CFD Markets News and Forecasts — 08-03-2021

FXStreet reports that analysts at Morgan Stanley offer an upbeat view on the U.S. economy, citing that recession in the world’s largest economy ‘Is over’ due to the following reasons:

“The current speed of the vaccination rollout;”

“New fiscal stimulus still to come and imminent spring weather.” 

“It's difficult not to imagine an economy that's on fire later this year and long story short is the recession is effectively over".

China: NPC sets the growth target at “above 6%” - UOB

FXStreet reports that Head of Research Suan Teck Kin, CFA, and Economist Ho Woei Chen, CFA, at UOB Group, evaluate the recent NPC event.

“China’s National People's Congress (NPC) resumes growth target setting for 2021 with the target for this year at “above 6%”. This is considerably lower than consensus forecast and we see the GDP target more as a sustainable growth indication that China is aiming for than what it is expecting for this year.”

“Broadly, the other economic targets including urban jobs creation, inflation, M2 and total social financing growth are set similar to those in 2019 (pre-COVID), suggesting the expected normalisation of the economy this year. Nonetheless, fiscal deficit and local government bond issuance targets were set higher than market expectation, suggesting that substantial resources are still on hand to cushion downside risks to growth.”

“China will pursue a prudent monetary policy stance, in a flexible, targeted and appropriate manner. The growth targets of M2 money supply and total social financing this year are set to be in line with the nominal GDP growth after rising sharply last year to support the economic recovery. While loans growth is set to moderate this year, we continue to expect the benchmark 1Y loan prime rate (LPR) to be kept unchanged at 3.85% for the rest of 2021.”

The Commerce Department announced on Monday the U.S. wholesale inventories went up 1.3 percent m-o-m in January 2021, matching the preliminary estimates. This was the highest monthly gain since October 2020.

Economists had forecast the reading to stay unrevised at +1.3 percent m-o-m.

In December 2020, wholesale inventories rose 0.6 percent m-o-m (revised from 0.5 percent).

According to the report, durable goods inventories surged 1.2 percent m-o-m in January, while stocks of nondurable goods climbed 1.5 percent m-o-m.

In y-o-y terms, wholesale inventories increased 0.6 percent in January.

• COVID package will not address all long-standing economic problems
• This is the package we need to revive our economy to where it was before the pandemic
• Resources provided by bill will fuel a strong recovery
• K-shaped recovery existed before COVID, now it's worse
• Economy could get back to pre-pandemic jobs next year
• Don't expect undesirable levels of inflation; will monitor closely

U.S. stock-index futures fell on Monday, as investors resumed selling in high-flying tech stocks on concerns of their lofty valuations amid rising U.S. Treasury yields and inflation expectations. 

Global Stocks:

FXStreet reports that уconomists at Standard Chartered expect the USD/CAD downtrend to continue towards 1.20 over the coming weeks.  

“Provided we have no further pandemic setback, the counter-cyclical USD should fall and currencies such as the AUD, NZD and CAD should continue to appreciate.”

“With the expected US recovery package and anticipated infrastructure bill thereafter, the US-centric Canadian economy should outperform as it concurrently ramps up its domestic vaccination programme. This should be a catalyst for the USD/CAD downtrend to continue towards 1.2000 in the coming weeks, while technical resistance around 1.2880 likely caps any short-term bounce.”

(company / ticker / price / change ($/%) / volume)

Coca-Cola (KO) upgraded to Outperform from Sector Perform at RBC Capital Mkts; target raised to $60

Microsoft (MSFT) added to Conviction Buy List at Goldman

Salesforce (CRM) added to Conviction Buy List at Goldman

Accordig to FXStreet, the S&P 500 Index is expected to be capped at its 13-day average at 3852 for a fresh turn lower in what analysts at Credit Suisse look to be a potentially lengthy consolidation/corrective phase.  

“A sharp recovery for the S&P 500 on Friday, but this has just bought the market back to its 13-day exponential average at 3852. We look for this to ideally cap for a fresh move lower in line with our broader view for a lengthy consolidation/corrective phase following the move to our 3900/3930 core target in mid-February.” 

“Below support at 3808/04 is needed to add weight to our view for a fall back to 3784 and eventually a retest of 3723. Beneath here can see a test of we look to be better support at 3694/78 – the late January low and 38.2% retracement of the rally from late October. Our bias would be for a floor to be found here."

