CFD Markets News and Forecasts — 12-11-2020

The U.S. Energy Information Administration (EIA) revealed on Thursday that crude inventories increased by 4.278 million barrels in the week ended November 6. Economists had forecast a fall of 0.913 million barrels.

At the same time, gasoline stocks dropped by 2.309 million barrels, while analysts had expected a decline of 0.263 million barrels. Distillate stocks tumbled by 5.354 million barrels, while analysts had forecast a decrease of 1.864 million barrels.

Meanwhile, oil production in the U.S. remained unchanged at 10.500 million barrels a day.

U.S. crude oil imports averaged 5.5 million barrels per day last week, up by 470,000 barrels per day from the previous week.

According to ActionForex, analysts at TD Bank Financial Group note that U.S. consumer prices were flat month/month in October, a tad softer than expectations. 

"Total CPI was up 1.2% year-on-year in October, decelerating slightly from a 1.4% pace in September."

"Core inflation was also unchanged in October, also softer than expectations. As a result, core inflation cooled slightly to 1.6% on a year/year basis, after running at 1.7% for a couple of months."

"Within core inflation, a 0.1% month/month increase in the shelter index was offset by a 0.4% drop in the index for medical care. Medical care services inflation has been decelerating sharply after past price hikes had taken the measure to 6% year/year earlier this year. Still, prices remain 3.7% higher than a year ago."

"Price moves elsewhere in the core index continue to reflect corrections from sharp pandemic swings. The indexes for airline fares (+6.3%, m/m), recreation (+0.4%, m/m), and new vehicles (+0.4%, m/m)  were among those to rise, while the indexes for motor vehicle insurance (-2.3%, m/m), apparel (-1.2%, m/m) and household furnishings and operations (-0.5%, m/m), declined."

"Zooming out from all those monthly moves, price pressures for core services remained soft in October (+0.1%, m/m). On a year/year basis core services inflation was only 1.7%, the softest pace since 2011. On the other side of the coin, core goods inflation continued to move up, and is now +1.2% year/year in October. For most of the past 30 years, inflation for services has run well ahead of goods, and the only instances the measures were this close together were during or after recessionary periods where services inflation declined."

"Energy prices rose only 0.1% on the month in October, and are still down 9.2% versus a year ago. Food prices rose 0.2% month/month in October, and are 3.9% higher than a year ago. Prices at grocery stores continued to fall (-0.4% m/m), although consumers are still paying 4.1% more for a basket of groceries than they were last October."

"October’s CPI report chalked up another month of soft inflation pressures in the U.S. economy, driven by a cooling in services price inflation as you would expect during a recovery from a deep recession. The cooling in services price pressures also can’t entirely be blamed on the idiosyncratic moves in medical care inflation. Shelter inflation, which carries a heavy weight in the basket, has trended lower to 2% year/year, after being above 3% prior to the pandemic."

"Since core services prices account for about 60% of the consumer basket, it is difficult for inflation to pick up speed without some price pressures there. We expect stronger services inflation is some ways away, with unemployment elevated, and the pandemic now in a third wave across the country. This will help keep a lid on economy-wide inflation pressures over the next couple of years."

• Partial lockdown in November will cost growth in Q4 but aid package should cushion the impact
• We are able to limit economic impact of second wave
• Exports and employment see better development

U.S. stock-index futures traded mixed on Thursday as investors assessed the U.S. October inflation data and weekly jobless claims and weighed the timing of COVID-19 treatment rollout amid the pandemic's resurgence.

Global Stocks:

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

The Labor Department announced on Thursday the U.S. consumer price index (CPI) was flat m-o-m in October after increasing 0.2 percent m-o-m in the previous month.

Over the last 12 months, the CPI increased 1.2 percent y-o-y last month, following an unrevised 1.4 percent m-o-m gain in the 12 months through September. This was the lowest reading since July.

Economists had forecast the CPI to edge up 0.1 percent m-o-m and to climb 1.3 percent y-o-y in the 12-month period.

