 7-day average was 92,000. In Brazil, the situation changed insignificantly, the number of cases was 31 thousand per day. In Russia, the number of new cases continued to rise to 5.7 thousand.
The main currency pair EUR/USD fluctuated insignificantly and mainly reflected the consolidation sentiment of the U.S. dollar. On Thursday, the pair had fallen to a level of 1.174, where it was halted by several months of support and a 50-day moving average.
The economic data was better than expected. Industrial production volumes were -7.7% lower than a year ago. European inflation was -0.2% in August, increasing pressure on the central bank from the risk of deflation.
The EUR/USD pair closed the week with a fall of -0.1%.
The most important Asian pair, USD/JPY, was characterized by an unusually strong corrective sentiment and depreciated significantly to 104.6. Among the economic data was industrial production, which recorded a rise of as much as 8.7% compared to last month's data, which suggests that Japan has finally reached a wave of recovery after the first pandemic shock. Nevertheless, the overall level remains lower than before the pandemic, which is illustrated by export volumes, which contracted by -14.8% year-on-year in August.
Annual inflation was 0.2%. USD/JPY ended the week trading down -1.5%.
The British pound showed a recovery after a particularly poor week before. In England, the number of unemployed rose by almost 74,000, and the unemployment rate rose to 4.1%. Average wages fell by -1.0%. Annual inflation was 0.2%.
There was also a meeting of the central bank, at which no important decisions were made, but investors were unexpectedly caught up in the news that members were discussing the introduction of negative interest rates in the country.
GBP/USD ended the week up 1.0%.
This week will start quite calmly and the most-watched event on Monday will be the press conference of U.S. Federal Reserve Chairman Jerome Powell in Washington DC. Investors will be awaiting data on the activity of the U.S. Joint secondary real estate market on Tuesday, and Mr. Powell will continue to discuss the economic situation with members of the Economic Committee in Washington DC.
Preliminary results for manufacturing PMI indices in major economies will be released on Wednesday. German Ifo index data and U.S. new home sales results will be expected on Thursday. Friday will be quite calm and the most important data will be U.S. durable goods orders.
According to Admiral Markets' market sentiment:
- 32% of investors have long positions in the EUR/USD pair (down -11 percentage points from last week)
- In the main Asian pair, USD/JPY, 66% of investors have long positions (up 25 percentage points)
- In the GBP/USD pair, 62% of participants expect a rise (up 10 percentage points)
Such market data is interpreted as contraindicative, therefore EUR/USD is expected to rise, while USD/JPY and GBP/USD are 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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