CFD Markets News and Forecasts — 08-04-2021

• IMF members expressed strong support for IMF 
• The $650 billion expansion of reserves will be the largest in IMF's history 
• We need a recovery that works for all

Carsten Brzeski, the Global Head of Macro for ING Research, notes that the ECB’s last news conference left many market participants a bit puzzled about the ECB’s exact reaction function, but the just-released minutes of the meeting shed more light on what the bank's thinking.

"The ECB’s last news conference left many market participants a little puzzled about the exact shape of the ECB’s reaction function. There were simply too many ‘holistics’, ‘multifaceted’, ‘downstreams’ and ‘upstreams’ rather than a clear description of how the ECB would react to higher inflation and higher bond yields. Fortunately, several speeches and some blog entries since the March press conference have clarified the ECB’s current thinking. In our view, a recent speech by ECB board member Isabel Schnabel has become the best compass we could find to see where the ECB’s needle is currently pointing to."

"In fact, what Schnabel told us and what the minutes of the March meeting also reflect was that the ECB accepts higher longer-term nominal rates as a result of higher inflation expectations. So, as long as real rates remain stable, everything is fine. Any increase in real rates will only be tolerated by the ECB if it reflects improved growth prospects. Consequently, the ECB’s current reaction function can be summarised as: so long as bond yields rise for good reasons, the ECB is relaxed. If they start rising for the wrong reasons, the ECB will intervene. This is no real yield curve control but rather a soft and moving cap on yields."

"In the end, the debate or even fear of surging bond yields was a bit of a storm in a teacup. Or put differently, financial markets quickly understood that the acceleration of eurozone inflation was - and will be - mainly the result of one-off factors. This kind of inflation is rather deflationary and definitely no reason for the ECB to react with any premature tightening. On the contrary, the ECB has made clear that it will look through any temporary increase in inflation and would not tolerate an unwarranted tightening of financing conditions."

According to ActionForex, analysts at Wells Fargo Securities note that the second consecutive increase in weekly claims to 744K and the modest increase in the four-week average stand in contrast to nearly all other reads on the labor market at present, which point to the recovery progressing.

"Initial jobless claims rose for a second straight week, coming in at 744K. The increase over the past two weeks was enough to nudge the four-week average up for the first time since January of this year."

"The recent rise in claims stands in contrast to almost all other readings of the labor market at present. Hiring has picked up substantially, with 916K jobs added in March. Business surveys corroborate stronger job growth, with the ISM manufacturing and services employment indices both jumping last month."

"In other words, there is little to suggest that the labor market recovery is once again stalling, let alone backsliding, as recent claims figures hint. Instead, the sideways move likely reflects the usual weekly noise - made especially difficult this time of year by the variable timing of Easter - as well as ongoing issues related to backlogs, substantial churn in some industries and even fraud."

"Four million workers were receiving regular benefits through the week ending March 27, down from almost 23M at the height of the crisis. That, however, misses the growing number of workers unemployed for six months or more, which hit a cycle high of 43% in March; there were another 6.4M workers on extended benefit programs though March 20."

"Meanwhile, continuing claims under the Pandemic Unemployment Assistance program, the emergency program to cover gig workers and the self-employed among others, was little changed. All told, continuing claims totaled 18.2M in the most recent week that data are available across all programs and points to unemployment insurance remaining a substantial source of household income at this time."

FXStreet reports that according to Gabriela Santos, Global Market Strategist at JP Morgan, leaning into financials, materials and industrials internationally is a way to position portfolios for the global recovery and to hedge a potential overshoot in inflation.

"The pandemic’s initial effects proved to be disinflationary, as demand for services and commodities plunged. This year, pent-up demand is set to be unleashed, fueled by the reopening of activity and fiscal stimulus. As the global economy operates above potential, inflation should move higher.”

“Corporate earnings growth should be strong, with consensus expecting 35% earnings per share growth for the MSCI All Country World ex-US index in 2021. This compares with expectations of 25% growth for the S&P 500. The greater cyclicality of international markets explains the difference: cyclical sectors make up 57% of international markets versus only 38% of the US. It is exactly sectors such as financials, materials and industrials whose earnings are the most geared to nominal economic growth.”