According to the report, component indexes were mixed. The food index rose 0.2 percent m-o-m in October, while the energy index and the index for shelter both inched up 0.1 percent m-o-m. At the same time, the index for medical care posted a 0.4-percent m-o-m decrease.

The core CPI excluding volatile food and fuel costs also was unchanged m-o-m in October after an unrevised 0.2 percent m-o-m increase in the previous month.

In the 12 months through October, the core CPI surged 1.6 percent, following a 1.7 percent climb in the 12 months ending September.

Economists had forecast the core CPI to gain 0.2 percent m-o-m and to jump 1.8 percent y-o-y last month.

The data from the Labor Department revealed on Thursday the number of applications for unemployment dropped more than forecast last week, as the U.S. labor market continues recovering from its biggest shock in history, caused by the COVID-19 pandemic.

According to the report, the initial claims for unemployment benefits totaled 709,000 for the week ended November 7. This was the lowest level since the U.S. went into coronavirus lockdown in mid-March, but well above pre-pandemic levels.

Economists had expected 735,000 new claims last week.

Claims for the prior week were revised upwardly to 757,000 from the initial estimate of 751,000.

Meanwhile, the four-week moving average of claims decreased to 755,250 from an upwardly revised 788,500 in the previous week.

Continuing claims declined to 6,786,000 million from a downwardly revised 7,222,000 in the previous week.

• Time is short and there are still significant gaps with EU
• After the transition, we intend to have positive relations with EU

USD traded mixed against its major rivals in the European session on Thursday as coronavirus infections in the U.S. and Europe surged and investors weighed the timing of COVID-19 treatment rollout. The U.S. currency rose against GBP, CAD, AUD and NZD, but fell against EUR, JPY and CHF.

According to the data from Johns Hopkins University, the U.S. set a fresh record with 143,231 new coronavirus cases on Wednesday. The COVID-19 cases also continue to spike in Europe, with France being the region's coronavirus hot-spot. Overall, the total number of confirmed global coronavirus cases rose to 52,256,150 and deaths grew to 1,286,543.

It is expected that the situation could worsen as winter nears. Meanwhile, the most optimistic projections suggest it will take at least several months to approve, produce and distribute any workable vaccine. Against this backdrop, an effective COVID-19 vaccine is seen unlikely to help avoid a grim winter. Investors also expect the imposition of new restrictions aimed at curbing the coronavirus pandemic, which will halt the global economic recovery.

Bert Colijn, a Senior Economist at ING, notes that Eurozone's industrial production declined in September but this was only due to a drop in Italy. The overall trend remains one of cautious recovery ahead of the fourth quarter, where manufacturing is unlikely to be immune to service sector lockdowns.

"Eurozone industry continued to recover at a modest pace, but September production figures were distorted by a specific Italian effect. After production rose sharply in August, thanks in part to some specific one-offs, there was a decline noted in September for Italy, which was the only large country that did not post solid gains. Germany, France and Spain recorded increases of 1.7, 1.5 and 0.6% respectively, indicating that underlying developments remain solid."

"As lockdowns are starting to bite across the eurozone, the impact on industry is relatively mild for now. Surveys have indicated continued solid performance in manufacturing, and new orders suggest that there will be continued growth through the first weeks of the renewed lockdowns. This is mainly because lockdowns have centred around the service sector, while manufacturing remains open in all eurozone countries."

"Even though the impact on manufacturing seems smaller than during the first wave, it is not immune to second wave effects and one can expect that the recovery of production will be significantly hampered in the fourth quarter. While that’s the case, it will likely remain an outperformer compared to services in the second wave economy."

FXStreet reports that Lee Sue Ann, Economist at UOB Group, assessed the latest RBNZ meeting.

“The November meeting culminated with the Reserve Bank of New Zealand (RBNZ) keeping its Overnight Cash Rate (OCR) unchanged at 0.25%, as expected, in accordance with the guidance issued on 16 March. It also agreed to continue with its Large Scale Asset Programme (LSAP) up to NZD100bn.”

“However, the Monetary Policy Committee (MPC) agreed that additional stimulus would be required in order to meet its consumer price inflation and employment remit. This will be provided through a Funding for Lending Programme (FLP), commencing in December. The FLP will reduce banks’ funding costs and lower interest rates.”

“The RBNZ has also decided to further delay the start of increases in bank capital until 2022 to allow banks continued headroom to respond to the effects of the COVID-19 pandemic and to support the economic recovery.”

“As reiterated in today’s November Monetary Policy Statement, the RBNZ has been exploring a range of alternative monetary policy tools to help deliver additional stimulus. This includes a negative OCR, further LSAPs, purchases of foreign assets, and a FLP. After assessing the tools against the principles for alternative monetary policy, the MPC judged that the FLP would be the most effective additional tool to provide stimulus in the current environment.”

“Whilst the introduction of the FLP is seen as a key step towards the RBNZ cutting the OCR into negative territory next year; in our view, the odds of a negative OCR have reduced given how the RBNZ has sounded less dovish and made an upbeat assessment of the economy today.”

• We have shown a great degree of flexibility in Brexit negotiations
• It is important the EU does the same
• Progress is being made in negotiations
• But there are still divergences

FXStreet reports that analysts at the Royal Bank of Canada (RBC) believe that the bullish bias in gold still remains intact.

“Gold's story is not over yet, even if there is a perceived "light at the end of the tunnel" from recent progress in COVID-19 vaccine development.”

“Recent fall in bullion prices is a reset of gold-related expectations during the pandemic, a repricing of stimulus expectations and a realignment of inflation fears.”

“Gold's outlook can turn materially different if more uncertainty prevails over US election result.”

Reuters reports that Germany’s foreign minister said relations with the US will improve under U.S. President-Elect Joe Biden, but there are still enough disagreements with European partners to suggest that not everything would be different.

Heiko Maas added he hoped Washington would take a lead on arms control and weigh on Russia and China in contrast to the current administration.

His French counterpart Jean-Yves Le Drian said he saw co-operation improving on controlling the COVID-19 pandemic and dealing with climate control.

According to the report from Eurostat, in September 2020, the seasonally adjusted industrial production fell by 0.4% in the euro area and remained unchanged in the EU, compared with August 2020. Economists had expected a 0.7% increase in the euro area. In August 2020, industrial production grew by 0.6% in the euro area and by 0.9% in the EU.

In September 2020 compared with September 2019, industrial production decreased by 6.8% in the euro area and by 5.8% in the EU. 

In the euro area in September 2020, compared with August 2020, production of durable consumer goods fell by 5.3%, energy by 1.0%, while production of intermediate goods rose by 0.5%, capital goods by 0.6% and nondurable consumer goods by 2.1%. In the EU, production of durable consumer goods fell by 3.9%, energy by 0.7%, while production of intermediate goods rose by 0.6%, capital goods by 1.2% and non-durable consumer goods by 1.4%.

In the euro area in September 2020, compared with September 2019, production of capital goods fell by 13.3%, energy by 4.5%, intermediate goods by 3.7%, durable consumer goods by 1.7% and non-durable consumer goods by 1.5%. In the EU, production of capital goods fell by 11.9%, energy by 4.8%, intermediate goods by 2.8% and non-durable consumer goods by 1.7%, while production of durable consumer goods rose by 0.7%.

FXStreet reports that FX Strategists at UOB Group noted that extra losses in USD/CNH look unlikely in the near-term.

Next 1-3 weeks: “In our latest narrative from Monday (09 Nov), we indicated that ‘the outlook for USD is still weak and the next support is at 6.5300’. USD subsequently dropped to 6.5476 before snapping back up. Downward momentum has eased considerably and the odds for further USD weakness have diminished. However, only a break of 6.6600 (no change in ‘strong resistance’ level) would indicate that the current downward pressure has eased.”

Reuters reports that the International Energy Agency (IEA) said, global oil demand is unlikely to get a significant boost from the roll-out of vaccines against COVID-19 until well into 2021.

"It is far too early to know how and when vaccines will allow normal life to resume. For now, our forecasts do not anticipate a significant impact in the first half of 2021," the IEA said in its monthly report.

