CFD Markets News and Forecasts — 16-02-2021

FXStreet reports that economists at ANZ Bank note that the NZD/USD pair has held up well in the wake of the weekend’s COVID-19 developments and it is difficult to envisage weakness unless the crisis deepens.

“As we suspected might be the case, the market has taken a glass-half-full view to moves to L2/L3, having seen the ‘script’ before, and mindful of the Crown’s war chest that could be brought to bear should the crisis deepen.”

“Should the situation worsen, we’d expect the NZD to suffer a tad, but in the absence of bad news, we’ll remain in a mildly bullish holding pattern.”

FXStreet notes that copper (LME) is picking up momentum and the long-term outlook stays clearly bullish. The Credit Suisse analyst team targets the $8895 neighborhood.

“Copper (LME) has successfully broken out from its two-month consolidation and is now also above $8346, the high from 2013. With a multi-year base in place, we maintain our core bullish outlook and look for a rise toward $8895, the highlighted ‘flag’ price target.”

“Support is seen at $7804, the 63-day average before $7705/7673 recent lows.”

FXStreet reports that Senior Economist Alvin Liew at UOB Group checks out the recently published GDP figures in the Japanese economy.

“Japan extended its growth rebound in 4Q 2020 following its record 3Q economic activity surge from the pandemic-ravaged trough in 2Q. Its 1st preliminary estimate of 4Q GDP recorded a double-digit growth of +12.7% q/q annualized rate (3.0% q/q), higher than Bloomberg median estimates of +10.1% annualized rate.”

“On the domestic front, the third stimulus package ordered by PM Suga will help blunt some of the negative impact of COVID-19 while the Bank of Japan’s upcoming review its QQE framework in the March 2021 MPM could portend monetary policy changes that will help further prop up the Japanese economy with more monetary stimulus. And while there is not likely to be any immediate improvement in the US-China relations, a period of new negotiations under the Biden administration may reduce the risk of another trade confrontation and the status quo will be a win for global trade.”

“We expect Japan to briefly return to contraction in 1Q 2021 and thereafter resume its growth trajectory from 2Q onwards as the vaccination program gets progressively rolled out. We now expect full-year GDP to grow by 3.2% in 2021 (from +2.8% previously estimated) compared to the 4.9% contraction in 2020.”

FXStreet notes that Mario Draghi’s reputation and large majority put him in a strong position to promote eurozone reform and he may have some successes in areas such as banking union and fiscal rules. But he will be constrained by his short period in office and the greater financial and political weights of Germany and France, per Capital Economics.

“We do not expect the EU to move quickly towards setting up a permanent eurozone budget. More fiscally conservative governments will point out that the Next Generation EU, which was much larger than many had expected, has still not disbursed any money. It would be very surprising if Mr. Draghi’s powers of persuasion were potent enough to encourage the core countries (other than France) to back even more fiscal risk-sharing in the near future.”

“It is perhaps more likely that Draghi has a big influence on the reform of the EU’s fiscal rules. Draghi’s government may win some support for creative proposals for a successor to the 60% and 3% debt and deficit limits.”

“Mr. Draghi might also have more luck with making the case for further progress on banking union, given the strengthening of banks in the periphery over recent years. Since non-performing loans have fallen a long way from their peaks in Italy and Spain, and banks’ capital ratios have risen, progress on deposit insurance may now be possible.”

“Draghi’s government is unlikely to last long enough to see through such fundamental reforms. The next Italian parliamentary elections, which might bring the populist Lega into government, are due by mid-2023. And some suggest that Mr. Draghi might stand for election next year as the successor to Sergio Mattarella in the largely ceremonial role of President.”

U.S. stock-index futures rose on Tuesday, as investors piled into economically sensitive stocks on hopes that the U.S.massive fiscal stimulus and accelerating vaccine rollouts would aid in the recovery of the world’s biggest economy.

Global Stocks:

Freeport-McMoRan (FCX) upgraded to Buy from Neutral at Citigroup; target $36

The report from the New York Federal Reserve showed on Tuesday that manufacturing activity in the New York region expanded modestly in early February.

According to the survey, NY Fed Empire State manufacturing index rose from 3.5 in January to 12.1 in February, pointing to the fastest growth in activity since July 2020.