U.S. stock-index futures rose on Thursday, suggesting that S&P 500 could reach a fresh record high, supported by dovish Fed minutes.

Global Stocks:

FXStreet reports that the Credit Suisse analyst team suggests that GBP/USD maintains a bearish “reversal day” to keep the risk lower in its range with support seen at 1.3706 initially, then 1.3641.

“Support moves to 1.3733/25 initially below which should see a fall back to 1.3706 next, ahead of the 1.3670 March low and then 1.3641 – the 38.2% retracement of the September/February rally – which we would look to hold at first. A break though can clear the way for further weakness to 1.3567, with better support seen starting at the December high at 1.3514 and stretching down to 1.3458/52 – the ‘neckline’ to the long-term base, 50% retracement of the rally from September and YTD low at 1.3458/52, where we would look for signs of a better floor.” 

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

FedEx (FDX) added to Analyst Focus List at JPMorgan

The data from the Labor Department revealed on Thursday the number of applications for unemployment unexpectedly increased last week.

According to the report, the initial claims for unemployment benefits increased by 16,000 to 744,000 for the week ended April 3. This marked the third consecutive weekly increase in initial unemployment claims.

Economists had expected 680,000 new claims last week.

Claims for the prior week were revised upwardly to 728,000 from the initial estimate of 719,000.

Meanwhile, the four-week moving average of jobless claims rose to 723,750 from an upwardly revised 721,250 in the previous week.

Continuing claims dropped to 3,734,000 from a downwardly revised 3,750,000 in the previous week.

FXStreet notes that S&P 500 is seeing near-term consolidation at 4070/75 but analysts at Credit Suisse see scope for the market to test pivotal resistance from the top of its 12-year trend channel from the 2009 low at 4115.

“We continue to see scope for the rally to extend further yet. Support at 4068 holding can maintain an immediate upside bias for a break above 4086 for further strength to Fibonacci projection resistance at 4104/08, then what we view as more significant resistance at 4115/19. This is not only trend resistance from last November but more importantly, is the top of the 12-year trend channel from the 2009 low.”

“Whilst we still look for an eventual move to our 4200 objective some point this quarter, we would be highly cautious of an interim top around 4115/19.” 

The ECB released account of its March 10-11 monetary policy meeting. It noted that:

• It was observed that increase in bond yields occurred mostly on account of higher expected inflation and better outlook for global economy. In this context, it was remarked that the Governing Council needed to avoid giving the impression of being overly focused on sovereign yields or reacting mechanically to a set of indicators of financing conditions
• There was wide agreement that PEPP purchase pace needed to take into account a joint assessment of favourability of current financing conditions and the inflation outlook
• There was a broad consensus on understanding that total PEPP envelope was not being called into question in current conditions and that the pace of purchases could be reduced in future. In this context, flexibility of purchases over time was seen as essential for reacting to changes in financing conditions as needed over time
• PEPP envelope could, however, be recalibrated if required in order to maintain favourable financing conditions to help counter the negative pandemic shock to path of inflation
• If favourable financing conditions could be maintained with asset purchase flows that did not exhaust the envelope over the net purchase horizon of PEPP, the envelope need not be used in full
• It was underlined that flexibility embodied in PEPP was symmetric, implying that the purchase pace could be increased and decreased according to market conditions
• Members agreed that the Governing Council would undertake a quarterly joint assessment of financing conditions and inflation outlook in order to determine the pace of purchases needed to keep financing conditions favourable
• Governing Council reiterated its commitment to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in sustained manner, in line with its commitment to symmetry
• It was important to provide reassurance that Governing Council would maintain accommodative monetary policy for as long as necessary and saw no risk of overheating in euro area in present environment
• It was deemed important to emphasise the need for continued support from fiscal policies to sustain the recovery

USD weakened against most of its major counterparts in the European session on Thursday, as yields on longer-term U.S. Treasuries slipped as investors continued to digest the dovish Fed minutes, which were released on Wednesday.