“Above 3852 can see a retest of the downtrend at 3900/15, but with a fresh cap expected here.”

• Says "major market risk has been removed"
• Can not be bearish on stocks at this point
• Japan is likely to be buyers of U.S. Treasuries
• Thinks rates have temporarily made "most of the move and should be more stable in the next few months, which makes it safer to be in stocks for now"

FXStreet notes that gold (XAU/USD) slumped last week, hurt by the rising Treasury yield environment. Howie Lee, an economist at OCBC Bank, expects the demand for the yellow metal to continue waning.

“The rising Treasury yield, propelled by robust economic data and an appetite for taking on risk, has sent the demand for gold falling continuously.” 

“Gold ETF holdings have now fallen three months in the last four and this trend is set to continue if yields continue inching higher.” 

USD strengthened against its major rivals in the European session on Monday as the yield on the benchmark 10-year U.S. Treasury hovered at 1.61%, near one-year highs, as expectations of faster economic recovery and accelerating inflation heightened after the U.S. Senate passed President Joe Biden's $1.9 trillion COVID-19 stimulus bill on Saturday.

Joe Biden said he hoped that the House of Representatives would pass the revised bill quickly. According to the media reports, the House will vote on the Senate version of the bill on Tuesday and the legislation could be signed into law early this week. The bill includes up to $1,400 stimulus checks to many Americans, and billions of dollars for states and municipalities, small businesses and vaccine distribution.

Investors' sentiment was also bolstered by stronger-than-anticipated economic data from Europe and China and an increase in the pace of vaccine rollout in the U.S. 

A report from Sentix revealed that investor sentiment hit the highest levels in more than a year in February. According to the report, the investor sentiment index rose to +5.0 in March from -0.2 in February. This was the highest reading since February 2020. Economists had expected the indicator to advance to +1.9. It was reported that the current conditions index improved to -19.3, a one-year high, from -27.5 in February, while the expectations indicator edged up to 32.5 from 31.5 in the previous month.

China reported on Sunday that its exports spiked 60.6 percent y-o-y in the January-February period, following an 18.1 percent y-o-y jump in December 2020. This marked a record rise and was well above economists' forecast of a 38.9 percent gain. Meanwhile, the Chinese imports climbed 22.2 percent y-o-y after a 6.5 percent y-o-y surge in December. China's overall trade surplus came in at $103.3 billion in January-February combined, rebounding sharply from a $7.21 billion deficit in the corresponding period of 2020.

FXStreet reports that analysts at Credit Suisse note that AUD/USD completed a large top on Friday and further downside is likely, with the next key support seen initially at 0.7583/57.  

“AUD/USD extended its move lower on Friday, completing a large top to suggest that further weakness is likely. With daily MACD momentum also pointing lower and weekly MACD crossing below MACDA, we see support initially at 0.7651, ahead of a fresh test of last week’s low at 0.7622.” 

“Removal of last week’s low at 0.7622 could open up to a fall back to the cluster of supports at 0.7583/57 - the early February lows - where we would expect to see a first attempt to hold. Below here though would significantly reinforce the top and open up a much more aggressive downside, with the ‘measured top objective’ seen much lower, close to the 200-day average, currently at 0.7319.”

FXStreet reports that in the opinion of FX Strategists at UOB Group, AUD/USD is likely to trend downwards in the next weeks.

24-hour view: “The subsequent sharp but short-lived drop to 0.7624 came as a surprise. The swift and sharp bounce from the low has scope to extend but is not expected to break the solid resistance at 0.7760 (minor resistance is at 0.7730). Support is at 0.7675 followed by 0.7645. The 0.7624 low is not expected to come into the picture.”

Next 1-3 weeks: “We highlighted last Friday (05 Mar, spot at 0.7720) that AUD ‘is likely to trade with a downward bias towards 0.7670’. We added, ‘looking forward, the next support below 0.7670 is at 0.7630’. While our view for AUD to move lower was not wrong, we did not anticipate the sharp but short-lived drop to 0.7624 and the subsequent strong bounce from the low. The price actions have clouded the outlook somewhat but the overall reading still points to a lower AUD. That said, it may take a while before AUD revisits the 0.7625 level.”