"The poor outlook for demand and rising production in some countries ... suggest that the current fundamentals are too weak to offer firm support to prices."

While noting that OECD countries had modestly drawn down their crude oil stocks for two months in a row by September, the IEA said that storage levels were still not far from peaks in May at the height of the pandemic.

"Unless the fundamentals change, the task of re-balancing the market will make slow progress," the IEA said.

FXStreet reports that according to FX Strategists at UOB Group, the upside momentum in USD/JPY could see the 106.00 level (and above) retested in the short-term horizon.

24-hour view: “We expected USD to “trade sideways between 104.80 and 105.55” yesterday. While USD traded sideways as expected, the registered range was narrower than anticipated (104.99/105.67). The underlying has firmed somewhat and this could lead to USD testing the 105.75 resistance first before a pullback can be expected. For today, the major resistance at 106.10 is likely out of reach. Support is at 105.20 followed by 105.00.”

• Vaccine news starts to reduce the weight of uncertainty

• Today's GDP data was in line with where we thought it would be

• We've had a strong recovery, but there is still a huge gap

• The recovery has been very uneven

• Don't have a date in mind for negative rates review outcome

• We have talked about yield curve control, but it's something I don't see a great need for at the moment

• Great deal of work to be done with banks in deciding if negative rates are doable

• We will have more information on Brexit in December meeting

Reuters reports that Irish Prime Minister Micheal Martin said that U.S. President-elect Joe Biden wanted a Brexit trade deal to be clinched with the European Union so British Prime Minister Boris Johnson should knuckle down and strike an agreement.

Biden's win in the U.S. presidential election has changed the international context of Brexit: The United Kingdom's most powerful ally will now be led by a man who favours a Brexit deal and relishes his Irish heritage.

"He is very committed to the Good Friday Agreement," Martin said of Biden. "Particularly in relation to Brexit, he would favour obviously a deal between the European Union and Britain."

"And I think that's where, if I could respectfully say it, that's where the British government should head, in that direction, in my view. It should knuckle down and... get a deal with the European Union," Martin told BBC radio.

During today's Asian trading, the US dollar rose against the euro, but declined against the yen.

Traders are assessing the likelihood of a new stimulus package in the US, given the news earlier this week about the success of trials of the COVID-19 vaccine developed by Pfizer and BioNTech.

Traders are still waiting for the official results of the US presidential election on November 3, which also determines the fate of new incentives.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose 0.05%.

The introduction of the COVID-19 vaccine means less stimulus, says John Hardy, who is responsible for foreign exchange strategy at Saxo Bank.

Analysts also note that Central banks will not have to inject as much liquidity into the financial system as they currently do if the vaccine becomes available soon.

Meanwhile, higher yields on US government bonds compared to European bonds are driving euro sales.

The focus also turned to UK data, which showed that monthly gross domestic product (GDP) grew by 1.1% in September 2020 as lockdown measures continued to ease. This is the fifth consecutive monthly increase following a record fall of 19.5% in April 2020. Economists had expected a 1.5% increase.

September 2020 GDP is now 22.9% higher than its April 2020 low. However, it remains 8.2% below the levels seen in February 2020, before the full impact of the coronavirus (COVID-19) pandemic. There has also been a loss in momentum through Quarter 3 (July to Sept) 2020. GDP grew by 15.5% in Quarter 3 (July to Sept), following two consecutive quarterly falls but has not recovered to pre-pandemic levels

FXStreet reports that in opinion of FX Strategists at UON Group, NZD/USD is likely to re-visit the 0.6940 level in the next weeks.

Next 1-3 weeks: “Last Friday, we highlighted that ‘risk of a break of 0.6800 has increased’ and that ‘if NZD can close above this level, it could advance further to 0.6830, possibly 0.6880’. When NZD closed above 0.6800, we indicated on Tuesday (11 Nov, spot at 0.6825), that ‘next level to focus on is at 0.6880 but overbought shorter-term conditions could lead to a few days of consolidation first’. NZD blew past 0.6880 yesterday (11 Nov) and surged to a high of 0.6904. While overbought, the rally is accompanied by strong momentum and NZD could strengthen further to the next major resistance at 0.6940. All in, only a break of 0.6800 (‘strong support’ level previously at 0.6740) would indicate that the current rally has run its course.”

eFXdata reports that ING discusses gold technical outlook.