Economists had expected the index to come in at 6.0.

Anything below zero signals contraction.

According to the report, the new orders index rose 4.2 points to 10.8, indicating that orders advanced, and the shipments index fell 3.3 points to 4.0, pointing to a small gain in shipments. The employment index went up 0.9 points to 12.1, indicating ongoing modest rise in employment. Delivery times lengthened (9.1 in February, up from 5.5 in January), and inventories increased (6.5, up from -0.7 in January). On the price front, the prices paid index jumped 12.3 points to 57.8, a level last reached in 2011, pointing to sharp input price increases, while the prices received index increased 8.2 points to 23.4, its highest level in two years, pointing to a pickup in selling price gains.

• Says U.S. in good shape with inflation right now, but he does think inflation will move up next year
• Fed would like to miss on high side for inflation rather than miss on low side
• There are a lot of action in markets and speculative frenzie
• The biggest thing in equities is tech firms and how high investors will value them
• That's not bubble, that's just normal investing
• Financial conditions generally are very good right now
• No reason to "get ahead of ourselves" regarding tapering
• Benefits of the minimum wage will go to middle-class families with kids

EUR strengthened against most of its major rivals in the European session on Tuesday as bets that massive U.S. fiscal stimulus and accelerating vaccine rollouts will power global economic growth this year supported market sentiment.

Additional support for the single currency was provided by a better-than-forecast reading of German business morale and data showing a slightly better reading for Q4 GDP.

Germany's latest ZEW sentiment survey showed that German investor confidence improved unexpectedly in February. According to the report, the ZEW Indicator of Economic Sentiment increased to 71.2 in February from 61.8 in the previous month. Economists had forecast the indicator would drop to 59.6. This was the highest reading since September as the markets were confident that the German economy would be back on the growth track within the next six months. Meanwhile, the assessment of the economic situation worsened slightly, falling to -67.2 from -66.4 a month ago. Economists had expected the indicator to edge down to -67.0.

Eurostat's report revealed that the Eurozone's economy contracted slightly less than initially estimated in the fourth quarter of 2020. According to the report, Eurozone GDP fell by 0.6 percent q/q in the three months to December 2020, instead of the -0.7 percent q/q estimated previously. The latest reading followed a record 12.4 percent q/q growth in the third quarter and an unprecedented 11.7 percent q/q decline in the second quarter. On a yearly basis, GDP fell 5 percent, less than an initial estimate of a 5.1 percent drop, but higher than a 4.3 percent contraction in the third quarter.

Investors also paid attention to the comments by the EU's economics commissioner Paolo Gentiloni, who said that the block would decide how fiscal support would be tapered in a coordinated manner by the summer.

Biden’s administration, struggling with a messy vaccine rollout, is considering taking Silicon Valley up on its latest offers to help fight the pandemic, Politico reports. According to the report, Amazon (AMZN)) is pitching its expertise in IT and operations to help in vaccine distribution. Airbnb (ABNB) is suggesting it help create “vaccine depots” using its vast network of real estate across the country. And Google (GOOG) is looking to give free ad space to public health authorities.

“We are consulting with many companies, including Amazon, about specific ways they can help execute the President’s national strategy against COVID,” White House spokesperson Kevin Munoz said. “Companies with logistics and technical expertise could help Americans get vaccinated more efficiently and more equitably.”

FXStreet reports that analysts at Credit Suisse note that the NZD/USD pair is under pressure for a close above the 0.7248/54 range highs, which would expose the 0.7306/15 highs and likely beyond over the medium-term.

“Although further rangebound trading should not be completely excluded, our bias is to look for a move higher from the crucial 0.7248/54 highs as daily MACD momentum keeps increasing and there are growing signs that the risk-on rally is re-accelerating.”

“Thereafter, we see resistance at 0.7281/86, ahead of the psychological inflection point at 0.7300. Beyond here can see a fresh test of the current year high at 0.7306/15, where we would expect to see a first attempt to cap, but with an eventual break finally reasserting the broader uptrend.” 

