U.S. dollar appreciated after positive labour market data

Last week the best performing currency was the U.S. dollar, which recorded the highest weekly growth since February. Positive U.S. economic data, which lowered expectations to see significant softening of monetary policy, was a significant factor encouraging investors to return to the U.S. dollar. On Friday evening, investors were only 3% likely to see a 2-step or 0.5% cut in interest rates at the end of July in Federal Reserve's meeting, however, probability to see an interest rate cut of 0.25% remained high, at 100%. It is important to notice, that while stock markets fluctuate in the highs, and labor market indicators remain strong, some of investors think, that the Federal Reserve can remain calm at the end of July and to disappoint market participants, which is likely to have a significant impact on financial market prices, which now include 0.25% interest rate cut.

USD

U.S. economic data was ambiguous. Most of attention was drawn to the country's labour market indicators. In June 224 thousand new jobs were created, which significantly exceeded 160 thousand market expectation and at least briefly blurred the negative investor sentiment due to the slowdown of economic growth. The rise in wages was 3.1% per year and showed a further deceleration of 3.4% level achieved in March. Manufacturing sector's Purchasing Managers Index was 51.7 points and declined slightly from last month and was at the lowest point since end of 2016. It shows, that U.S. manufacturing sector continues to slow down and anxiety, surrounding future business perspectives and new orders count in the upcoming months, increases. Unemployment claims were at 221 thousand.

EUR/USD

Main currency pair EUR/USD has reflected U.S. dollar tendencies, therefore it depreciated to a few weeks low. The depreciation was also encouraged by poor data from Europe and Germany. Manufacturing sector's Purchasing Managers Index was at 45 points in Germany and 47.6 in Europe. Both results remain in the negative territory and they indicate about a very likely economic contraction in Germany, which is likely to negatively affect the remaining countries. Among other important data was Germany's industrial orders, which decreased -8.6% per year and it was the 12th negative month in a row. Germany's 10-year bond yield on Friday was -0.36% and on Wednesday and Thursday it has reached -0.40% level and was for the first time lower than interest rate set by European Central Bank. EUR/USD has ended the trading week dropping -1.3%.

USD/JPY

Most important Asian pair USD/JPY fluctuated around 108-point mark. Country's economic data has retained its previous trends and industry indicators showed a further deceleration. Tankan index value has adjusted from 12 to 7 points and manufacturing sector's purchasing managers index was at 49.3 points and has remained in a negative territory. Meanwhile, residents have not felt the slowdown so far and household consumption has grown by 4.0% per year. USD/JPY has ended the week appreciating 0.5%.

GBP

Great Britain's pound has consistently depreciated throughout the week and has returned to the lowest point in the last 7 months. There was no news on Brexit or from the prime minister. Investors are waiting for the new head of state: Boris Johnson or Jeremy Hun, who are among the candidates. The decision is likely to be made on July 22-25, so there are still a few weeks left before the results. Among economic data most surprising was manufacturing sector's Purchasing Managers Index, which adjusted from 49.4 to 48.0 points and seemed to be establishing itself in the negative territory. Meanwhile, PMI index in the construction sector, has dropped to 43.1 points, which was the lowest point ever since the 2008 financial crisis. GBP/USD has ended the trading week dropping -1.4%.

Economic Events

This week will start quite calmly and investors will monitor the German international trade indicators and industry results. U.S. real estate data will be released on Tuesday: building permits and housing starts. Wednesday will begin with Britain's manufacturing sector data, and later investors will discuss the minutes of Federal Reserve's last meeting. On Thursday, most important data will be U.S. inflation and on Friday, China's international trade results and Europe's industrial production will be announced.

According to Admiral Markets market sentiment data, EUR/USD long positions are held by 73% of investors (increased +47 percentage points, compared to last week's data). In the main Asian pair USD/JPY 49% of investors have long positions (dropped -5 percentage points). In GBP/USD pair 76% of participants expect growth (increased +13 percentage points). This kind of market data is interpreted as a controversial indicator, therefore depreciation is likely in EUR/USD and GBP/USD pairs and USD/JPY sentiment is balanced. 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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