"The short-term consolidation within the long-term uptrend continues, with prices successfully moving above the horizontal support around USD/oz.1,858. A break below this horizontal support would not immediately be bearish, as the slowly rising EMA-200 line will offer next solid support at USD/oz.1,793," ING notes. 

"First resistance comes in at the MA-50 line at USD/oz.1,910 and a close above the falling trend line around USD/oz.1,955 is necessary to confirm that prices have bottomed above the horizontal support around USD/oz.1,858," ING adds. 

According to the report from Office for National Statistics, production output rose by 0.5% between August 2020 and September 2020, with all sectors showing growth: manufacturing rose by 0.2%; electricity and gas rose by 0.4%; mining and quarrying rose by 1.3%; and water supply rose by 1.7%. Economists had expected a 0.8% increase.

In September 2020, the Index of Production (IoP) was 5.6% below February 2020, the previous month of "normal" trading conditions, prior to the coronavirus (COVID-19) pandemic.

The monthly increase of 0.2% in manufacturing output was led by manufacturing of transport equipment; 10 of the 13 subsectors displayed upward contributions.

Total production output increased by 14.3% for the three months to September 2020 (Quarter 3), compared with the three months to June 2020 (Quarter 2); this was primarily because of the strength displayed during July 2020.

For the three months to September 2020, compared with the three months to September 2019, production output decreased by 6.7%; this was led by a fall in manufacturing of 8.8%.

According to the report from Office for National Statistics, monthly gross domestic product (GDP) grew by 1.1% in September 2020 as lockdown measures continued to ease. This is the fifth consecutive monthly increase following a record fall of 19.5% in April 2020. Economists had expected a 1.5% increase.

September 2020 GDP is now 22.9% higher than its April 2020 low. However, it remains 8.2% below the levels seen in February 2020, before the full impact of the coronavirus (COVID-19) pandemic. There has also been a loss in momentum through Quarter 3 (July to Sept) 2020.

GDP grew by 15.5% in Quarter 3 (July to Sept), following two consecutive quarterly falls but has not recovered to pre-pandemic levels

The services sector grew by 1.0%, production by 0.5% and construction by 2.9% in September 2020, however, it is important to note that since the peak monthly growth in June, growth in GDP and its main sectors has slowed.

Looking ahead, results from Wave 16 of the Business Impact of Coronavirus (COVID-19) Survey (BICS), which covered the dates 5 to 18 October 2020, found that of businesses currently trading, 45% reported their turnover had decreased below what is normally expected for October, compared with 48% reporting decreases in September in Wave 15.

In October, there were three industries where more than 50% of businesses experienced a decrease in turnover, compared with 45% across all industries. These were the accommodation and food service activities industry, at 72%; the arts, entertainment and recreation industry, at 69%; and the education industry (private sector and higher education businesses only), at 57%.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1866 (2729)

$1.1841 (826)

$1.1823 (334)

Price at time of writing this review: $1.1764

Support levels (open interest**, contracts):

$1.1717 (1743)

$1.1691 (2674)

$1.1660 (1896)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date December, 4 is 102441 contracts (according to data from November, 11) with the maximum number of contracts with strike price $1,1200 (6548);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3343 (1662)

$1.3301 (648)

$1.3271 (1270)

Price at time of writing this review: $1.3194

Support levels (open interest**, contracts):

$1.3096 (686)

$1.3013 (646)

$1.2944 (1167)

Comments:

- Overall open interest on the CALL options with the expiration date December, 4 is 24033 contracts, with the maximum number of contracts with strike price $1,3500 (2705);

- Overall open interest on the PUT options with the expiration date December, 4 is 25417 contracts, with the maximum number of contracts with strike price $1,2500 (2657);

- The ratio of PUT/CALL was 1.06 versus 1.10 from the previous trading day according to data from November, 11

* - 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.