ATFX Highlights of last week:
EUR: Pressured by disappointing PMI data
The Euro was down by 0.47% at the end of last week, buoyed by selling pressure on Thursday, driven by the disappointing initial reading of the Eurozone’s Markit PMI Composite, which came in at 51.3 points from 51.6 prior, and below the 51.8 expected. Actually, the markets were waiting for an improvement in the index, whereas to the contrary, the index reading was worse than the previous and below the expectations.
As for Germany’s PMI, the reading was 44.5 and slightly better than the previous 44.1 but below expectations of 45, indicating the possibility of continued shrinking in the German industrial sector. All of this previous data led to increased selling pressure on the Euro.
Last Wednesday the Euro was trying to consolidate after the poor reading of the ZEW survey regarding the current economic condition in Germany.
The euro fell to the 1.1226 level before closing the week at 1.1245. But this decline was supported by fundamental events, which is increasing the probability to continue those declines to test levels of 1.1200 to 1.1175, which if it is unable to be solid in front of the selling pressure, may open the way to visit the 1.1100 levels, which it did not touch since mid-May 2017.
GBP: Inflation databelow expectations
The UK’s Consumer Price Index (CPI) came in worse than expected by 0.1% at 1.9% YoY, while the expected reading was 2.0%. And the previous reading was 1.9%, which put selling pressure on GBP, causing a weekly decline of 0.60%, but the GBP is still trading above the 1.2960 which represents the 200-day SMA. The closing below these levels - 1.1960 - will be an important sign for bears to be in control, and the likelihood of further declines for the February 14, 2019 bottom test at 1.2773.
In the same context, there has been no significant or pivotal change in the Brexit story during the past week, limiting the price volatility of GBP in general, despite the declines as mentioned earlier.
JPY: The longest Japanese market closure since the end of World War II raises concern in the markets
At the beginning of spring, the Japanese national so-called Golden Week took place. In addition to that, this year the Emperor will be succeeded by the new Emperor Naruhito on May 1, and there will be a series of holidays lasting ten days in a row, starting from the 27th of April, which is the longest holiday In the history of Japan's markets since the end of the World War II.
But why is this worrying?
Fear of the long holiday because of the possibility of a liquidity shortage, which could result in sharp fluctuations in prices.
Actually, this reminds us of the "Flash Crash," which occurred during the 2019 New Year’s Eve on January 3, and when large algo orders were made to sell the AUD and the Turkish lira against the yen, which led USDJPY to fall in seven minutes by 3.75%.
The second time in a row, and almost a month later, the Swiss franc fall by 1% In minutes before recovering which is called a mini flash crash.
That’s also happened at the beginning of Asian trading and during another Japanese holiday, indicating the importance of caution in such times as markets suffer from thin liquidity. What should also be noted is that while Japan will be on holiday, there are major events and economic data being released elsewhere in the world, including the Fed's May 1st rate decision. Therefore, we saw a warning from the Japanese Financial Services Agency to currency traders to "manage their positions" before the holiday began and said they would watch the market manipulation indicators as volumes or liquidity are expected to be low. As well as the JFSA warning of the possibility of post-holiday fluctuations.
Highlights of the week:
From the US, markets will wait for the initial reading of GDP for the first quarter as market expectations suggest the US economy will grow by 1.8%, which will be the weakest pace of growth in the past two years. Besides, durable goods orders are likely to recover after the sharp fall in February, while current and new home sales are expected to see a new drop in March after hitting an 11-month high in February. Otherwise, other notable data will be the Chicago Fed Index of National Activity and the final reading of Consumer Confidence out of Michigan.
From the UK, investors will shift their attention to mortgage approvals in the UK, along with the national housing price index. Also, we will see net public sector borrowing, while the British Industry Association is set to publish factory orders and its business confidence figure.
From the Eurozone, markets will be looking at the April Consumer Confidence Index. Other important data from Germany and France include business and consumer sentiment figures, and Spain will publish its unemployment rate for the first quarter.
The Bank of Japan will make the latest monetary policy decisions and release the quarterly forecast report, with markets expecting no changes in borrowing costs. Elsewhere, investors are waiting for unemployment, retail sales and preliminary reading of industrial output. In Australia, analysts are looking forward to the release of consumer and producer prices in the first quarter, expected to show a slowdown in consumer inflation to a two-year low.
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