Benchmark 10-year Treasury yields fell by 3 basis points to 1.647% early Thursday, reaching their two-week lows, after the minutes from the Federal Reserve's March policy meeting showed that the Fed officials remained cautious about the risks of the pandemic and committed to keeping the current accommodative monetary policy until economic recovery is more secure. 

“Participants agreed that the economy remained far from the Committee's longer-run goals and that the path ahead remained highly uncertain, with the pandemic continuing to pose considerable risks to the outlook,” the FOMC minutes from the March 16-17 meeting said. "All members agreed to maintain the target range for the federal funds rate at 0 to 1/4 percent, and they expected that it would be appropriate to maintain this target range until labor market conditions had reached levels consistent with the Committee's assessments of maximum employment and inflation had risen to 2 percent and was on track to moderately exceed 2 percent for some time. In addition, members agreed that it would be appropriate for the Federal Reserve to continue to increase its holdings of Treasury securities by at least $80 billion per month and agency mortgage-backed securities by at least $40 billion per month until substantial further progress had been made toward the Committee's maximum-employment and price-stability goals."

It should be noted, however, that several policymakers suggested that interest rates might need to increase sooner than anticipated, but market participants ignored this message. 

Investors are now awaiting the speech of the Fed's Chair Jerome Powell, who is to participate in a virtual IMF's conference on the global economy today at 16:00 GMT.

FXStreet notes that EUR/USD strength has stalled as expected at its 200-day average at 1.1889. Whilst further near-term consolidation should be allowed for, a break in due course can expose the 38.2% retracement of the entire Q1 fall at 1.1950, the Credit Suisse analyst team briefs.

“EUR/USD strength has stalled as expected for now at the 200-day average at 1.1889 and near-term consolidation around here should still be allowed for.”

“With daily MACD momentum having turned higher though our bias is for this to be followed by a closing break higher in due course. This should then see strength extend further to the 38.2% retracement of the entire 2021 fall at 1.1948/50, potentially even the mid-March highs at 1.1990/92, but with this 1.1950/1.1992 zone expected to prove a much tougher barrier and we look for a more important cap here.”

FXStreet reports that economists at MUFG Bank note that the pound has made a bad start to the new month. Only the Canadian dollar has underperformed against the pound so far in April, which is normally a strong month for pound performance. 

"Cable has risen on average by 1.5% in April over the last twenty years.”

“Recent weakness marks an abrupt reversal for the pound following on from its strong performance in Q1 when it was one of the best performing G10 currencies (+0.8% vs USD & +5.0% vs EUR) and second only to the Canadian dollar.” 

“The latest IMM report revealed that Leveraged Funds had built up implied short EUR/GBP positioning in March to the highest level since April of last year. The forced unwinding of those positions has likely exacerbated the size of the move higher in EUR/GBP in recent days from an intra-day low of 0.8472 on Monday to an intra-day high yesterday of 0.8664. It has been the largest rise for the pair in percentage terms since the down trend began in mid-December.” 

“The price action suggests that risks are becoming more balanced after the sharp move lower in Q1 which brought EUR/GBP back towards pre-pandemic lows between 0.8400 and 0.8600.” 

FXStreet reports that analysts at Credit Suisse appraise that USD/JPY stays seen at risk to a deeper corrective setback to its mid-March high at 109.38/36, potentially the 23.6% retracement of the Q1 rally at 108.99.

“With support from its 13-day exponential average as well as price support at 109.85/75 broken we continue to look for a more concerted corrective setback. Below 109.58 should add weight to this view with support seen next at 109.38/36, the mid-March high.” 

“An overshoot to the 23.6% retracement of the entire Q1 rally at 108.99 should be allowed for, but our bias would be to look for a floor in this 109.38/108.99 zone. Should weakness directly extend this can expose what we see as more important support at 108.50/33.” 

• Pandemic and related containment measures will continue to adversely affect euro area economic activity in short term
• Beyond the short term, activity should pick up
• Overall, risks surrounding euro area growth outlook have become more balanced, although downside risks associated with pandemic remain in near term
• Headline inflation likely to increase further in the coming months, but temporary factors are expected to fade out of annual inflation rates early next year
• PEPP envelope need not be used in full if favourable financing conditions can be maintained with a flow of asset purchases that does not exhaust the envelope by the envisaged end of PEPP’s net purchase phase
• It is absolutely crucial for monetary and fiscal policies to continue complementing each other in supporting euro area economy

FXStreet reports that in the view of economists at Westpac, the 94.50 level is an achievable three-month target for the US Dollar Index.

“The USD and US yields have priced in the initial stages of the reopening and stimulus fuelled rebound – the marquee payrolls and ISM reports for March topped even the most bullish forecasts (net of revisions), yet yields and the DXY are net steady since mid-March. But the rebound is only just hitting its stride and yet more dramatic upside surprises across a sweep of key data are likely in coming months.” 

“Fed messaging continues to underscore that there will be no hasty retreat from accommodative policy. As long as 91.50 holds, DXY’s uptrend should resume, an eventual return to the 2020Q3 highs in the 94.50 zone an achievable target.”

Reuters reports that French customs data showed that French exports to Britain picked up 4% in February but were still at only 84% of the monthly average of the second half of 2020, as post-Brexit trade rules continued to impact commercial flows.

France is one of Britain's most important trading partners within the European Union and many economists forecast that Britain's exit from the world's largest free trade area will prove to be a long-term drag on its growth.

French imports from Britain jumped 27% to 1.48 billion euros in February, returning to a level just shy of the monthly average during the second half of 2020.

Overall, France's trade deficit widened to a seasonally adjusted 5.25 billion euros from 4.19 billion euros in January, led by a fall in the exports of aircraft, pharmaceuticals and manufactured goods. 

According to estimates from Eurostat, in February 2021, industrial producer prices rose by 0.5% in the euro area and by 0.7% the EU, compared with January 2021. Economists had expected a 0.6% increase. In January 2021, prices increased by 1.7% in the euro area and by 1.6% in the EU. 

In February 2021, compared with February 2020, industrial producer prices rose by 1.5% in the euro area and by 1.7% in the EU. Economists had expected a 1.4% increase.

Industrial producer prices in the euro area in February 2021, compared with January 2021, increased by 1.2% for intermediate goods, by 0.3% in the energy sector and for non-durable consumer goods, by 0.2% for durable consumer goods and by 0.1% for capital goods. Prices in total industry excluding energy increased by 0.6%. In the EU, industrial producer prices increased by 1.2% for intermediate goods, by 0.8% in the energy sector, by 0.3% for durable consumer goods, by 0.2% for non-durable consumer goods and by 0.1% for capital goods. Prices in total industry excluding energy increased by 0.7%.

Industrial producer prices in the euro area in February 2021, compared with February 2020, increased by 2.4% for intermediate goods, by 2.3% in the energy sector, by 1.2% for durable consumer goods and by 0.9% for capital goods, while prices fell by 0.4% for non durable consumer goods. Prices in total industry excluding energy increased by 1.2%. In the EU, industrial producer prices increased by 3.0% in the energy sector, by 2.6% for intermediate goods, by 1.5% for durable consumer goods and by 0.9% for capital goods, while prices fell by 0.3% for non-durable consumer goods. Prices in total industry excluding energy increased by 1.4%.

According to the report from the IHS Markit/CIPS, the recovery in UK construction output gained considerable momentum in March, supported by robust rises in house building, commercial work and civil engineering.

Adjusted for seasonal influences, the UK Construction Total Activity Index registered 61.7 in March, up sharply from 53.3 in February. The latest reading signalled the strongest rate of construction output growth since September 2014.

Housebuilding (index at 64.0) was the best-performing category, with growth the fastest since July 2020. Strong increases in activity were also seen in commercial construction (62.7) and civil engineering (58.0) in March, with the index readings for both segments the highest since the second half of 2014. Survey respondents often commented on the mobilisation of delayed projects, especially in areas such as hospitality, leisure, and office development. There were again reports of a boost from major infrastructure projects in March, as well as higher workloads due to greater spending on residential construction work and rising new home sales.

