Last week, the U.S. dollar index continued to depreciate, reaching a 3-month low. With relatively positive expectations in the financial markets, investors reduced risk and abandoned the world's reserve currency and opted for riskier alternatives.
Economic indicators in the U.S. were mixed. Investors were very surprised by the results of the labor market, when it was announced on Friday that 2.5 million new jobs were unexpectedly created in May, despite the quarantine introduced in the country. Market participants expected to see a reduction of -8.0 million jobs, which would be more closely related to the number of new jobless applications showing a steady increase in unemployment. After the latest labor market news, there is uncertainty about the real situation, as the indicators differ very strongly. The ISM manufacturing PMI index was at 43.1 points and suggested corrective sentiment in this business segment. In the services sector, the index was at 45.4 points and also showed a decline. Overall, U.S. results have outperformed expectations, but trends over the past week were mixed, which has brought quite a bit of uncertainty among investors, especially when considering whether the worst period is over.
The news about the coronavirus has changed only marginally. As the economy continues to open up in the U.S., the number of new cases has stabilized and still stands at about 20,000 a day. Brazil has become a new epicenter of the virus, with about 30,000 new infections recorded every day. In Russia, the situation has improved somewhat and now the number of cases reaches about 8 thousand new cases every day.
The main currency pair EUR/USD continued to test the highs of the last few months and ended last week trying to break through the 1.135 level. A central bank meeting was held in Europe to announce an additional 600 billion bond purchases, doubling the previous size of the pandemic stimulus program. The program now stands at as much as 1.35 trillion EUR. Representatives of the bank expect -8.7% economic contraction in 2020 and only 0.3% inflation. Among the economic indicators was the manufacturing PMI index, which stood at 39.4 in Europe and 36.6 in Germany. In Germany, labor market data were also announced, showing that 238,000 people lost their jobs and the unemployment rate rose to 6.3%. At the European level, the unemployment rate rose from 7.1% to 7.3% in May. In Europe, retail sales in April fell by -19.6% year on year, reflecting the impact of quarantine. EUR/USD has ended the week appreciating +1.7%.
The main Asian pair, USD/JPY, recorded strong growth to 109.6-point level, the highest level since the end of March. In April, the country's household spending fell by -11.1% year on year, reflecting the impact of the virus and the population's worries about the future. No other relevant data were published. USD/JPY has ended the week appreciating +1.6%.
The British pound also recorded appreciation against the U.S. dollar to as high as 1,267 and a 200-day moving average. In England, among the economic news was the manufacturing PMI index, which stood at 40.7 points and remained in negative territory. GBP/USD has ended the week appreciating +2.6%.
This week will start with the results of China's international trade data and the results of German industrial production. On Tuesday, investors will watch preliminary data on the European economy for the first quarter. U.S. inflation data and decisions from the country's central bank meeting are expected on Wednesday. No important data is planned for Thursday, and industrial production results for England and Europe are expected on Friday.
According to Admiral Markets market sentiment data, 30% of investors have long positions in the EUR/USD pair (increased +5 percentage points from last week's data). In the main Asian pair USD/JPY, 29% of investors have long positions (up +1 percentage point). In the GBP/USD pair, 45% of participants expect a rise (up +2 percentage points). Such market data is interpreted as contraindicative, therefore appreciation in EUR/USD, GBP/USD and USD/JPY is expected. 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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