FXStreet notes that since 2020, the S&P 500 is up 22% while the US Technology sector has seen outsized gains of 51%. The robust rally has triggered valuation concerns in the Technology space. Data, however, suggest otherwise. The expectation of strategists at DBS Bank is for the broad uptrend to persist, albeit at a slower pace.

“It is not untrue that on a forward price-to-sales (P/Sales) basis, valuation for US Technology is looking stretched at 6.5x. But this ratio belies the fact that profitability for US Technology companies is on the rise. This is affirmed on a forward P/E basis, which shows valuation for the sector is nowhere near the levels seen during the dot-com bubble.”

“The AAII Bull/Bear ratio reflects the market sentiment of financial advisors. Currently, the ratio of 1.7 is broadly in line with the long-term average and this suggests that sentiment is not at an extreme.”

“When the percentage of stocks closing above their 200-dma crosses above the 80% mark, the likelihood of a pullback in the year-on-year change for S&P 500 is on the cards. It is to be noted that a deceleration in the rate of change need not necessarily mean that the S&P 500 will enter a negative correction mode. Instead, it suggests that the market can continue to grind higher, albeit at a slower pace. This was what happened when the indicators breached the 80% mark on previous occasions.”

FXStreet reports that in the opinion of FX Strategists at UOB Group, the outlook for NZD/USD remains tilted to the constructive side for the time being, with the next target at 0.7280.

24-hour view: “The subsequent NZD strength exceeded our expectation as it rose to 0.7249. Upward momentum has improved, albeit not by much. From here, NZD could edge above 0.7255 but major resistance at 0.7280 is likely out of reach. Support is at 0.7220 followed by 0.7205.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (15 Feb, spot at 0.7225). As highlighted, the outlook for NZD is still positive but it could take a few days before it could move to 0.7280. Overall, the positive outlook is deemed intact as long as NZD does not move below 0.7180 (‘strong support’ level was at 0.7155 yesterday).”

FXStreet notes that the USD/CAD pair breached the 1.2700 support decisively on Monday. Terence Wu, FX Strategists at OCBC Bank, is closely watching the loonie as the 1.2600 level is likely to attract.

“The break below 1.2700 leaves the part edging towards the 1.2600 level, which coincides with the Jan lows. Any further breach should leave the pair open to further downside.” 

FXStreet reports that FX Strategists at UOB Group discuss USD/CNH prospects.

24-hour view: “We highlighted yesterday ‘the underlying tone has weakened but any decline is likely limited to a test of the major support near 6.4130’. We added, ‘the next major support at 6.4000 is not expected to come into the picture for now’. The subsequent weakness exceeded our expectation as USD came close to breaking 6.4000 (low of 6.4009). While the rapid drop appears to be running ahead of itself, there is no sign of stabilization just yet. From here, USD could dip below 6.4000 but the prospect for extension to 6.3900 is not high. Resistance is at 6.4140 followed by 6.4200.”

According to the report from ZEW, the indicator of economic sentiment for Germany increased again considerably in February, climbing 9.4 points to a new reading of 71.2 points compared to January. The assessment of the economic situation in Germany worsened slightly, and currently stands at minus 67.2 points, 0.8 points lower than in January. The assessment of the situation has thus remained practically unchanged at the same low level over the past six months.

“The financial market experts are optimistic about the future. They are confident that the German economy will be back on the growth track within the next six months. Consumption and retail trade in particular are expected to recover significantly, accompanied by higher inflation expectations,” comments ZEW President Professor Achim Wambach.

The financial market experts’ sentiment concerning the economic development of the eurozone also increased sharply, bringing the indicator to a current level of 69.6 points, 11.3 points higher than in the previous month. The indicator for the current economic situation in the eurozone climbed 4.3 points to a level of minus 74.6 points, which is only slightly higher than in October 2020.

According to the report from Eurostat, in the fourth quarter of 2020, seasonally adjusted GDP decreased by 0.6% in the euro area and by 0.4% in the EU, compared with the previous quarter. Economists had expected a 0.7% decrease. Declines follow a strong rebound in the third quarter of 2020 (+12.4% in the euro area and +11.5% in the EU) and the sharpest decreases since the time series started in 1995 observed in the second quarter of 2020 (-11.7% in the euro area and -11.4% in the EU).