Improving client demand and contract awards on projects that had been put on hold earlier in the pandemic contributed to a steep upturn in new orders during March. Moreover, the rate of expansion accelerated to its fastest since September 2014.

Forthcoming new project starts spurred a solid rise in employment numbers, with the rate of job creation the strongest for over two years in March. 

Meanwhile, the latest survey indicated a strong degree of confidence towards the year ahead outlook for construction activity. Growth projections were the most upbeat since June 2015, reflecting confidence in the UK economic outlook, the improving pandemic situation and pent up demand.

FXStreet reports that economists at Westpac inform that a break below the 0.6945 level would imply the NZD/USD has further room to the downside. 

"NZD/USD’s downward correction from the 0.7465 high on 25 Feb may not yet be complete. A break below 0.6945 would confirm such, while a break above 0.7070 would flip us into a near-term bullish stance. However, we remain bullish NZD/USD, expecting 0.7600 by year-end. The main factors are likely to be a weaker US dollar and upbeat global risk sentiment.” 

“Next week’s RBNZ decision is unlikely to ruffle the NZD much if it repeats its familiar policy messages. A dovish scenario would comprise commentary on the negative impact from the government’s recent housing curbs, as well as the slowdown in economic momentum over the past few months. A hawkish scenario (less likely) would note risks that the looming inflation spike could be sustained.”

According to the report from the IHS Markit, the Eurozone Construction Total Activity Index rose from 45.0 in February to 50.1 in March, signifying a fractional expansion in eurozone construction activity. This marked the first rise in activity since February 2020, prior to the downturn caused by the coronavirus disease 2019 (COVID-19) pandemic during 2020. Latest data showed that the return to growth was led by house building activity, which rose for the first time in 13 months. There were also softer declines in both commercial construction and civil engineering activity.

Home building among eurozone constructors returned to expansion territory in March. The pace of growth was modest overall and was the first instance of growth since February 2020. Meanwhile, commercial construction activity was the worst performing sub sector in the latest survey period. The fall in March was the thirteenth in a row, yet the pace of contraction was the softest since July 2020.

Work undertaken on civil engineering projects reduced for the twentieth month in succession in March. That said, the decline softened from February and was the softest since February 2020

New orders received by eurozone construction firms returned to growth in for the first time in 13 months in March. Though the pace of the increase was marginal, it was the fastest since January 2020. 

Overall sentiment among eurozone building companies remained positive in March, as indicated by the Future Activity Index staying above the 50.0 no-change threshold for the third month running. All three of the largest economies in the bloc anticipated a rise in activity over the next 12 months, the first time this has occurred since February 2020.

FXStreet reports that strategists at ANZ forecast Brent Oil breaking above the $70 level.

"In the end, OPEC+ agreed to increase quotas by more than 1.1mb/d from May-July in three equal monthly instalments. Over the same period, Saudi Arabia will wind back its additional 1 million b/d cut below its official quota.” 

“The higher-than-expected increase in quotas in May will be offset by the more gradual rise in Saudi Arabian output. Overall, that has seen us raise our estimate of supply by only 400kb/d in Q2 2021. Even with the additional supply, we still expect further drawdowns in global inventories. This is likely to induce more OPEC supply back into the market in H2 2021. These bullish balances with sequential draws in the second and third quarters will firm up prices.” 

“We maintain our positive view on prices in the short term, with Brent crude breaking through $70/bbl to hit fresh highs of $75/bbl in Q3.”

During today's Asian trading, the US dollar declined slightly against the euro and the yen. The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell by 0.1%.

Experts at Saxo Bank noted that the rapid rally in US treasuries in recent trading days, with a corresponding drop in yields, strongly supported low-yielding currencies-from the euro to the swiss franc with its deeply negative yields. The yield on ten-year US Treasuries on Thursday fell to 1.664% from 1.674% at the end of trading the day before.

The leaders of the Federal Reserve System (Fed) do not fear an excessive increase in inflation in the United States, considering the risks to the inflation forecast "more or less balanced," the minutes of the Fed meeting held on March 16-17 indicated.

The dot plot of forecasts published after the meeting shows that all 18 leaders of the FOMC expect the base interest rate to remain in the current range (0-0.25%) in 2021. Four of them believe that the rate can be raised in 2022, and seven are already waiting for an increase in the rate in 2023.

Meanwhile, German factory orders rose in line with forecasts in February. According to provisional results of the Federal Statistical Office (Destatis), real (price adjusted) new orders increased by a seasonally and calendar adjusted 1.2% in February 2021 compared with January 2021. Excluding major orders, real new orders in manufacturing were 1.5% higher than in the previous month.

FXStreet reports that according to Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, a close above the 0.8671 level is key to see further gains.

“EUR/GBP has seen a very strong reversal from the March and May 2019 lows at 0.8471/65 and has tested the 55-day ma at 0.8663, directly above here lies the April 2020 low at 0.8671.”

“A close above the 0.8671 would imply that the market has based, which introduces scope to the late February high at 0.8732.” 

“A rise above 0.8732 would target the lows seen in June, September and November at 0.8861/65.” 

CNBC reports that President Joe Biden said that he is willing to negotiate on the proposed corporate tax rate hike in his $2 trillion infrastructure plan.

“I’m willing to listen to that,” Biden said at the White House when asked if he would consider a lower corporate tax rate than 28%, as his plan currently calls for.

“We’ve got to pay for this,” Biden added, noting that there are “many other ways we can do it.”

The president’s remark about the corporate tax rate came after he delivered a sweeping defense of the size and scope of his proposed infrastructure overhaul.

Republicans have been quick to criticize the plan for funding too many projects that, in their view, fall outside the definition of infrastructure. 

But Biden argued that “the idea of infrastructure has always evolved to meet the aspirations of the American people and their needs. And it is evolving again today.”

The president said he welcomes debate about the specifics of the bill, and said “any Republican who wants to get this done” is invited to the White House.

According to provisional results of the Federal Statistical Office (Destatis), real (price adjusted) new orders increased by a seasonally and calendar adjusted 1.2% in February 2021 compared with January 2021. Excluding major orders, real new orders in manufacturing were 1.5% higher than in the previous month.

Compared with February 2020, which was the month before restrictions were imposed due to the corona pandemic in Germany, real new orders increased by a calendar adjusted 5.6% in February 2021.

Domestic orders increased by 4.0% and foreign orders decreased by 0.5% in February 2021 on the previous month. New orders from the euro area went up 2.7%, and new orders from other countries decreased by 2.3% compared with January 2021.

In February 2021, the manufacturers of intermediate goods saw new orders increase by 0.5% compared with January 2021. The manufacturers of capital goods saw an increase of 2.1% on the previous month. Regarding consumer goods, new orders fell by 1.9%.

For January 2021, the revision of the preliminary outcome and the annual update of the seasonal factors resulted in an increase of 0.8% compared with December 2020 (provisional: +1.4).

EUR/USD

Resistance levels (open interest**, contracts)

$1.2002 (947)

$1.1955 (1368)

$1.1915 (2756)

Price at time of writing this review: $1.1873

Support levels (open interest**, contracts):

$1.1840 (2448)

$1.1797 (4285)

$1.1749 (4723)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 9 is 72152 contracts (according to data from April, 7) with the maximum number of contracts with strike price $1,1750 (4723);

GBP/USD

$1.3903 (712)

$1.3856 (315)

$1.3814 (108)

Price at time of writing this review: $1.3759

Support levels (open interest**, contracts):

$1.3706 (1289)

$1.3678 (1088)

$1.3655 (179)

Comments:

- Overall open interest on the CALL options with the expiration date April, 9 is 10615 contracts, with the maximum number of contracts with strike price $1,3950 (1278);

- Overall open interest on the PUT options with the expiration date April, 9 is 14985 contracts, with the maximum number of contracts with strike price $1,3750 (1289);

- The ratio of PUT/CALL was 1.41 versus 1.42 from the previous trading day according to data from April, 7

* - 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.