Investors took a wait-and-see position amid growing geopolitical and economic uncertainty
Slowdown of inflation in the United States
Weak statistical data from China
Escalating conflict between the United States and Iran
Last week was marked by very low volatility in financial markets. Against the background of growing political and economic uncertainty, the majority of investors preferred to take a wait-and-see position, fearing escalation of international conflicts and deterioration of the situation in the global economy. At such moments the main beneficiary is gold as the main protective asset, which is actively bought by traders in order to diversify their investment portfolio.
The foreign exchange market continues to demonstrate abnormally low volatility amid growing uncertainty about the further Central Banks monetary policy and the prospects for economic development in key regions.
Despite moderate growth, the U.S. dollar, obviously, began to lose its investment appeal, after the Federal Reserve announced the possible easing of monetary policy amid deteriorating international trade. The U.S. currency is also negatively affected by weak statistical reports, which indicate the deterioration of the economic situation, and may accelerate the process of making a decision to reduce rates in the U.S.
The EUR/USD pair investors are facing a difficult choice and can not yet decide on the further trend of price movement. Taking into account the above-mentioned factors, the demand for the U.S. dollar is falling. On the other hand, investors are not ready to buy European currency as well, because earlier Mario Draghi announced the resumption of economic stimulus programs and did not rule out the possibility of lowering interest rates in case of the situation in the economy of the region deteriorating. FOMC meeting, which will take place next week, can help the market to determine the trend.
The GBP/USD pair remains under pressure amid the lack of progress in solving the main problem of recent years - Brexit. Conservatives seem to have decided on a candidate for the post of Prime Minister, but the active opposition of Labour and the Brussels statement on the unwillingness to revise the terms of the agreement on Brexit, significantly complicate the tasks for the new Prime Minister. Buyers of GBP/USD in this case can only hope for a serious weakening of the U.S. currency.
The USD/JPY pair during the week showed rather sluggish trading with prevailing sideways trend. Investors were able to determine the priority direction of the movement only at the end of the week, when the growth of geopolitical tension and weak statistics from China returned interest in the protective assets and the Japanese yen.
Precious metals market.
Gold finished the week on a positive note, updating the trading highs of mid-April 2018! Demand for precious metals remained high almost throughout the whole week against the backdrop of several international conflicts escalating at once (trade confrontation between the US and China, growth of tension in relations between the US and Iran after the armed attack on tankers in the Gulf of Oman, growth of tension in relations between the US and Turkey, due to the Russian S-400 SAM systems). The driver for the growth of quotations on Friday was weak data from China on industrial production (growth of 5.0% (the lowest level since March 2002!!!) with a forecast of 5.4%) and on investment in fixed assets (5.6%, with a forecast of 6.1%).
The oil market remained under pressure almost the entire week amid growing concerns about global demand and the publication of negative U.S. industry statistics. The market partially recovered its losses in the second half of the week after reports of an armed attack on oil tankers in the Gulf of Oman. Quotations are also supported by the reports on the agreements on the agreement on production limitation in OPEC+ prolongation. Therefore, despite the local dynamics of price movements, the oil market retains the opportunity to recover in the short term.
In the first half of the week, the stock exchanges were mainly traded in the green zone, amid the de-escalation of the conflict between the U.S. and Mexico. In the second half of the week the vector of market movement changed. The indices were under pressure from increased geopolitical and economic risks and weak industrial production data from China. In the near future, the main indices are likely to keep general sideways direction in anticipation for a meeting of the FOMC.