• Where we are today, our task is to get inflation back to target
• We will see rise in inflation in short-term
• We may need more evidence than normal that inflation rise will be persistent
• Path of unemployment to be considerably smoother than forecast in February but this will be subject of debate
• I expect that we will have lower profile of unemployment in next forecasts

FXStreet reports that FX Strategists at UOB Group suggest that cable’s downside momentum could extend to the 1.3760-zone in the short-term horizon.

24-hour view: “We highlighted last Friday “improved downward momentum could lead to GBP moving below 1.3860 but the next support at 1.3820 is likely out of reach”. We underestimated the downward momentum as GBP plummeted to 1.3779 before rebounding. The sharp rebound has scope to extend but any advance is likely limited to a test of 1.3900. The next resistance at 1.3930 is unlikely to come into the picture. Support is at 1.3820 followed by 1.3790.”

Next 1-3 weeks: “GBP subsequently dropped briefly to 1.3779 before rebounding to close at 1.3831. Downward momentum has improved a tad and GBP could edge lower to 1.3760 in the coming days. On the upside, a break of 1.3965 would indicate the current mild downward pressure.”

FXStreet notes that the Canadian dollar is the second best-performing currency of 2021 so far. Rabobank’s 1-3 month USD/CAD forecast remains at 1.26-1.27 but the risk in the coming weeks is skewed to the upside with USD/CAD likely to trade above the 1.27 handle in the next two weeks.s

“We expect that price action in the next two weeks is likely to see USD/CAD primarily trade with a 1.27 handle.” 

“On the upside, key resistance comes in at 1.2750 ahead of 1.2840. We do not expect the pair to break 1.2880 in the next two weeks.”

FXStreet reports that Jack Manley, Global Market Strategist at JP Morgan said that the surge in oil prices is likely transitory.

“Clearly, production cuts will help keep oil prices elevated. However, a number of forces may counteract short-term supply issues. To start, the pandemic has illuminated the effectiveness of working-from-home, which could result in fewer commuters on the road and less need for gasoline. Furthermore, demand for air travel remains depressed, and the combination of smaller fleets and an uneasiness about flying with strangers, even after vaccination, could put a strain on jet fuel prices. Finally, while the deep freeze in Texas temporarily disrupted US energy production, it did not change the fact that the US has become the marginal producer in global energy markets and OPEC+ is no longer able to unilaterally affect global supply.”

“Investors should recognize that this surge in oil prices is likely transitory, and that while OPEC+ is able to capitalize on short-term disruptions now, it will not be able to forever.”

FXStreet reports that FX Strategists at UOB Group discusses USD/CNH prospects..

Next 1-3 weeks: “We have held a positive view in USD for more two weeks now. After USD retreated from 6.5080 and traded mostly sideways for several days, we highlighted in our latest narrative from last Friday (05 Mar, spot 6.4875) that ‘the overall outlook is still deemed as positive as long as USD does not move below 6.4400’. USD finally cracked 6.5080 as it surged to 6.5285 during NY hours. While overbought shorter-term conditions could lead to consolidation first, the current USD strength could extend to 6.5500 later on. The positive outlook is deemed intact as long as USD does not move below 6.4680 (‘strong support’ level previously at 6.4400).”

• UK faces two-sided risks to economic recovery, but those risks are declining as time goes by

• Toolkit decisions should not be interpreted about signal of future policy path

• Negative rates contingency planning implies nothing about our intentions in that direction

• Contingency planning for negative rates does not imply it is our chosen policy tool

• QE is set to run its course at the end of the year

• Covid has been both a demand and supply shock to the economy, and the recovery, therefore, has to be in both elements. Absent a dual recovery, dealing with the issues that arise will be more difficult.

• Longer-term scarring damage to the economy will be more limited than in some past recessions, but there will most likely be structural change

• Important to boost supply capacity to raise the sustainable rate of growth.”

• Important to emphasize the role of the forward guidance that the MPC has adopted, and the announcements made a month ago on so-called toolbox issues.

• Far from clear whether or to what degree changes to the economy during covid will persist post-covid and therefore what will be the longer-term impact on the economy.

• My best guess is we will see some persistence of structural changes of the economy under covid, not full persistence but not a full reversion to pre-covid either.

