CFD Markets News and Forecasts — 10-09-2021

eFXdata reports that analysts at Danske Research discuss EUR/USD outlook in the near term.

"For EUR/USD, the ECB meeting was largely uneventful. ECB gave guidance of the next re-calibration to take place at the December meeting, which was widely as expected. President Lagarde provided only highlights on how ECB thinks about the upcoming QE buying calibration, but fell short of commenting on what a moderation of purchases actually means in terms of numbers. There was a minor rally in EUR/USD on the initial press release, which was paired not too long after given Largarde's dovishly-hawkish comments." 

"From here, we suspect EUR/USD will be in the hands of 1) relative equities (US vs Europe and value vs. growth in styles) and 2) general risk sentiment and especially so as Fed enters its silent-period on Saturday, ahead of the FOMC meeting in two weeks."

• Would still like to begin tapering asset purchases some time this year despite weak August jobs report
• Delta variant is a risk to the outlook but not necessarily going to weigh heavily on economic activity
• Expecting employment to continue to rise over the rest of the year
• Some more people will join the labor market as issues with child care are resolved and some people train for new jobs
• Wouldn't have a problem with Fed reviewing rules on how officials should handle investments

The Commerce Department announced on Friday the U.S. wholesale inventories rose 0.6 percent m-o-m in July, being in line with the preliminary estimate. This was the smallest monthly gain since December 2020.

Economists had forecast the reading to stay unrevised at 0.6 percent m-o-m.

In June, wholesale inventories rose 1.2 percent m-o-m.

According to the report, durable goods inventories jumped 1.0 percent m-o-m in July, while stocks of nondurable goods edged down 0.1 percent m-o-m.

In y-o-y terms, wholesale inventories climbed 11.5 percent in July.

• Sees upside risks to the inflation forecast 
• Says her forecast is for inflation to remain high this year and then move back down next year
• Fed should examine the same relevant set of indicators over time and communicate its assessment of progress based on that set of indicators

U.S. stock-index futures rose on Friday, as investor sentiment was bolstered by news about the first phone call in seven months between the U.S. president Biden and China’s leader Xi.

Global Stocks:

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

The Labor Department reported on Friday the U.S. producer-price index (PPI) rose 0.7 percent m-o-m in August, following an unrevised 1.0 percent m-o-m gain in July. This advance was the smallest since May.

For the 12 months through August, the PPI surged 8.3 percent after an unrevised 7.8 percent climb in the previous month. That represented the largest gain since 12-month data were first calculated in November 2010. 

Economists had forecast the headline PPI would increase 0.6 percent m-o-m last month and 8.2 percent over the past 12 months.

According to the report, the August rise in the index for final demand was led by a 0.7 percent m-o-m gain in the index for final demand services. In addition, the index for final demand goods climbed 1.0 percent m-o-m.

Excluding volatile prices for food and energy, the PPI rose 0.6 percent m-o-m and climbed 6.7 percent over 12 months (the largest increase since 12-month data were first calculated in August 2014). Economists had forecast increases of 0.5 percent m-o-m and 6.6 percent y-o-y.

Statistics Canada reported on Friday that the number of employed people rose by 90,200 m-o-m in August (or +0.5 percent m-o-m) after an unrevised increase of 94,000 m-o-m in the previous month. This was the smallest advance in Canada’s employment in three months.

Economists had forecast an advance of 100,000 m-o-m.

Meanwhile, Canada's unemployment rate fell to 7.1 percent in August from 7.5 percent in July, exceeding economists’ forecast for 7.3 percent. This was the lowest rate since February 2020.

According to the report, full-time employment rose by 68,500 (or +0.4 percent m-o-m) in August, while part-time jobs grew by 21,700 (or +0.6 percent m-o-m).

In August, the number of public sector employees jumped by 29,900 (or +0.7 percent m-o-m), while the number of private sector employees went up 76,700 (or +0.6 percent m-o-m). Meanwhile, the number of self-employed decreased by 16,400 (or -0.6 percent m-o-m) last month.

Sector-wise, employment gained in the services-producing sector (+0.6 percent m-o-m) but declined marginally in the goods-producing business (-0.1 percent m-o-m).

FXStreet reports that economists at Credit Suisse look for a close above key downtrend resistance at 0.7141 next to open up 0.7317/24. 

“Our bullish view is based on our assessment that the recent breakout above 0.7090/69 confirmed a large basing structure and an important range breakout. Furthermore, short-term momentum continues to accelerate higher.” 

“Next resistance above the downtrend from the 2021 highs at 0.7141/71 is seen at the 61.8% retracement of the 2021 fall at 0.7211/15, with scope for an eventual move to 0.7317/24.”

“Support stays at the aforementioned 0.7090/69, where we recently turned tactically bullish.”

FXStreet reports that Kit Juckes, Chief Global FX Strategist at Société Générale, notes that CAD needs relative rates to stop moving against it and Canadian jobs data suggest that could happen.

“Today’s most interesting economic release is the Canada jobs report for August, where the consensus expects a 67.5K increase in employment and a drop in unemployment from 7.5% to 7.3%. It would take the economy to within 250K of pre-pandemic employment.”

“A meaningful CAD rally may be impossible in the middle of an election campaign, but if the data were to surprise on the upside, and change the market’s views around BoC rate hikes a bit, we could see USD/CAD run out of upward momentum and set up a Q4 drift lower.”

EUR traded mixed against other major currencies in the European session on Friday, as market participants seemed to be unimpressed with the ECB’s announcement that emergency asset purchases could be reduced by a moderate pace.

The single European currency rose against JPY and CHF,  declined against CAD, AUD, NZD and GBP, and changed little against USD.

At yesterday’s meeting, the ECB’s policymakers decided to leave the bank’s key interest rates unchanged but judged that favourable financing conditions could be maintained with a moderately lower pace of the pandemic emergency purchase programme (PEPP) purchases. The move was widely expected and largely priced in by the markets. 

Commenting on the central bank’s decision to slow the pace of asset buying under PEPP, its president Christine Lagarde stated that the change was a moderate “recalibrating” of the program, not tapering. She also did not explain what a “moderately lower pace” would actually mean in practice. Lagarde, however, provided upwardly revised projections for the euro zone’s GDP growth and inflation for this year - to 5% and 2.2% respectively (up from 4.6% and 1.9% seen in June). Forecasts for 2022 and 2023 also saw slight revisions.

• There are still problems on digital yuan that needs to be resolved

FXStreet reports that FX Strategists at UOB Group suggest that USD/CNH is still seen trading within the 6.4300/6.4800 range for the time being.

24-hour view: “Yesterday, ... USD edged to a low of 6.4465 before recovering. The decline lacks momentum and USD is unlikely to weaken much further. For today, USD is likely to trade sideways between 6.4400 and 6.4610.”

Next 1-3 weeks: “As highlighted, the outlook for USD is mixed and it could trade within a 6.4300/6.4800 range for a period of time.”

FXStreet reports that Credit Suisse's analysts note that EUR/USD continues to hold the key support cluster at 1.1818/1.1793. Whilst above here on a closing basis, there remains the possibility we may be seeing the construction of a potential “head and shoulders” base, they suggest.

“EUR/USD continues to successfully hold the key support cluster at 1.1818/1.1793 and whilst above here on a closing basis there remains the real possibility we may be seeing the construction of a potential ‘head & shoulders’ base. A break above 1.1853/55 stays needed to add weight to this view to clear the way for a retest of key resistance at the 38.2% retracement of the May/August fall and recent and July highs.”

“A close above 1.1910 would see a ‘head & shoulders’ base established to signal a more concerted swing higher in the broader range, with resistance seen next at the 50% retracement at 1.1965, with the key 200-day average now at 1.1999, which we would expect to cap at first.” 

• Economy is doing better than feared 
• But we are not out of the woods yet

FXStreet reports that UOB Group’s FX Strategists noted USD/JPY returned to the consolidative mood.

Next 1-3 weeks: “Our latest narrative was from Wednesday, where we highlighted ‘upward momentum is beginning to improve and the risk of a break of 110.55 has increased’. We added, ‘if 109.95 is breached within these few days, it would indicate that USD is still ‘caught’ in a 109.30/110.55 range’. USD subsequently rose to 110.44 but yesterday, it staged a surprisingly sharp decline and cracked 109.95 (low of 109.61). The build-up in momentum has fizzled out quickly and the overall price actions suggest that USD is still consolidating within a range of 109.30/110.55.”

Reuters reports that Bank of France Governor Francois Villeroy de Galhau said that european efforts to build a more unified cross-border banking system have ground to a halt over opposition to deposit guarantee plans, urging a new push to complete the project.

Villeroy said Europe’s banking sector remains fragmented, with lenders reluctant to merge and scale up to better take on foreign competition.

EU governments created a single banking supervisor and a single bank resolution mechanism for lenders that fail in response to Europe’s sovereign debt crisis a decade ago.

But efforts to complete the project have floundered over plans for an EU-wide deposit guarantee, which is particularly sensitive in countries like Germany where there are concerns about being exposed to the risks of weaker banking systems elsewhere in Europe.

“We should neither relax now that the banking crisis is mostly over, nor wait for the next crisis to act,” Villeroy said. “It is precisely because we are not in a crisis situation that we should move forward now.”

eFXdata reports that Standard Chartered Research discusses the inflation outlook for G3 currencies (USD, EUR, JPY).

"We think the doves would be outflanked if inflation persisted over 3% into 2022. It would be hard to argue, at a minimum, against a move to neutral on policy rates and even further if there were signs that long-term inflation expectations were shifting. The USD would benefit, but it is possible that low-beta currencies such as the CNH would be attractive if they had a better inflation/activity profile along with higher rates. Overall, we think the most likely outcome is that the economic consequences of COVID are brought under control and G3 central banks are tolerant of modest overshoots of their targets," SC adds. 

Reuters reports that European Union finance ministers stressed that any changes to EU budget rules, now under review, should support continued investment in the post-pandemic economy.

EU budget rules, which set limits on government borrowing to protect the value of the euro, are now suspended until the end of next year to give EU countries leeway in fighting the economic slump caused by the coronavirus pandemic.

Some officials propose that once the rules are reinstated in 2023, they should allow for continued large government investment, especially in fighting climate change.

FXStreet reports that economists at MUFG Bank discuss GBP/USD prospects.

“The GDP data for July was weaker than expected. Service-facing services remain 6.7ppts below the pre-COVID peak. The ONS released its updated estimate for the number of people on furlough which was estimated to be between 1.4-1.8mn. The data indicates little improvement and a clear slowdown in the pace of people coming off furlough in recent months.”

“The announcement of a National Insurance Contribution increase of 1.25% for employers and employees will see the fiscal backdrop become more of a drag on growth as support measures come to an end.” 

“Governor Bailey mentioned that the new BoE guidance implied that the conditions for a rate that are now believed to be in place were necessary but not sufficient for a rate hike given the ongoing uncertainty. So we would expect limited further upside on rate hike expectations for now which could take out some of the upside momentum for the pound.”

According to the report from the Istat, in July 2021 the seasonally adjusted industrial production index increased by 0.8% compared with the previous month. The change of the average of the last three months with respect to the previous three months was +0.6%. The index measures the monthly evolution of the volume of industrial production (excluding construction). 

The calendar adjusted industrial production index increased by 7.0% compared with July 2020 (calendar working days being 22 versus 23 days in July 2020).

The unadjusted industrial production index increased by 3.8% compared with July 2020.

Reuters reports that data from the China Association of Automobile Manufacturers (CAAM) showed that China's vehicle sales slid 17.8% in August from a year earlier, falling for a fourth consecutive month.

Overall sales in China stood at 1.8 million vehicles in August. China's vehicle sales jumped 13.7% in the first eight months of 2021 from the same period a year ago, as the market recovered from pandemic lows.

CAAM now expects 2021 growth to be slower than a previously forecast 6.5%, said Chen Shihua, a senior official at CAAM.

A prolonged global chip shortage has unsettled major automakers including Ford Motor, Honda Motor, General Motors and Volkswagen, forcing many to idle or curtail production.

The shortage was unlikely to be resolved soon as the pandemic rages on in many parts of the world, Chen said.

FXStreet reports that strategists at TD Securities discuss WTI oil prospects.

“Based on the lower demand projections due to the new wave of COVID and the production increases by OPEC+, WTI should continue to trade below the $70/b mark for the majority of the remainder of the year. In short, traders will react to the fundamentals which flipped from projected deficits in H2-2021 to modest surpluses moving forward.”

“A drift toward the recent lows of $60-65/b is quite possible on any additional developments which could drive demand lower or supply higher.”

During today's Asian trading, the US dollar was trading steadily against the major currencies, but was preparing to record the first weekly growth in the last three weeks. In general, investors continued to speculate about the timing of the Federal Reserve's stimulus reduction.

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 0.01%, to 92.47.

Last Friday, it fell to its lowest level since August 3 at 91,941 after data showed that the US economy created the fewest jobs in seven months, reducing the chances of an imminent reduction in the Fed's asset purchase program. Since then, a number of officials have suggested that a reduction is still likely this year, including Fed Chair Michelle Bowman, who said that the weak August labor report will not knock the central bank off course.

Data on Thursday showed that the number of Americans filing new claims for unemployment benefits fell last week to the lowest level in almost 18 months, providing more evidence that job growth is being held back by a labor shortage, rather than a decline in demand for workers.

The euro rose slightly after the European Central Bank said it would reduce emergency bond purchases in the next quarter, as many expected.

According to the report from the Insee, in July 2021, output increased again in the manufacturing industry (+0.6%, after +1.0%), as well as in the whole industry (+0.3%, after +0.6%). Economists had expected a 0.4% increase in the whole industry.

Compared to February 2020 (the last month before the first general lockdown), output remained in sharp decline in the manufacturing industry (–5.5%), as well as in the whole industry (–4.8%).

In July 2021, output increased again in the manufacture of transport equipment (+2.9% after +3.0%), in the manufacture of food products and beverages (+1.7% after +0.3%) and in the manufacture of machinery and equipment goods (+0.7% after +1.2%). On the contrary, it declined in mining and quarrying, energy, water supply (–0.8% after –1.8%). 

In July 2021, output remained in sharp decline compared to its February 2020 level in most industrial activities. It collapsed in the manufacture of transport equipment (−25.5%), both in the manufacture of motor vehicles, trailers and semi-trailers (−27.6%) and in the manufacture of other transport equipment (−24.1%). It declined sharply in the manufacture of coke and refined petroleum (−12.4%). Output decreased more moderately in “other manufacturing” (−3.3%), in the manufacture of machinery and equipment goods (−3.0%) and mining and quarrying, energy, water supply (−0.7%). Output in the manufacture of food products and beverages was above its February 2020 level (+2.6%).

EUR/USD

Resistance levels (open interest**, contracts)

$1.1947 (1587)

$1.1919 (1757)

$1.1897 (797)

Price at time of writing this review: $1.1826

Support levels (open interest**, contracts):

$1.1782 (1226)

$1.1754 (2869)

$1.1720 (2463)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 8 is 50455 contracts (according to data from September, 9) with the maximum number of contracts with strike price $1,2200 (8132);

GBP/USD

$1.4035 (1335)

$1.3967 (1053)

$1.3897 (189)

Price at time of writing this review: $1.3842

Support levels (open interest**, contracts):

$1.3750 (92)

$1.3693 (954)

$1.3657 (999)

Comments:

- Overall open interest on the CALL options with the expiration date October, 8 is 5329 contracts, with the maximum number of contracts with strike price $1,4000 (1339);

- Overall open interest on the PUT options with the expiration date October, 8 is 6388 contracts, with the maximum number of contracts with strike price $1,3800 (1769);

- The ratio of PUT/CALL was 1.20 versus 0.86 from the previous trading day according to data from September, 9

* - 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.

According to the report from the Federal Statistical Office (Destatis), the inflation rate in Germany, measured as the year-on-year change in the consumer price index (CPI), stood at +3.9% in August 2021. Thus, the inflation rate is approaching the four percent mark. The rate already stood at +3.8% in July 2021, after +2.3% in June 2021. A higher inflation rate was last measured in December 1993 (+4.3%).

There are a number of reasons for the increase in the inflation rate since July 2021, which include base effects due to low prices in 2020.

The prices of goods (total) increased by 5.6% between August 2020 and August 2021, which was above average. Especially the increase in Energy product prices (+12.6%) was markedly higher than overall inflation. The price increase for such products accelerated again (July 2021: +11.6%).

Food prices rose by 4.6% in August 2021 compared with the same month of the previous year. Compared with August 2020, higher prices were observed especially for vegetables (+9.0%) and dairy products and eggs (+5.0%). 

The year-on-year increases in energy product prices and food prices had a clear upward effect on the inflation rate. Excluding energy product prices, the inflation rate would have been +3.0% in August 2021; excluding the prices of both product groups, it would have been +2.8%. The prices of services (total) increased by 2.5% in August 2021 compared with the same month a year earlier. 

The consumer price index in August 2021 remained stable compared with July 2021. The prices of food (total), too, remained unchanged. However, there were some contrary price trends for individual products (for example, vegetables: -1.0%, edible fats and oils: +0.8%). Prices of energy products (total) only rose slightly by 0.4%. Here, motor fuel prices increased (+0.9%), whereas heating oil prices were down (-1.7%).

According to the report from Office for National Statistics, gross domestic product (GDP) is estimated to have grown by 0.1% in July 2021, and remains 2.1% below its pre-coronavirus (COVID-19) pandemic level (February 2020). Economists had expected a 0.6% increase.

Production output increased by 1.2% in July 2021 and was the main contributor to GDP growth; boosted by the reopening of an oil field production site, which was previously temporarily closed for planned maintenance.

Construction contracted for a fourth consecutive month, with output down by 1.6% in July 2021, and is now 1.8% below its pre-pandemic level (February 2020).

Services output remained broadly flat in July 2021, and remains 2.1% below its pre-pandemic level (February 2020).

Arts, entertainment and recreation activities grew by 9.0%, boosted by sports clubs, amusement parks and festivals, and reflecting the easing of restrictions on social distancing from 19 July 2021.

Output in consumer-facing services fell by 0.3% in July 2021, its first fall since January 2021 mainly because of a 2.5% fall in retail sales.