According to a first estimation of annual growth for 2020, based on seasonally and calendar adjusted quarterly data, GDP fell by 6.8% in the euro area and 6.4% in the EU.

Compared with the same quarter of the previous year, seasonally adjusted GDP decreased by 5.0% in the euro area and by 4.8% in the EU in the fourth quarter of 2020, after -4.3% and -4.2% respectively in the previous quarter.

The number of employed persons increased by 0.3% in both the euro area and in the EU in the fourth quarter of 2020, compared with the previous quarter. In the third quarter of 2020, employment had increased by 1.0% in the euro area and by 0.9% in the EU.

Compared with the same quarter of the previous year, employment decreased by 2.0% in the euro area and by 1.7% in the EU in the fourth quarter of 2020, after -2.3% and -2.1% in the third quarter of 2020.

CNBC reports that according to an annual survey by Singaporean think tank ISEAS Yusof-Ishak Institute, Southeast Asia’s support for the U.S. appeared to increase after Joe Biden won the presidential election.

The State of Southeast Asia survey found that 61.5% of respondents favor aligning with the U.S. over China if the region was forced to pick sides. That’s an increase from 53.6% who chose the U.S. over China in the same survey a year ago.

Responses to the latest survey were gathered from Nov. 18 last year to Jan. 10 this year — after Biden was projected to defeat Donald Trump in the election, but before he was inaugurated as president.

The survey involved more than 1,000 respondents from all 10 member states of the Association of Southeast Asian Nations, or ASEAN. 

Comparing country-level data, a majority of respondents from seven Southeast Asian nations chose the U.S. over China in the latest survey. 

Around 76.3% of respondents picked China as the most influential economic power, while 49.1% chose China as the most influential political and strategic power.   

FXStreet reports that UK-EU trade risks may be receding, according to economists at MUFG Bank. Therefore, the outlook for the pound remains positive.

“We continue to run a long GBP/USD trade idea. The grounds for this view is the notable shift in the UK rates market after the Bank of England effectively abandoned the idea of cutting rates into negative territory which has seen the short end of the rates market take out the risk of rates turning negative. The momentum in the rates market was further reinforced by the speed of the vaccine roll-out, with 23% of the population now vaccinated with at least one dose.”

“The risk of an escalation of friction on the border between the UK and the EU appears to be receding now with data from a logistics company, Transporeon reporting that the rejection rate for cargo shipped from France to the UK had fallen to its lowest level since the last week of November.”

“A test of the 1.4000 level in GBP/USD looks inevitable now at this stage with the outlook remaining favourable for now.”

Reuters reports that consultants Duff & Phelps said in a global regulatory outlook that a growing majority of top bankers and asset managers consider New York as the world's top financial hub and expect Brexit to damage London's global standing.

D&P's outlook surveyed senior financial professionals from 250 banks and asset managers in Europe, Asia and America, with 60% saying they view New York as the world's leading financial centre, up from 56% in 2020.

The survey said only 31% of respondents saw London as the top hub, down from 34% last year, with just over 50% saying that leaving the European Union will weaken London's position as a global financial centre.

Amsterdam has pushed ahead of London to become Europe's biggest share trading centre, grabbing some of London's derivatives trading activity along the way.

Nearly a fifth of respondents to the D&P survey now predict that China will become the top financial centre within five years.

FXStreet reports that over the coming year, economists at Westpac expect that the New Zealand dollar will gain further altitude relative to the US dollar and other major currencies. 

“New Zealand will likely see a downturn in some key activity gauges due to the lack of international tourists during summer. Even so, we still expect that New Zealand will outperform others on the global stage. Against that backdrop, we see ample scope for the New Zealand dollar to push higher over the next few months and have pencilled in a peak of 0.78 against the US dollar in early 2022.”

“The New Zealand economy’s creditable performance will see the New Zealand dollar strengthening relative to both sterling and the euro over the course of 2021. The UK is continuing to struggle with rising infection numbers and a double-dip recession is looking likely. In the case of the euro area, measures to protect public health have been a drag on activity and inflation remains muted.”  

CNBC reports that Dutch Finance Minister Wopke Hoekstra told that European countries could experience a “tremendous acceleration of growth” in the summer, as vaccinations are stepped up.

