CFD Markets News and Forecasts — 11-06-2021

eFXdata reports that analysts at Citi discuss the current market conditions and sees range-bound trading in play in the near term.

"It's likely to be a leisurely end to a range-bound week, with limited conviction heading into the weekend and next week's events."

"The Fed is likely to dismiss the latest inflation print as transitory, though we think some of the details suggest inflationary pressures will persist. The ECB was not much of an event for EUR, which we think will be driven by broader USD dynamics."

FXStreet reports that, having fallen back to near its post-pandemic lows, economists at Capital Economics don’t think that the decline in the U.S. dollar will continue. They explain why instead the dollar is expected to strengthen against most currencies over the next 12-18 months.

“We continue to think that the yields of government bonds will rise more in the US than elsewhere over the next few quarters and that this will push the dollar higher against most currencies.”

“We forecast a relatively uneven global economic recovery in which the US economy outperforms thanks to its significantly larger policy stimulus.”

“As for the outlook beyond 2022, our view is that the dollar will eventually give back its gains against most currencies, for two reasons. First, we expect yield gaps to shift in favour of the rest of the world as the global economic recovery evens out and other major economies start to catch up with the US. Second, we think the dollar is moderately overvalued, warranting a gradual decline over the medium-term.”

A report from the University of Michigan revealed on Friday the preliminary reading for the Reuters/Michigan index of consumer sentiment jumped 4.2 percent m-o-m to 86.4 in early June.

Economists had expected the index would increase to 84.0 this month from May’s final reading of 82.9.

According to the report, the index of current U.S. economic conditions rose 1.3 percent m-o-m to 90.6 in June from 89.4 in the previous month. Meanwhile, the index of consumer expectations surged 6.3 percent m-o-m to 83.8 this month from 78.8 in May.

“Consumer sentiment rose in early June, recouping two-thirds of May's loss,” noted Surveys of Consumers chief economist, Richard Curtin. “Stronger growth in the national economy was anticipated, with an all-time record number of consumers anticipating a net decline in unemployment. Rising inflation remained a top concern of consumers, although the expected rate of inflation declined in early June.”

National Institute of Economic and Social Research (NIESR) reported on Friday that it expects the UK’s economy to expand 1.5 percent m-o-m in May and 0.9 percent m-o-m in June, helped by the continuing reopening of the UK’s economy. In the second quarter of 2021, GDP is now seen to show an expansion of around 5.3 percent, which would represent the fastest quarterly growth rate since the summer of last year and the initial recovery phase after the Covid-19 shock, NIESR added.

NIESR also noted that the ONS statistics published this morning revealed the UK economy rose 2.3 percent m-o-m in April, almost in line with what the institute had forecast last month.

“Like March, April was a month of rapid growth in services output, as anticipated, driven by the re-opening of non-essential retail, outdoor hospitality and near-full attendance in schools,” noted Rory Macqueen, NIESR’s Principal Economist. “May will follow a similar pattern, as further restrictions are lifted, as will June if the final step of the roadmap goes to plan. But falls in construction and production, which were less affected by the 2021 lockdown, remind us that our focus should now be on the prospects for the economy in the second half of the year, after temporary re-opening effects have ceased to provide strong monthly increases."

U.S. stock-index futures rose slightly on Friday, as inflation fears abated after the release of May’s U.S. CPI data on Thursday and investors shifted their focus to the Federal Reserve's monetary policy meeting next week.

Global Stocks:

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

Int'l Paper (IP) upgraded to Buy from Hold at Argus; target $75

FXStreet reports that Strategists at Capital Economics think that inflation in the U.S. will prove more persistent than both the Fed and investors appear to anticipate. Notwithstanding, they still expect the S&P 500 to make some further gains over the next couple of years.

“We still expect the US economy to grow strongly over the next two years thanks to a combination of loose fiscal and monetary policy, and for this to support corporate earnings and appetite for risk generally. Indeed, we think that, in light of its new framework, the Fed will keep the real stance of monetary policy loose over the next few years, even as inflation proves more entrenched.”

“A lot of good news on the economy already appears to be reflected in the current level of the S&P 500. However, we think there is still scope for earnings in some sectors that have been hit particularly hard by the pandemic to surprise to the upside.” 

“While we think that the rise in the 10-year TIPS yields will prevent the valuation of US equities from increasing further we doubt that it will cause it to plummet.”

“While our view that inflation in the US will prove persistent is a reason why we forecast gains in the S&P 500 over the next few years to be small, we are not anticipating a repeat of the sharp sell-offs seen during the periods of high inflation in the 1960s and 1970s.”

FXStreet notes that after much consultation and reflection, the European Central Bank is set to soon announce the trial launch of a digital euro – a digital version of cash that will circulate alongside euro notes and coins. Reza Moghadam, Morgan Stanley's Chief Economic Advisor, addresses three sets of questions: First, why and why now? Second, what are the risks and what is the ECB going to do about them? And third, what are the policy implications?

“The key driver is the declining role of physical cash as a means of payments. But if cash effectively vanishes, what will underpin that confidence? What would deposits be convertible into? A central bank digital currency answers that fundamental question about the stability of the financial system. But the decline of cash is not news – why react now? One reason is that the pandemic has accelerated the decline of cash. But a more important reason for going digital is the emergence of rival payments technologies. Once stablecoins become widespread, the ability of the ECB to influence interest rates by varying the supply of traditional money would be gravely compromised.”

“The key risk is that a digital euro may do more than just replace physical cash. The public could shift from holding private bank deposits to ECB issued digital euros, thus pushing up bank funding costs. To limit the hit to banks, the ECB will likely limit the amount that can be held in digital wallets, which are expected to be provided and managed by banks. A cap of around €3,000 per individual is sometimes cited, which seems sensible for large economies, but may create problems for banks in smaller, less affluent ones.”

“The main one is that once cash disappears, the return on digital euro could in principle be set to any level, including negative. The constraint imposed by zero return on cash would be eliminated, allowing the ECB to lower policy rates to whatever it takes in severe recessions. Governments could also innovate, for example, they can provide stimulus through programmable money, which disappears if not spent before a deadline."

FXStreet reports that FX Strategists at UOB Group suggest that USD/JPY risks a potential decline to the 108.90-region in the next weeks.

24-hour view: “Despite the rapid drop, downward momentum has not improved by much and USD is unlikely to weaken much further. For today, USD is more likely to trade between 109.20 and 109.60.”

Next 1-3 weeks: “There is not much to add to our update from Wednesday (10 Jun, spot at 109.40). As highlighted, USD is under mild downward pressure and could drift lower to 108.90. On the upside, a break of 109.85 would indicate that the current mild downward pressure has eased.”

GBP traded mixed against its major counterparts in the European session on Friday, as data showing the UK’s faster-than-expected economic recovery for April were not enough to impress the market participants.

The pound rose marginally against CHF and NZD, fell slightly against USD and CAD, and was almost unchanged against EUR, AUD and JPY.

The Office for National Statistics (ONS) reported that Britain's gross domestic product (GDP) grew 2.3 percent m-o-m in April, the most since July 2020 and slightly exceeding economists forecasts of a 2.2 percent m-o-m advance, as the Covid restrictions affecting the country’s economic activity continued to ease. For the three months to April 2021, GDP rose 1.5 percent in April, recording its first expansion over the three months since the October-December 2020 period. The three-month gain was in line with economists’ expectations. 

Speculations that the final lifting of coronavirus restrictions in Britain could be delayed beyond June 21 - the date penciled on the country’s government roadmap to end the current lockdown - weighed on investor sentiment. The fact that the UK and the EU failed to come to an acceptable agreement on solutions to post-Brexit trade problems in Northern Ireland this week also continued to upset the market participants.

FXStreet reports GBP/USD is hovering under 1.42. As cable is sidelined below some tough resistance, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, highlights the risk of a deeper correction lower to the uptrend at 1.3915.

“GBP/USD is sidelined as the market continues to consolidate below the recent highs and the near term risk of a deeper corrective sell-off remains.” 

“It is possible that 1.4090/80 will be retested. Failure here should refocus attention on nearby support at 1.4000/18. Below here lie the uptrends lie at 1.3915 and 1.3983.”

FXStreet notes the loonie is the top-performing currency this year (not counting the crypto kind). Surging commodities, along with a more hawkish turn by the central bank, has pumped the Canadian dollar to six-year highs above 82 cents US. Looking ahead, economists at Bank of Montreal forecast the USD/CAD at 1.1750 by late-2022.

“Resource prices are expected to ease moderately as more supply comes online and as consumer spending is diverted toward the service sector. Still, prices should remain supportive, and with the Bank of Canada likely to raise rates a little before the Fed, the loonie looks to have found its groove.” 

“We see the CAD cruising above 83 cents at year-end and to around 85 cents (USD/CAD at 1.175) by late 2022.”

FXStreet reports that FX Strategists at UOB Group notes that USD/CNH is still expected to trade within the 6.3650-6.4050 range in the near term.

24-hour view: “Momentum indicators are mostly flat and USD is likely to trade sideways. Expected range for today, 6.3790/6.3960.”

Next 1-3 weeks: “We continue to hold the same view as from yesterday (10 Jun, spot at 6.3830). As highlighted, USD likely to trade sideways within a range of 6.3650/6.4050.”

FXStreet notes that USD/CHF is back weighing on its range lows at 0.8930/25. A move below here and then retracement support at 0.8910 is needed to reassert the downmove, according to the Credit Suisse analyst team.

“Despite the growing RSI divergence and daily MACD cross that is still in place, the risks seem to be building for a direct resumption of the downtrend and in any case, our broader bias stays lower whilst below 0.9071/98.” 

“A closing break below 0.8930/10, which is the 78.6% retracement of the Q1 recovery and May/June lows, would trigger a direct resumption of the core bear trend, with the next level 0.8870.”

“Bigger picture, we still see scope for a test of the 2021 lows at 0.8757.”

“First resistance is seen at 0.9012, then 0.9048/55, above which still confirm a base and open up a move back to the 200-day average at 0.9071, then 0.9098.”

• Europe needs new budget rules so government spending can maintain an oversized role for years to come
• As current low-interest rate environment is likely to persist, we need structurally larger role for fiscal policy in macro-economic stabilization for foreseeable future

Reuters reports that White House said that the United States and other Group of Seven nations are considering reallocating $100 billion from the International Monetary Fund's warchest to help countries struggling most to cope with the COVID-19 crisis.

The issue will be on the table when G7 leaders discuss how to help steer the world's recovery from the coronavirus pandemic at a three-day summit in Cornwall (England), which begins on Friday.

"The United States and our G7 partners are actively considering a global effort to multiply the impact of the proposed Special Drawing Rights (SDR) allocation to the countries most in need," the U.S. president's office said.

French President Emmanuel Macron on Thursday called on the other G7 nations to find an agreement on reallocating $100 billion in SDRs to African states.

FXStreet reports that analysts at Credit Suisse discuss GBP/USD prospects.

“Weakness in GBP/USD following another bearish ‘outside day’ has yet again been well supported just below the 1.4082 recent low, never mind the ‘neckline’ to the March/May base at 1.4017/06. The subsequent strong recovery reinforces in our view the likelihood that recent ranging and weakness remains a temporary phase before the core trend turns higher again.” 

“Above 1.4201/03 remains needed to ease the threat of further corrective weakness for a retest of the 1.4238/49 highs. An eventual clear break above here remains expected for a resumption of the core uptrend to our 1.4302/77 first broad core target zone – the 2018 highs and 50% retracement of the 2014/2020 bear trend.” 

Reuters reports that Bank of England Governor Andrew Bailey said that if central banks launch digital versions of their currencies it would be one of the biggest innovations in central bank history.

"I am very encouraged by progress on that front, I am very encouraged by that fact that we are getting to grips with what is a critical innovation. If this comes to pass, it will be one of the most fundamental innovations in the history of central banking. It will move us into a new era," Bailey said.

Bloomberg reports that the Bundesbank said that Germany’s economy is poised for a strong upswing in the second half of this year, with activity likely to reach pre-crisis levels as soon as this summer.

The central bank’s updated projections are more optimistic than in December. They see Europe’s largest economy expanding 3.7% this year and 5.2% in 2022.

“The German economy is overcoming the coronavirus crisis. The pandemic’s containment “will result in substantial catch-up effects, primarily in private consumption as well as in services sectors that had been impacted especially hard by the measures,” Bundesbank President Jens Weidmann said. 

On Thursday, the European Central Bank renewed a pledge to deliver faster bond buying even as it revised higher its own forecasts for the euro-area economy. It also proclaimed for the first time since December 2018 that risks for the region’s outlook are “broadly balanced.”

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

“The ECB kept the guidance of PEPP purchases being at a ‘significantly higher pace” than in the early months of the year rather than altering the guidance to simply purchases being “maintained around the current pace’, which we would view as giving the ECB less wiggle room to slow purchases later in Q3.”

“While the PEPP guidance was in line with market expectations, the changes that did take place certainly were on the optimistic side. The ECB dropped its downside risk assessment over the near-term to simply conclude risks were balanced while the upgrades to GDP and inflation forecasts were a little stronger than expected.”

“ The 10yr UST bond yield has now dropped 19.3bps on a closing basis over the last five trading days to yesterday – the largest decline since 2nd April last year. The US-EU 10yr yield spread has fallen notably (12bps) in the same period, to below 170bps for the first time since late February. That leaves the risks skewed to a break to the upside in EUR/USD.”

Reuters reports that the International Energy Agency (IEA) said that OPEC+ oil producers will need to boost their output in order to meet demand set to recover to pre-pandemic levels by the end of 2022.

IEA added that rising demand and countries' short-term policies were at odds with the IEA's call to end new oil, gas and coal funding in a stark report issued last month.

"In 2022 there is scope for the 24-member OPEC+ group, led by Saudi Arabia and Russia, to ramp up crude supply by 1.4 million barrels per day (bpd) above its July 2021-March 2022 target," IEA said.

The IEA shocked the energy industry with its "Net Zero by 2050" report on May 18, saying investors should not fund new fossil fuel projects if the world wants to reach goals on reining in emissions causing rising temperatures by mid-century.

eFXdata reports that Credit Agricole CIB Research expects QE tapering discussions increase over the Summer months ahead of Jackson Hole Symposium.

"We think that the Fed’s gradual move towards the exit of its monetary easing policies should boost FX vols across the board. In that, we expect the QE taper discussions at the FOMC to intensify over the summer months and, potentially, lead to an announcement at the Jackson Hole central bank symposium on 26-28 August. To the extent that this boosts the USD and UST yields, it could fuel both FX and rates vol," CACIB adds. 

Reuters reports that Goldman Sachs expects Brent crude prices to reach $80 per barrel this summer, betting that a recent oil market rally will continue as vaccination rollouts boost global economic activity and demand for the commodity.

"Rising vaccination rates are leading to higher mobility in the U.S. and Europe, with global demand estimated up 1.5 mb/d (million barrels per day) in the last month to 96.5 mb/d," the bank said.

Goldman expects recovery in oil demand to continue and sees global demand reaching 99 mb/d in August.

The investment bank also said slow progress in negotiations on an Iran nuclear deal could also weigh on oil supply, supporting prices.

"Recent headlines comfort us in our expectation that a potential recovery in Iran exports won't happen till the fall," the bank said.

"While there exists both OPEC+ upstream and refinery downstream excess capacity, we expect OPEC+ to fall behind the demand rebound."

FXStreet reports that economists at TD Securities expect market attention to shift quickly to next week’s FOMC meeting.

“We expect recent ranges to remain in place for EUR/USD as market attention pivots quickly to next week’s FOMC meeting. In particular, we remain inclined to fade rallies toward the recent range tops around the 1.2250 (+/-) mark.”

“We think EUR/USD will struggle to break to new highs for the cycle unless a fresh catalyst emerges. At this point, we would have to look for this to emerge from the USD leg, as the European event risks calendar quiets down for the summer.”

“We think the pair may begin to feel the pull lower from real yield differentials. Much will depend, of course, on next week's Fed policy meeting, where we see scope for markets to price in a less-dovish view.”

During today's Asian trading, the US dollar declined against the euro and rose slightly against the yen after the publication of the US inflation report in May.

Consumer prices in the United States in May jumped by 5% compared to the same month last year, according to data from the Ministry of Labor. The rate of inflation accelerated from 4.2% in April and was the highest in more than 12 years-since August 2008. Analysts had forecast a 4.7% rise in May.

Meanwhile, the European Central Bank (ECB) did not change the parameters of monetary policy following the June meeting. At the same time, the regulator improved the forecast for GDP growth in the euro zone in 2021 to 4.7% from 4.1%. The inflation forecast for this year was raised to 1.9% from 1.5%.

The pound traded steadily against the dollar and fell against the euro. Pressure on the pound is exerted by the news that London and Brussels could not agree on the implementation of the protocol on Northern Ireland, which is part of the Brexit deal.

In addition, in the UK on Wednesday, 7.54 thousand new cases of coronavirus infection were recorded - the maximum daily increase since the end of February. The deterioration of the epidemiological situation may lead to a delay in the removal of the lockdown in the country, which is scheduled for June 21.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell 0.07%.

Reuters reports that data from the China Association of Automobile Manufacturers (CAAM) showed that vehicle sales in China fell 3% in May from the same month a year earlier, snapping a streak of 13 consecutive months of gains since April 2020.

Overall sales in the world's biggest car market totaled 2.13 million vehicles in May.

China sold 10.88 million vehicles between January and May, up 36% from the same period a year earlier.

A global chip shortage and surging raw material prices are having an increasing impact on automakers in the country, said Chen Shihua, senior official at CAAM.

But Chen said CAAM remains cautiously positive about the sector's outlook. The industry body earlier expected China's overall vehicle sales to grow 6.5% this year.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2294 (1441)

$1.2266 (893)

$1.2243 (488)

Price at time of writing this review: $1.2189

Support levels (open interest**, contracts):

$1.2150 (332)

$1.2128 (1313)

$1.2101 (2933)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 10 is 40629 contracts (according to data from July, 9) with the maximum number of contracts with strike price $1,1650 (3887);

GBP/USD

$1.4256 (410)

$1.4236 (258)

$1.4207 (146)

Price at time of writing this review: $1.4173

Support levels (open interest**, contracts):

$1.4065 (313)

$1.4035 (677)

$1.4002 (367)

Comments:

- Overall open interest on the CALL options with the expiration date July, 9 is 12788 contracts, with the maximum number of contracts with strike price $1,4500 (3530);

- Overall open interest on the PUT options with the expiration date July, 9 is 14267 contracts, with the maximum number of contracts with strike price $1,4000 (2977);

- The ratio of PUT/CALL was 1.12 versus 1.11 from the previous trading day according to data from June, 10

* - 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.

CNBC reports that President Joe Biden and leaders of the G-7 group of nations will publicly endorse a global minimum corporate tax of at least 15% on Friday.

The leaders will also announce a plan to replace Digital Services Taxes, which targeted the biggest American tech companies, with a new tax plan linked to the places where multinationals are actually doing business, rather than where they are headquartered.

For the Biden administration, the Global Minimum Tax plan represents a concrete step towards its goal of creating what it calls a “foreign policy for the middle class.”

For the rest of the world, the GMT is intended to end the tax cutting arms race that has led some countries to cut their corporate taxes much lower than others, in order to attract multinational companies.

If widely enacted, the GMT would effectively end the practice of global corporations seeking out low-tax jurisdictions like Ireland and the British Virgin Islands to move their headquarters to, even though their customers, operations and executives are located elsewhere.

According to the report from Office for National Statistics, UK gross domestic product (GDP) is estimated to have grown by 2.3% in April 2021, the fastest monthly growth since July 2020, as government restrictions affecting economic activity continued to ease. Economists had expected a 2.2% increase.

The service sector grew by 3.4% in April 2021, with consumer-facing services re-opening in line with the easing of coronavirus restrictions and more pupils returning to onsite lessons.

Output in the production sector fell by 1.3% in April 2021, the first fall since January 2021 as three of the four sectors contracted. Economists had expected a 1.2% increase.

Within production, mining and quarrying output contracted sharply, by 15.0%, in April 2021 because of planned temporary closures for maintenance of oil field production sites.

The construction sector contracted by 2.0% in April 2021 following a strong March, with new work slowing down faster than repair and maintenance.

April’s GDP remains 3.7% below the pre-pandemic levels seen in February 2020, however it is now 1.2% above its initial recovery peak in October 2020.