CFD Markets News and Forecasts — 14-06-2021

eFXdata reports that analysts at Citi discuss the USD outlook and their expectations for this week's FOMC policy meeting.

"We see tactical USD upside driven by risk reduction into the June FOMC meeting on Wednesday. We don’t expect a major ‘taper warning’ signal at this meeting, where USD will likely follow the nominal yields down in that scenario."

"However, with the recent reduction in Fed hike pricing suggesting that the market consensus leans towards the dovish outcome on Wednesday, should the Fed surprise hawkishly, the market reaction will likely be larger. In the absence of a taper signal, we see central bank divergence narrative (dovish ECB vs Fed) to reverse partially, benefitting EUR/USD."

• ECB could adjust policy operations more gradually in line with sustainability considerations
• A tilting of ECB’s purchases could, in principle, reduce potential mispricing
• Tilting strategies could be performed at level of sectors, firms or bonds

FXStreet reports that UOB's Senior Economist Alvin Liew comments on the latest higher-than-expected US inflation figures.

“On Thu (10 Jun), the May CPI data released by US Labor Department showed US price inflation topped forecasts with the y/y increase at the highest in decades but markets took the data in their stride, assessing that the bulk of the inflation was likely driven by transitory components, and consequently, US equity markets rose while both the US dollar and US Treasury yields edged lower.”

“US CPI rose 0.6% m/m in May, exceeding Bloomberg median forecast of 0.5%, and came on top of marked 0.8% increase in the prior month. Core CPI also surged 0.7% m/m, beating expectations of 0.5%. Compared to 12 months ago, CPI inflation was higher at 5% y/y in May, the highest inflation rate since Aug 2008 (5.3% y/y) while core inflation soared by 3.8% y/y, the largest increase since Jun 1992.”

“Despite the sharp 5% y/y spike in May, inflation still looks to be transitory on a combination of demand increase and supply chain bottlenecks at the restart of activities. Transport and energy inflation rose in part due to base effect. Our View: Still early for Fed to taper or hike rate.”

• We're very much at stage of asking big questions about digital currencies and looking for answers

U.S. stock-index futures traded flat on Monday, as investors prepared for the June monetary policy meeting of the U.S. Federal Reserve later this week.

Global Stocks:

Bert Colijn, a senior economist at ING, notes that Eurozone industrial production continues to grow despite widespread production problems. With demand continuing to come in quickly, the outlook for industry remains bright and seems likely to be curbed by supply-side constraints, he suggests.

"Eurozone industrial output grew by 0.8% in April despite widespread production problems."

"The growth in production was mixed between large markets, which are differently affected by pressing shortages. German production has been significantly disrupted by semiconductor chip shortages as the auto industry is one of the most dominant industries resulting in another decline in overall German industrial production in April. Spain and Italy have continued to see production grow while France saw production stagnate."

"The outlook for the sector remains bright though, which adds to expectations of a positive contribution from production to GDP growth in 2Q. The key concerns for industry are supply chain disruptions, price pressures and whether reopening of services dampens demand for goods."

"We expect shipping price pressures to remain for the next few months ahead, which also holds good for several of the most pressing input shortages for the eurozone industry. This means that while demand for goods remains very strong at the moment, industrial output could underperform given longer lead times and production hiccups. That being said, we expect production to keep rising on strong demand, low inventories and increased lead times."

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

Statistics Canada released its Monthly Survey of Manufacturing, which showed that the Canadian manufacturing sales declined 2.1 percent m-o-m in April to CAD57.10 billion, following a revised 4.0 percent m-o-m jump in March (originally a 3.5 percent m-o-m surge).

Economists had anticipated a drop of 1.1 percent m-o-m for April.

According to the survey, sales fell in 11 of 21 industries, led by transportation equipment (-23.6 percent m-o-m) and petroleum and coal products (-7.1 percent m-o-m)

Overall, sales of durable goods plunged 3.6 percent m-o-m in April, while sales of non-durable goods edged down 0.4 percent m-o-m.

In y-o-y terms, manufacturing sales climbed 57.1 percent in April.

FXStreet reports that NZD/USD fell sharply to the bottom of its range on Friday, but held above key support at 0.7115 exactly. Only a break below here would confirm a top, according to the Credit Suisse analyst team.

“NZD/USD fell sharply on Friday, moving right to the bottom of its range to test key support at 0.7115, below which would complete an in-range top and confirm a move lower within the broader 2021 range.” 

“With daily MACD now crossing below zero, next key support is seen at the 200-day average at .7033, which could prove a tough barrier at first. Nevertheless, the potential “measured top objective” suggests we could dip below here if the pattern is confirmed, with next support then seen at some corrective price lows at .7003/6996.” 

“Near-term resistance stays at 0.7244/50. Above here would complete an intraday base and turn the risks higher, with the next resistance at 0.7289, then 0.7306/17.”

FXStreet reports that Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, notes that EUR/GBP is slipping back to the 0.8560 May low below which lies 0.8471.

“EUR/GBP is sliding back towards the May low at 0.8560 below which the February and mid-March lows can be spotted at 0.8549/33. Further down sits the April low at 0.8471.” 

“Immediate downside pressure should retain the upper hand while the cross stays below the 0.8643 June 10 high.” 

“Key resistance remains to be seen at 0.8722/32, the late February and April highs. This would need to be overcome in order to negate downside pressure.”

FXStreet notes that USD/CAD has broken clearly above 1.2145 to suggest the warned-of correction is beginning. Next resistance levels are seen at 1.2203, then 1.2253/85, the Credit Suisse analyst team reports.

“We look for a move to 1.2203 next, then 1.2253/85, which includes the important 55-day average, the 38.2% retracement of the fall from April and the ‘measured base objective’. We would look for a cap here for the medium-term downtrend to then reassert itself.” 

“Near-term support moves to the 1.2145/43 breakout point. A break below 1.2058/56 would quickly turn our bias back lower and negate the base, with a direct close below 1.2012/00 reasserting the broader downtrend.”

USD traded mixed against its major counterparts in the European session on Monday as investors looked for the June monetary policy meeting of the U.S. Federal Reserve later this week. It rose against GBP, fell against AUD and NZD, and changed little against EUR, JPY, CHF and CAD.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, slipped 0.12% to 90.45.

The outcomes of the meeting will be announced on Wednesday at 18:00 GMT, and the Fed's Chairman Jerome Powell will follow with a press conference at 18:30 GMT.

While the U.S. central bank isn't expected to make any changes in its ultra-low interest rates or begin trimming its $120 billion in monthly asset purchases, market participants will be monitoring the Fed’s updated policy statement and Powell’s comments closely for the forecasts on the U.S. inflation pressures and the strength of the economic recovery.

FXStreet notes that EUR/USD finally saw a more decisive move lower on Friday. Now, analysts at Credit Suisse look for a test of the 55-day moving average and price/retracement support at 1.2065/51.

“We look for further weakness to 1.2065/51 - the mid-May low, 38.2% retracement of the rally from late March and now also the rising 55-day average. Our bias remains to then look for a floor here. A break though would expose the 200-day average and May low at 1.1993/86.” 

“Failure to hold the 1.1993/86 support on a closing basis would reinforce the broader sideways range that has been in place all year, opening the door to further weakness to 1.1942 next, then 1.1928/18.” 

“Above 1.2144 is needed to ease the immediate downside bias for a move back to 1.2196.”

“Beyond 1.2218/19 remains needed to reassert the uptrend for a move back to the 1.2255/67 highs and downtrend from January."

FXStreet reports that Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, notes that EUR/USD is slipping back towards minor support at 1.2070/52 and a break below this neighborhood would trigger a sharper fall towards the 1.1994/86 support area.

“EUR/USD continues to trade within its recent downtrend channel and nears the channel support line and the 55-day moving average at 1.2070/65 which may offer short-term support.” 

“A fall through the next lower 1.2052 mid-May low on a daily chart closing basis would probably trigger a deeper retracement to the 1.1994/86 band of support (mid-March highs and April 22 as well as May lows) which should ideally hold the downside.” 

FXStreet reports that UOB Group’s FX Strategists expect USD/CNH to gain extra upside traction once 6.4105 is cleared.

24-hour view: “Upward momentum has improved, albeit not by all that much. From here, there is room for USD to test 6.4050 but a sustained advance above this level is unlikely (next resistance is at 6.4105). On the downside, a break of 6.3900 would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “Our latest narrative was from last Thursday (10 Jun, spot at 6.3830) where USD likely to trade sideways within a range of 6.3650/6.4050. While there is no change in our view for now, shorter-term upward momentum is beginning to improve. That said, USD has to close above the strong resistance at 6.4105 before a sustained advance can be expected. At this stage, the prospect for USD to close above 6.4105 is not high but it would increase quickly unless USD drops below 6.3830 within these few days.”

CNBC reports that Boris Johnson is expected to announce a delay to the next phase of England’s reopening of up to four weeks on Monday, amid a surge in the delta variant of Covid-19.

Rules including the use of face masks, limiting the number of people who can meeting indoors and out, and shutting nightclubs and similar venues were due to be lifted on June 21, but British media reports suggest this could now be pushed back as late as July 19. At the moment, gatherings are limited to six people indoors and 30 outdoors.

People will also be advised to continue working from home where possible, according to reports.

New figures from Public Health England indicate that 42,323 cases of the delta variant of the coronavirus have now been confirmed across the U.K., an increase of 240% from last week, while the country’s transmission rate is at its highest since January.

FXStreet reports that according to Benjamin Wong, Strategist at DBS Bank, technically, there is momentum loss providing the basis for a roll lower for EUR.

“There is momentum loss with EUR unable to progress beyond late-May’s 1.2266 highs, and a near-term 1.2125 support pivot has given way. A EUR rollback would keenly eye the focal point of the trend support that had connected 1.1603 through 1.1704. However, downside momentum can only rise proportionally stronger if EUR can bypass the moving average support at 1.2000 and the daily chart’s 200-day moving average at 1.1994.”

According to the report from Eurostat, in April 2021, the seasonally adjusted industrial production grew by 0.8% in the euro area and by 0.5% in the EU, compared with March 2021. Economists had expected a 0.4% increase in the euro area. In March 2021, industrial production rose by 0.4% in the euro area and by 0.8% in the EU.

In April 2021 compared with April 2020, industrial production increased by 39.3% in the euro area and by 38.7% in the EU. Economists had expected a 37.4% increase in the euro area.

In the euro area in April 2021, compared with March 2021, production of durable consumer goods rose by 3.4%, energy by 3.2%, capital goods by 1.4% and intermediate goods by 0.8%, while the production of non-durable consumer goods fell by 0.3%. In the EU, production of durable consumer goods and energy rose by 2.9%, capital goods by 0.8%, intermediate goods by 0.5%, while the production of non-durable consumer goods fell by 0.7%.

In the euro area in April 2021, compared with April 2020, production of durable consumer goods rose by 117.3%, capital goods by 65.4%, intermediate goods by 38.7%, non-durable consumer goods by 15.4% and energy by 14.4%. In the EU, production of durable consumer goods rose by 110.4%, capital goods by 67.5%, intermediate goods by 36.9%, non-durable consumer goods by 14.0% and energy by 13.8%.

FXStreet reports that Jane Foley, Head of FX Strategy at Rabobank, discusses EUR/GBP prospects.

“While we have not changed our forecast that EUR/GBP could still head to 0.84 by year end, GBP bulls may continue to struggle to make headway vs. the EUR in the near-term.”

“Since the 2016 Brexit referendum, the complications surrounding the avoidance of a hard border across the island of Ireland have tended not to cause significant duress to GBP. This is probably because of the tendency of the UK government to publically underplay the complexity of the situation. However, if the issue manifests in trade tensions with the EU, GBP would likely see some unravelling of this year’s Brexit relief trade.”

“Another disconcerting factor for GBP is the risk that on June 14, PM Johnson may announce that England’s economy will not be fully re-opened on June 21 after all. Although economic data are pointing to a strong surge in UK GDP growth in Q2, a push back to the June 21 full reopening in England is likely to hamper confidence.”

CNBC reports that an expert on global economic governance said that wealthy nations in the Group of Seven have agreed to set up an infrastructure plan to compete with China’s Belt and Road Initiative — but that won’t stop Beijing’s massive program.

The group’s infrastructure plan is part of a broad collective pushback against China on issues ranging from human rights abuses to non-market practices that undermine fair competition.

“This isn’t really intended to stop Belt and Road. But I think the G-7 is signaling that they want to offer an alternative which really revolves around two big things that these countries offer,” said Matthew Goodman, senior vice president for economics at think tank Center for Strategic and International Studies.

The Belt and Road Initiative is China’s ambitious program to build physical and digital infrastructure to connect hundreds of countries from Asia to the Middle East, Africa and Europe. Critics consider it Chinese President Xi Jinping’s signature foreign policy to expand his country’s global influence.

Goodman told that the G-7 could make a “significant contribution” in closing the world’s infrastructure gap by channeling investments into developing countries.  

FXStreet reports that FX Strategists at UOB Group suggested that AUD/USD risks a deeper pullback on a close below 0.7680 in the next weeks.

Next 1-3 weeks: “After trading in a quiet manner and within relatively narrow ranges for several days, the sudden expansion in range last Friday came as a surprise (AUD rose to 0.7776 before falling sharply to 0.7689). While downward momentum has improved, AUD has to close below 0.7680 before a move to 0.7645 can be expected. The prospect for AUD to close below 0.7680 appears to be quite high as long as it does not break the ‘strong resistance’ level at 0.7765 within these few days.”

Reuters reports that junior health minister Edward Argar said that more government support for businesses is likely if there is a delay to easing Britain's lockdown restrictions.

British Prime Minister Boris Johnson is expected to announce later on Monday that the end of COVID-19 restrictions due on June 21 will be delayed following concern about the rapid rise of infections from the Delta variant of the coronavirus.

During today's Asian trading, the US dollar was trading steady against major currencies after posting its biggest weekly gain in more than a month as traders closed short positions ahead of the Federal Reserve meeting.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell 0.01%.

The dollar's direction in recent weeks has been driven by fluctuating bets on whether inflationary pressures from the economy's reopening could force the FOMC to cut its stimulus earlier.

Policymakers ' comments that inflation would be transitory helped calm that concern, but now markets are waiting for more clues from the Fed about the timing of an exit from ultra-easy policy.

Caution ahead of the Fed meeting has pushed a Deutsche Bank gauge of implied currency-market volatility to the lowest since February of last year, dropping around 10% since the start of the month.

"While we acknowledge the uncertainty around tapering given the recent noise in data, we think that risks for USD ... remain somewhat asymmetric and skewed to the upside, though the pace of appreciation will likely be somewhat contingent on near-term Fed rhetoric," Morgan Stanley analysts said.

FXStreet reports that Morgan Stanley discusses expectations for the Fed's June meeting.

"We expect especially notable near-term upward revisions to inflation projections, while we think the most likely outcome for the dot plot will show an even split among the Committee (9 vs. 9) on rate hikes in 2023. Incoming US economic numbers have been overcoming necessary hurdles, and keeping the FOMC on track for its balance sheet discussions. The data should lead the FOMC to maintain its view that "labor demand remains robust, and labor supply will soon begin to catch up to it."

According to the report from the Federal Statistical Office (FSO), the Producer and Import Price Index increased in May 2021 by 0.8% compared with the previous month, reaching 102.4 points (December 2020 = 100). In particular, higher prices were seen for chemical products, rubber and plastic products, basic metals, semi-finished metal products and pharmaceutical products. Compared with May 2020, the price level of the whole range of domestic and imported products rose by 3.2%. 

In particular, high prices for pharmaceutical products and plastic products were responsible for the increase in the producer price index compared with the previous month. Basic metals, semi-finished metal products, chemical products, waste collection, materials recovery and petroleum products also became more expensive.

Price increases compared with April 2021 were recorded in the import price index in particular for plastics in primary forms, petroleum and natural gas, organic products of the chemical industry, basic metals, semi-finished metal products, rubber and plastic products and petroleum products. The same applied to parquet floors, paper and paper products and other chemical products. Computers, in contrast, became cheaper.

FXStreet reports that in opinion of FX Strategists at UOB Group, the Cable now faces increasing chances of a move to 1.4080/50 in the near term.

Next 1-3 weeks: “Last Friday, we indicated that GBP ‘does not appear to be ready to move lower in a sustained manner’ and we expected it to ‘trade within a relatively broad range of 1.4080/1.4220’. GBP subsequently dropped to 1.4095 and shorter-term downward momentum has improved somewhat. That said, it is premature to expect a sustained decline. From here, GBP has to close below 1.4080 before a move to 1.4050 can be expected (next support is at 1.4005). At this stage, the prospect for GBP to close below 1.4080 is not high but it would increase as long as GBP does not move above 1.4185 (‘strong resistance’ level) within these few days.

Reuters reports that ECB President Christine Lagarde said that the euro zone economy is at a turning point but its recovery must be firm and sustainable before the European Central Bank can debate clawing back emergency support.

"I am not suggesting that the pandemic emergency purchase programme (PEPP) is going to stop on 31 March," Lagarde said. "We have plenty of flexibility, but in terms of economic outlook we are heading in the right direction.

"It is far too early to debate these issues," she said about winding down the 1.85 trillion euro PEPP, which is scheduled to last at least until March 31 or until the crisis phase of the pandemic is over.

Economists expect the ECB to start discussing the end of PEPP at their September meeting.

"We are at a turning point where, bearing in mind alternative (virus) variants, we are on that recovery path, heading firmly towards a return to the pre-COVID-19 level," Lagarde added.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2205 (580)

$1.2180 (384)

$1.2161 (118)

Price at time of writing this review: $1.2101

Support levels (open interest**, contracts):

$1.2069 (2970)

$1.2044 (1532)

$1.2013 (2079)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 11 is 43590 contracts (according to data from July, 9) with the maximum number of contracts with strike price $1,1650 (3886);

GBP/USD

$1.4222 (405)

$1.4196 (309)

$1.4157 (146)

Price at time of writing this review: $1.4110

Support levels (open interest**, contracts):

$1.4036 (315)

$1.4012 (677)

$1.3951 (2980)

Comments:

- Overall open interest on the CALL options with the expiration date July, 9 is 12974 contracts, with the maximum number of contracts with strike price $1,4500 (3529);

- Overall open interest on the PUT options with the expiration date July, 9 is 14500 contracts, with the maximum number of contracts with strike price $1,4000 (2980);

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