European economies are wrestling against one of the deepest shocks in history. The coronavirus pandemic has halted much of Europe’s economic activity and the Covid-19 vaccine rollout has been bumpy.

The European Commission cutting its GDP forecast for the year to 3.8%, from the 4.2% estimated in November. However, the Dutch finance chief is confident that economic activity will pick up in the summer.

“In my view, we have to be realistic but there is also reason to be slightly more optimistic than the commission has been in its forecasts, because if I look back at what we saw after the first wave of Covid, we saw in the Netherlands, but also in many other countries, a tremendous acceleration of growth,” Hoekstra told CNBC.

“It’ll take another couple of weeks or potentially another couple of months, but I’m optimistic about the phase just before summer,” Hoekstra said.

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

The ICE Dollar index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell by 0.15%.

Goldman Sachs experts predict a weakening of the US currency against the background of the global economic recovery, which, in their opinion, will be fast.

"Global growth in the next six months will be very strong thanks to mass vaccination," Goldman Sachs said in a review. "We believe that global cyclical forces will to some extent outweigh the US 'outperformance' factor, which will lead to a weakening of the dollar in most pairs."

The pound rose 0.12% against the US dollar. The day before, the pound rose above the $1.39 mark for the first time in almost 3 years, thanks to the success of the UK in terms of mass vaccination and optimism about the imminent abolition of lockdown in the country.

British Prime Minister Boris Johnson said over the weekend that 15 million doses of the COVID-19 vaccine had already been used in the country. Thus, the UK is ahead of other major countries in terms of vaccination rates.

Meanwhile, the minutes of the Reserve Bank of Australia (RBA) meeting on February 2 showed that the Central Bank intends to keep the base rate at a record low (0.1%), as well as maintain the same volume of bond purchases for as long as it takes to achieve a steady increase in inflation and wages, as well as reduce unemployment.

RTTNews reports that minutes from the RBA Feb.2 meeting showed that members of the Monetary Policy Board agreed that the country's economy is recovering from the Covid-19 pandemic at a faster pace than expected,  revealed on Tuesday.

The development of numerous vaccines to treat the pandemic has spurred improvement in the global economy, the minutes showed. In Australia, unemployment has fallen more than expected, while inflation remains well below the target.

The members added that stimulus is expected to be in place for an extended period of time, although negative interest rates are unlikely.

At the meeting, the RBA decided to maintain the targets of 10 basis points for the cash rate and the yield on the three-year Australian Government bond.

Reuters reports that Bank of Japan Governor Haruhiko Kuroda said the recent stock price rally reflected market optimism over the global economic outlook.

Kuroda said the central bank would be vigilant for financial risks associated with prolonged easing, nodding to growing concern among some lawmakers that prolonged easing was sowing the seeds of a bubble.

But he stressed that it was premature to debate an exit from super-loose policy including the BOJ’s huge purchases and holdings of exchange-traded funds (ETF), as the coronavirus pandemic continues to ravage the economy.

“It’s likely to take significant time to achieve our price (inflation) target. As such, now is not the time to think about an exit including from our ETF buying,” Kuroda told parliament.

Kuroda said it was hard to predict whether stock markets were in a bubble.

According to the report from INSEE, in Q4 2020 the number of ILO unemployed people reached 2.4 millions in France excluding Mayotte, decreasing by 340,000. The ILO unemployment rate fell by 1.1 points over the quarter to 8.0% of the labor force, after a 2.0 point rebound in the previous quarter. It was almost stable (-0.1 points) compared with its pre-crisis level in Q4 2019.

The decrease in unemployment in the quarter was primarily due to the increase in the employment rate, which recovered again on average over the quarter. But, as in the second quarter, the fall in unemployment was also partly a "trompe-l'oeil" fall: due to the second confinement, between October 30 and December 15, a significant number of people switched to inactivity (halo around unemployment or inactivity outside the halo), not being able to make active job search under the usual conditions. On the other hand, the increase in employment should be put into perspective by the decline in hours worked per job.

The decline in the unemployment rate over the quarter affected all age and sex groups. It was more pronounced for people aged 15 to 24 (-3.6 points) than for those aged 25-49 (-1.0 point) and those aged 50 or older (-0.4 points). