CFD Markets News and Forecasts — 11-01-2021

• Firms pointed to continued recovery supported by strengthening domestic and foreign demand, particularly in goods-producing sectors
• Still, firms expect recovery to be uneven
• Business Outlook Survey indicator continued to recover and turned slightly positive (+1.29, highest since Q4 2018), signalling improved business sentiment
• Robust foreign demand, improved confidence related to vaccines, and ongoing government relief programs all contribute to improved outlook
• Although business sentiment has strengthened broadly, it remains solidly negative for many firms, including those in high-contact services
• Employment and investment intentions saw the largest gains since the autumn survey
• Most businesses reported slower sales growth over the past 12 months compared with the previous 12 months
• Most firms expect their sales to increase, but several are uncertain about their sales outlook because evolution of the pandemic remains unclear
• More firms reported improved indicators of future sales
• Futures sales (balance of opinion; next 12 months) improved to 48 from 39 in Q3
• Balance of opinion on investment in machinery and equipment moved up and now sits well above zero, with firms across all regions pointing to positive spending plans
• Investment intentions rose to 26 from 2 in Q3
• Hiring increased to 43 from 26 in Q3
• This improvement reflects optimism among firms that were not negatively affected by the pandemic as well as recovering businesses’ expectations of return to normal conditions
• Balance of opinion on wage growth expectations recovered to zero, which suggests that wage growth over next 12 months is expected to be roughly the same as over the past 12 months
• Firms expect both input and output prices to grow at somewhat faster rates over the next 12 months

FXStreet notes that the Canadian dollar closed 2020 near a three-year high versus the US dollar. Though loonie appreciation has been driven mainly by the widespread weakness of the USD, economists at the National Bank of Canada (NBF) expect the next leg of its appreciation to be fuelled by commodity prices. The USD/CAD target for year-end 2021 is 1.20. 

“Though loonie appreciation in 2020 was driven mainly by USD weakness, we expect the next leg of its strengthening against the greenback to be fuelled by commodity prices and by a potential narrowing of Canada-US interest-rate spreads. Though some pundits have voiced concern about renewed speculator interest in the CAD, we doubt very much that this would cause the Bank of Canada to cut its interest rates.”

“Our model suggests that current fundamentals alone would have CAD trading at less than $1.25 to the USD. In these circumstances, there is no need for the Bank of Canada to lose sleep over the loonie’s recent strength.”

“At this juncture, our forecast for year-end 2021 is $1.20 to the USD, though the line to that target will not be straight.”

FXStreet notes that the price of oil has already risen to over $55/barrel for Brent and $51/barrel for WTI after OPEC, together with its partners led by Russia (together OPEC+), has agreed on a new production level for the months of February and March. Nonetheless, strategists at ABN Amro do not expect oil prices to rise much further in the short-term as the risk of a downward correction is substantial. 

“The first serious resistance level is around $60/barrel. Only when the Brent oil price drops below $46.50/barrel, the positive sentiment will reverse.”

“The weaker dollar and the expectation that the economy will receive an extra boost from financial support programs by governments and central banks are also seen as factors that could support the oil price even further. The economic stimulus packages will indeed lead to higher economic growth. The question is whether this will have a strong effect on the demand for oil from the current level.”

“The demand for oil will indeed increase as the economy opens up further. The main drop in demand for oil is seen in aviation. Even now that the vaccination program has started, it will still take a long time before aviation gets back on track. The market's expectations with regard to the expected recovery in oil demand are well ahead of reality.”

“OPEC+ will produce 7,125 mb/d less in February than before the corona crisis, and 7,05 mb/d less in March. This means that the supply on the market is reasonably in line with current demand. Global inventories are still above average. But just as important is the fact that this production capacity can be deployed fairly quickly as soon as there is room for it. Russia, in particular, is keen to increase the oil production of the OPEC+ as soon as demand actually picks up and/or the oil price rises. This limits the upward potential for the oil price.” 

“The market is currently long positioned (speculating on price increases). And although there is still room for further expansion of the position, we do not think there is currently any reason to do so. Much of the positive news has now been priced in.”

FXStreet notes that the krone rally continued last week, but analysts at Nordea believe that NOK has reached the peak for now. The EUR/NOK pair is more likely to move up than further down in the near-term.

“EUR/NOK has fallen around 3.5% since 22 December 2020 when this rally began. Previous rallies have ended with movements between 3% and 4%. This suggests that the end of this rally is near.”

“Foreigners are already quite long NOK. At the current EUR/NOK levels, the foreign financial speculators could be tempted to unwind their long NOK positions. The same argument holds for domestic financial speculators. Any headwinds in financial markets will likely lead to a snowball effect whereby financial speculators all head for the door at once, potentially leading to a sharp rise in EUR/NOK.”

“With most of the oil bullishness already priced in, oil prices are likely near their peak for now, restricting the upside for NOK in the short-term. Further upside in the oil price is probably very limited in the short term, and we don’t expect prices above $60/barrel before the summer.”

“On the upside, we see resistance at 10.50 and then at 10.60. We see support at 10.30 but this level fell last week and the next line in the sand is 10.20.”

U.S. stock-index futures declined on Monday, as investors assessed equities' valuations ahead of the upcoming Q4 earnings season, as well as the outlook for more coronavirus stimulus in the U.S. and continuing political turmoil in Washington.

Global Stocks:

• If that is the case, having negative rates in our toolbox will, in my view, be important
• It's possible that more stimulus will be needed
• There's no evidence that negative rates will hurt bank profits, possible that the current structure of UK banking system could lead to a less-positive outcome
• Negative bank rate does not, therefore, imply that rates facing households and businesses will necessarily turn negative
• My decisions on stimulus will depend on the outlook at the time of voting
• All else equal, looser monetary policy can help the economy recover faster
• Experiences of other countries suggest negative rates effective
• Resurgence in virus likely to mean a significant loss in jobs
• Even if UK vaccinates quickly, a slower rollout in trading partners could weigh in UK
• Speed of rebound will depend on the speed that savings are released
• For Q4 2020 and Q1 2021, we will see headline-grabbing negative numbers, big positive ones when the economy can reopen
• QE more effective to offset disruption rather than providing net additional stimulus

• We will be ramping up vaccinations significantly toward February 15
• Hitting the vaccine target is huge ask, it can be achieved
• We will throw everything at it to get the target done
• I can confirm we have done 40% of 80-year-olds in this country
• My worry is that this is moment that vaccine success breeds false complacency
• We will keep rules under review
• This is moment for maximum vigilance
• If we feel things are not being observed properly we may have to do more

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

Salesforce (CRM) downgraded to Neutral from Overweight at Piper Sandler; target lowered to $242

Exxon Mobil (XOM) upgraded to Overweight from Equal-Weight at Morgan Stanley; target raised to $57

Walgreens Boots Alliance (WBA) upgraded to Outperform from Neutral at Robert W. Baird; target $55

FXStreet reports that economists at Natixis note that as the eurozone has low inflation, a very expansionary fiscal policy and a sharp rise in public debt, a monetary policy of monetizing fiscal deficits, zero interest rates, and the prospect of an aging population, there is increasing talk of a “Japanisation” of the zone. However, there are very significant differences between Japan and the eurozone.

“It is understandable that there is talk about the ‘Japanisation’ of the eurozone since currently inflation in the eurozone is very low; the ECB is monetising fiscal deficits; public debt is high; long-term interest rates are zero and population ageing is going to be significant.”

“The fact that interest rates are persistently very low has not led to capital outflows in Japan that have been large enough to cause a lasting depreciation of the yen. This is due to the strong ‘financial patriotism’ of the Japanese, who keep a large part of their wealth in yen even though the yield on yen assets is very low. In the eurozone, on the contrary, there have been large capital outflows since 2012-2013 as a result of the search for higher yields, particularly in the US, which explains, in particular, Europeans’ massive accumulation of Treasuries and the depreciation of the euro against the dollar from 2013 onwards. It is therefore likely that the tolerance for zero interest rates is lower in the eurozone than in Japan, making it more difficult to maintain a very expansionary monetary policy on a permanent basis in the eurozone than in Japan.”

S&P 500 reinforces the accelerated uptrend with target at 3900 - Credit Suisse

FXStreet notes that the S&P 500 Index has completed a large bullish “outside week” and although the Credit Suisse analyst team sees scope for a near-term pause, the core outlook stays bullish for the “measured triangle objective” at 3900.

“Whilst we see scope for a near-term pause and we watch bond yields closely, especially Real Yields, we stay bullish overall with resistance seen next at 3832 ahead of 3866/68 and eventually the “measured triangle objective” at 3900. With a cluster of further Fibonacci projection resistances also seen here and stretching up to 3925/30, we maintain our call to look for a cap here for a fresh and likely we think more protracted consolidation phase. Should strength instead directly extend, we see resistance next at 4000, then 4070/75.” 

“Support moves to 3801 initially, with 3784/83 now ideally holding to keep the immediate risk higher.”

GBP fell against most of its major rivals in the European session on Monday as worries about rising coronavirus cases in the UK and the pandemic's impact on the country's economy along with Brexit consequences outweighed optimism over the rollout of coronavirus vaccines. In addition, investors priced in the possibility that the Bank of England (BoE) might introduce negative interest rates as early as May 2021.

The pound fell against USD, EUR, CHF and JPY, changed little against CAD and AUD, and rose against NZD.

Speaking to BBC on Monday, the UK government’s chief medical advisor Chris Whitty warned that "the next few weeks are going to be the worst weeks of this pandemic in terms of numbers into the NHS". He also urged people to follow lockdown rules. Some media reported that the government was considering tightening lockdown restrictions. However, Whitty said the public should not wait for any government “tinkering” with rules.

Whitty’s comments came as seven new large-scale vaccination centers opened across England as part of the government’s plan to deliver the COVID-19 shots to all vulnerable people by mid-February.

Meanwhile, the U.S. dollar strengthened against its major rivals amid hopes that President-elect Joe Biden would support the coronavirus-hit U.S. economy with more fiscal stimulus. Biden pledged to lay out his proposals for further fiscal support on Thursday.

FXStreet reports that analysts at Credit Suisse note that the GBP/USD pair is expected to see further weakness below the “neckline” to the 2018 top at 1.3710/20, with support seen at 1.3487/61, then 1.3430.

“GBP/USD remains under pressure as expected after its bearish ‘reversal day’ from the ‘neckline’ to the 2018 top at 1.3710/20 and a lengthier correction to the strength of the past four months is still looked for, further reinforced by a bearish RSI divergence and the USD recovering from key support.” 

“The clear break of support at 1.3533 is seen adding weight to a setback story with support seen next at 1.3487 – the 38.2% retracement of the rally from December. With the 26.3% retracement of the entire rally from November at 1.3461, we look for a fresh floor looked for in this 1.3487/61 zone at first. Below in due course though can see support next at the late December low at 1.3430, with better support expected at the 55-day average at 1.3354.” 

“Resistance is seen at 1.3529/39 initially, with 1.3577 now ideally capping to keep the immediate risk lower."

FXStreet reports that FX Strategists at UOB Group suggest that USD/JPY faces a potential move to the 104.60 region in the next weeks.

24-hour view: “Upward momentum is beginning to improve after USD traded on a firm note after opening this morning. From here, USD could break the strong resistance at 104.25 but the major level at 104.60 is likely out of reach. Support is at 103.80 followed by 103.60.”

Next 1-3 weeks: “The subsequent surge that sent USD to 103.95 came as a surprise. The rapid improvement in momentum indicates further USD strength from here. A break of the major resistance at 104.25 could potentially lead to further rapid rise in USD towards 104.60. Overall, USD is expected to trade on a firm footing as long as it holds above 103.00 (‘strong support’ level).”

FXStreet notes that EUR/USD loses further traction and drops below the 1.22 level. Economists at Credit Suisse see scope for further weakness for a potential test of the 38.2% retracement of the November/January rally at 1.2065.

“EUR/USD extends its rejection from our long-held ‘measured base objective’ at 1.2355 and with RSI momentum holding a triple bearish divergence and with the USD rebounding from major support and our next core objective, we continue to look for a consolidation phase to emerge.” 

“Below price support at 1.2208 has seen a minor top complete with support seen next at 1.2129/22. Whilst a rebound from here should be allowed for at first, our bias is seen for a break in due course and a deeper setback to 1.2065/59 - the December low and 38.2% retracement of the November/January rally - where we then look for an attempt to find a floor.” 

“Resistance is seen at 1.2231 initially, with a break above 1.2285 needed to ease the immediate downside bias for a retest of 1.2345.55. 

"Keep tariffs on China - all of them - even if that raises prices for U.S. businesses and consumers", he said in the interview with The Wall Street Journal (WSJ). "Weaken the World Trade Organization so that it can’t overrule U.S. policies, and make it harder for American companies to move overseas despite the cost to their competitiveness."

“We changed the way people think about China,” Lighthizer noted. “We want a China policy that thinks about the geopolitical competition between the United States and an adversary - an economic adversary.”

FXStreet reports that analysts at Credit Suisse are seeing the formation of a larger bullish “wedge” reversal. 

“USD/JPY extends its recovery as expected trend support from July, currently at 102.51 accompanied by a bullish RSI momentum divergence and has pushed above the December high and now also the 55-day average. This sees a small base complete to add weight to our view we are seeing the formation of a larger bullish ‘wedge’ reversal with resistance seen at 104.37/47 next, then more important resistance from the top of the ‘wedge’ at 104.59/77.” 

“Above 104.59/77 is needed to see a bull ‘wedge’ finally confirmed to mark a more important reversal higher to open up a move to 105.68 next, with scope for the 200 -day average at 105.93.”

RTTNews reports that figures released by the statistical office INE showed that Spain industrial production declined at a faster pace in November driven by the weakness in energy and capital goods output.

Industrial production decreased by adjusted 3.8 percent from the last year, bigger than the 1.6 percent fall seen in October. Economists had forecast an annual fall of 2.6 percent.

Meanwhile, on an unadjusted basis, the decline in industrial output slowed to 2 percent from 6.2 percent.

Among components, capital goods output decreased 7.1 percent and energy production was down 7.8 percent. Consumer goods output fell 3.6 percent. Meanwhile, intermediate goods production was up 1.2 percent.

Reuters reports that british finance minister Rishi Sunak will update parliament on Monday afternoon about the economic outlook and measures taken by the government to offset the hit from the coronavirus pandemic.

A spokesman for Britain's finance ministry said Sunak would address lawmakers on "the economic situation and support being provided to the economy, businesses and families".

Sunak has said he is on course to spending 280 billion pounds in the current financial year, taking borrowing to about 20% of gross domestic product.

Last week Sunak said he would give businesses an extra 4.6 billion pounds ($6.2 billion) in support to help them through a new coronavirus lockdown which economists expect will send Britain back into recession.

FXStreet reports that gold plunged more than 4 percent on Friday. However, the bullish story may not be over yet, in the opinion of Bart Melek, Head of Commodity Strategy at TD Securities. 

“Given that vaccine programs in the US and through many parts of the world are very much behind schedule and the pandemic is raging, economic conditions will remain weak for a while longer. This suggests that yields may not move as high as some gold traders seem to be betting, which may be good news for gold prices.”

“The drivers that hit gold hard such as a steeper yield curve, higher yields (nominal and real), technical selling and firmer USD may not continue to trend in the upward direction for much longer. This implies that gold, after hitting support near the $1,820s may be ripe for a bounce higher. We still judge that gold has a material upside, with $2,000 in the cards over the next twelve months.”

According to the report from Sentix, the economic expectations for Euroland continue to develop very positively. Although large parts of Europe are suffering from a lockdown and the Corona pandemic seems to be flaring up again in other parts of the world, such as Japan, economic expectations continue to rise. In Euroland, they reach 33.5 points, the highest level since records began in 2003. This very positive assessment of expectations is likely to be very much in line with the prospects of a successful vaccination campaign. 

The sentix overall economic index for the euro area rose by 3.6 points at the start of the year and, at +1.3 points, is back in positive territory for the first time since February 2020! This development is very surprising in view of the far reaching restrictions on economic activity in Germany and Austria, for example. This positive development is characterised by a further strong increase in the expectations score to 33.5 points. The main reason for the expectations, despite the renewed lockdown extension in Germany, is probably the high hope for a successful vaccination campaign. Now that more vaccines have been approved, investors apparently expect a quick implementation of the vaccination strategy and thus a definitive end to the economic and personal freedom restrictions.

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, sees the cable heading towards the 1.3350 late December low.

“GBP/USD last week saw a key day reversal just ahead of the 1.3712 February 2018 low and now is starting to sell-off. The market is eroding support offered by the 1.3540/1.3483 September and early December highs. Further down sits the 1.3350 late December low, the 1.3189 December 21 low and also the 1.3135 December trough.”

“Currently, the Elliott wave count implies a slide to 1.3370/1.3275. Only a rise above 1.3712 on a daily chart closing basis would push the 1.3836 February 2016 low to the fore.”

CNBC reports that France is currently lagging far behind other European nations with its Covid-19 vaccine rollout, which could potentially hurt the re-election chances of President Emmanuel Macron.

As of Friday, 80,000 French citizens had been vaccinated against the coronavirus so far. In comparison, neighboring Germany has done hundreds of thousands of inoculations.

The success or failure in vaccinating the population will likely shape the political debate as the campaign for the 2022 presidential race heats up in the coming months.

“Although the 2022 presidential election still seems a long way off, President Macron is certainly worried that a poorly-executed vaccine rollout now will harm his chances of winning another term,” Jessica Hinds, a European economist at Capital Economics, told CNBC.

“A slow pace of vaccination would limit the government’s ability to lift restrictions that are taking their toll on the economy and people’s daily lives. This would clearly be unpopular among (French) voters, particularly if other countries such as Germany are able to remove them sooner,” Hinds said.

Red tape has been the main reason for the delays. Citizens have had to get a pre-vaccination consultation and get consent from their doctor before a jab.

FXStreet reports that UOB Group’s FX Strategists noted USD/CNH keeps the constructive stance unchanged in the short-term.

Next 1-3 weeks: “While we have held a negative in USD since early last week, we cautioned last Friday that USD ‘has to move and stay below 6.4450 within these 1 to 2 days or a break of 6.4950 would indicate the current weakness has run its course’. While 6.4950 is still intact, the strong price actions this morning suggests that the weak phase in USD has ended. From here, the near-term bias is tilted to the upside but for now, the odds for a rise above 6.5200 are not high. Overall, the current upward bias is deemed is intact as long as USD does not move below 6.4450.”

During today's Asian trading, the US dollar rose moderately against most of the world's currencies. According to the American media, in the US Senate elections in Georgia, the candidates from the Democratic Party are leading. Thus, the majority in the Senate can go to the Democrats.

Meanwhile, US President-elect Joe Biden on Friday called for new economic stimulus measures, including direct payments to residents, amid a decline in the number of jobs in December for the first time since April due to a jump in the incidence of coronavirus. Biden will present his proposals to support the economy on Thursday.

The yuan is slightly declining. Consumer inflation in China at the end of 2020 was 2.5%, while producer prices fell by 1.8%. The People's Bank of China (PBOC) has provided banks with 5 billion yuan in reverse repo operations. The interest rate on seven-day operations was 2.2% per annum, the Chinese Central Bank said in a statement.

The Australian dollar is cheaper against the US dollar, despite data on the growth of retail sales in Australia in November by 7.1%. This is the maximum rate of increase in sales for six months. Previously, an increase of 7% was announced, and analysts did not expect a revision of the indicator.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose 0.3%

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, expects EUR/USD losses to the 1.2130.

“EUR/USD last week saw a divergence of daily RSI – this reflected a loss of upside momentum and, near-term, the market is downside corrective.” 

“The pair has eroded the near-term uptrend, and we look for losses to the 1.2130 21st December low and potentially 1.2014 the September high and even the 1.1915 uptrend.”

“On a medium-term view, the market continues to track higher whilst targeting the 1.2556 2018 high and 1.2624, the 200-month moving average, which remains our longer-term target.” 

Bloomberg reports that a Bank of England rate cut next month is starting to look like an attractive outside bet.

A third national lock-down in the U.K. is overwhelming positive sentiment on the vaccine rollout, and threatening to drag the economy into a double-dip recession. As a result, expectations are rising the BOE will ease policy at its Feb. 4 meeting.

Analysts at Goldman Sachs Group Inc. like the 4-to-1 payoff on a surprise move. “The possibility of a 10-basis-points rate cut taking the Bank rate to zero suggests positive risk-reward” in betting on lower OIS rates at the February meeting, strategists including George Cole wrote in a client note.

A BOE cut next month isn’t their base case: Goldman forecasts more incentives for banks to lend under the Term Funding Scheme and a faster pace of bond purchases.

FXStreet reports that in opinion of FX Strategists at UOB Group, AUD/USD has now moved into a consolidative phase between 0.7640 and 0.7805.

Next 1-3 weeks: “We highlighted last Friday that ‘upward momentum has been dented’ and we added, AUD ‘has to move and stay above 0.7805 or odds for a move to 0.7840 would diminish’. While our ‘strong support’ level at 0.7700 is still intact, the weak price actions after opening this morning suggests that the positive phase in AUD that started earlier last week has run its course. For now, the current movement is viewed as part of a 0.7640/0.7805 range. Looking forward, a clear break of 0.7640 would indicate the start of a more sustained pull-back in AUD.”

RTTNews reports that data published by the National Bureau of Statistics showed that China's consumer price inflation returned to positive territory in December after turning negative for the first time in more than a decade in November.

Consumer prices climbed 0.2 percent on a yearly basis in December, reversing a 0.5 percent fall in November. Economists had forecast prices to gain 0.1 percent.

Food prices grew 1.2 percent, in contrast to November's 2 percent decline as pork prices increased 6.5 percent from the previous month. At the same time, non-food prices remained flat.

Month-on-month, consumer prices were up 0.7 percent, which was faster than the 0.4 percent growth expected by economists.

Meanwhile, core consumer price inflation slowed marginally to 0.4 percent from 0.5 percent.

Another report from NBS showed that producer prices declined 0.4 percent year-on-year in December, but much slower than the 1.5 percent decrease seen in November and the expected fall of 0.8 percent. On a monthly basis, factory gate prices advanced 1.1 percent in December, the fastest since December 2016.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2395 (1259)

$1.2332 (457)

$1.2288 (162)

Price at time of writing this review: $1.2179

Support levels (open interest**, contracts):

$1.2150 (1502)

$1.2095 (612)

$1.2022 (2789)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date February, 5 is 41724 contracts (according to data from January, 8) with the maximum number of contracts with strike price $1,2000 (2962);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3768 (1023)

$1.3737 (563)

$1.3710 (1127)

Price at time of writing this review: $1.3500

Support levels (open interest**, contracts):

$1.3433 (257)

$1.3404 (1658)

$1.3372 (1033)

Comments:

- Overall open interest on the CALL options with the expiration date February, 5 is 10085 contracts, with the maximum number of contracts with strike price $1,4000 (1712);

- Overall open interest on the PUT options with the expiration date February, 5 is 17709 contracts, with the maximum number of contracts with strike price $1,2500 (2091);

- The ratio of PUT/CALL was 1.75 versus 0.52 from the previous trading day according to data from January, 8

* - 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.