FXStreet reports that economists at MUFG Bank inform that the higher price of oil and favourable yield spread developments continue to favour a stronger CAD.

“The oil-related currencies have been supported by recent bullish developments in the oil market. The strength of oil-related currencies is not yet fully reflecting the higher price of oil. Positive correlations have broken down over the past month. The CAD is benefitting from improving domestic fundamentals as well. The Canadian economy continued to rebound much more strongly than expected at the end of last year when GDP expanded by an annualized rate of 9.6% in Q4 following on from the 40.6% expansion in Q3.” 

“The BoC is expected to acknowledge the stronger growth outlook at this week’s policy meeting. It is encouraging expectations that the BoC will eventually bring forward plans to tighten policy. Long-term yields in Canada have increased by even more than in the US so far this year. The BoC will face a difficult challenge if it wants to dampen the pace of the move higher in Canadian yields in the week ahead in light of improving fundamentals. The BoC is likely to reiterate that it does not plan to raise rates until 2023 at the earliest.”

According to the report from Sentix, at the beginning of March, the global economy is on a sustained recovery path, increasingly driven less by expectations for the future and more by improvements in the assessment of the situation. The global situation index rises for the tenth time in a row to 5.5 points, the overall index even for the eleventh time in a row to the best value since March 2018. The picture is basically the same in all world regions, the upswing is thus broad-based. In Euroland, the situation assessment also improved significantly from -27.5 to -19.3 points, despite continuing restrictions in many countries.

The restrictions still in force in many eurozone countries due to the Corona containment measures surprisingly have only a minor impact on the sentix business cycle indices. While the expectation values for the Eurozone remain stable in positive territory at +32.5, the situation assessment can improve by 8.2 points to -19.3. This is the best value since March 2020, meaning that around 80% of the gap left by the Corona crisis has already been wiped out. For around the turn of the year 2019 / 2020, the situation assessment was around plus / minus zero. The hope of investors is that this recovery path will continue. On a positive note, the pandemic seems to have peaked at the global level and vaccination is also progressing well in that the number of immunised individuals is increasing and statistics suggest that effective vaccination protection is being achieved. These trends allow for a faster opening of the economy. This is what investors are betting on.

Reuters reports that the People's Bank of China and State Administration of Foreign Exchange spokesperson Wang Chunyin said that the value of China's foreign currency reserves fell 0.18% to $3.205 trillion by the end of February, versus $3.211 trillion by the end of January. Meanwhile, the country's gold reserves barely moved at 62.6 million ounces.

Wang attributed the drop in China's foreign currency reserves to the effects of currency translation and changes in asset prices.

However, she said the country's foreign exchange market operated in line with market expectations.

FXStreet reports that economists at MUFG Bank discusses USD/JPY prospects.

“The downward trendline from the 2015 peak and the peak last year comes in between 109.00-109.30 over the coming weeks and is likely to be tough to break.”

“If US yields do rise further, we believe two factors would unfold that would limit the upside. The first would likely be increased equity market selling, which would go global thus increasing risk aversion and bringing back some support for JPY. Then in addition, the Fed would likely become more explicit in countering further moves higher in yields.”

“If as we expect, global growth picks up, the huge US financing needs coupled with the widening US current account deficit plus the still deeply negative level of real yields will see this US dollar rally peter out and renewed US dollar depreciation will unfold.”

Reuters reports that Bank of Japan Deputy Governor Masayoshi Amamiya said the central bank must focus on keeping the entire yield curve "stably low" for the time being, as the economy continues to suffer from the coronavirus pandemic.

But he also said he personally felt bond yields should be allowed to move more around the BOJ's 0% target "as long as it does not diminish the impact of monetary easing".

"A big fluctuation in interest rates could have undesirable consequences. But when it's limited to a certain range, it's possible to enhance bond market functions, without diminishing the monetary easing effect of our policy," he said in a speech.

Amamiya said there was no change to the BOJ's view that excessive declines in super-long interest rates hurt margins of pension funds and insurers.

But he said the BOJ's near-term focus was to keep bond yields stably low, echoing comments made by Governor Haruhiko Kuroda on Friday

During today's Asian trading, the US dollar rose modestly, hitting a 3-1 / 2 month high, as a broad rise in Treasury yields dampened investor sentiment in stock markets.

After falling 4% in the final quarter of 2020, the dollar has gained more than 2.4% since the start of the year compared to its rivals, as investors expect a broad rise in US bond yields to weigh on stock prices and boost the dollar's appeal.

"Higher yields in the US have increased stock market volatility and supported the US dollar. The Federal Reserve remains dovish, but Chairman Jerome Powell chose not to pay lip service to higher yields, which provided further short - term gains for the dollar," UBS strategists said.

BofA analyst Athanasios Vamvakidis argued that the strong combination of US stimulus, faster opening and increased consumer power was a clear positive for the dollar.

The Senate passed a $ 1.9 trillion COVID-19 relief plan a day after a U.S. employment report lifted the dollar to its highest level since November 2020.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose 0.20%.

FXStreet reports that the Commerzbank analyst team discusses EUR/CHF prospects.

“EUR/CHF last week reached the 200-week ma at 1.1146. We would allow for some profit taking here, the daily RSI has diverged and we have a 13 count on the daily chart. Dips are indicated as likely to hold the 1.1050-1.0990 region. Above 1.1152 lies the 50% retracement of the entire move down from the 2018 peak at 1.1257. Longer term, the market has recently completed a base, which offers an upside measured target to 1.1325.”

Reuters reports that a senior state planner official said that China’s decision not to set an economic growth target for its new five-year plan will give policymakers more room to account for uncertainties and respond to changes.

In its 2021-2025 economic plan China did not include any average annual growth targets. It did, however, pledge to keep growth in a “reasonable” range over the five-year period and set an annual gross domestic product target of above 6% for the current year, having dropped the 2020 target last year amid global uncertainties caused by the pandemic.

Hu Zucai, vice director of the National Development and Reform Commission, said on Monday predicting growth for an annual period contingent on the circumstances would be easier than setting targets over a five-year period.

“By not setting a specific and quantitative (five-year) growth target, we will be more proactive, active and at ease in coping with all sorts of risks, which is conducive to boost the flexibility of our development,” Hu told a press conference on the sidelines of the annual parliament meeting. He added that it also helps to guide agencies to focus on improving the quality of efficiency of growth, instead of just numerical growth.

“We are confident that GDP will maintain a certain level (over the next five years),” he said.

According to the report from the Federal Statistical Office (Destatis), in January 2021, production in industry was down by 2.5% on the previous month on a price, seasonally and calendar adjusted basis. Economists had expected a 0.2% increase. Compared with January 2020, the decrease in calendar adjusted production in industry amounted to 3.9%.

Compared with February 2020, the month before restrictions were imposed due to the coronavirus pandemic in Germany, production in January 2021 was 4.2% lower in seasonally and calendar adjusted terms.

In January 2021, production in industry excluding energy and construction was down by 0.5%. Within industry, the production of capital goods showed a decrease of 0.8% and the production of consumer goods of 3.0%. The production of intermediate goods increased by 0.7%. Outside industry, energy production was up by 0.6% in January 2021. Production in construction declined by 12.2% against the background of the strong increase recorded in December 2020 (revised value: +5.4%) and the end of the value added tax reduction.

In December 2020, the corrected figure on the production in industry showed an increase of 1.9% (provisional: 0.0%) on November 2020.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2175 (1515)

$1.2098 (214)

$1.2039 (443)

Price at time of writing this review: $1.1907

Support levels (open interest**, contracts):

$1.1851 (2124)

$1.1823 (3844)

$1.1792 (2809)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 9 is 43921 contracts (according to data from March, 5) with the maximum number of contracts with strike price $1,1900 (3844);

GBP/USD

Resistance levels (open interest**, contracts)

$1.4081 (351)

$1.4021 (705)

$1.3937 (675)

Price at time of writing this review: $1.3827

Support levels (open interest**, contracts):

$1.3767 (290)

$1.3748 (505)

$1.3702 (1926)

Comments:

- Overall open interest on the CALL options with the expiration date April, 9 is 7249 contracts, with the maximum number of contracts with strike price $1,4100 (1231);

- Overall open interest on the PUT options with the expiration date April, 9 is 16522 contracts, with the maximum number of contracts with strike price $1,3200 (3376);

- The ratio of PUT/CALL was 2.28 versus 1.27 from the previous trading day according to data from March, 5

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.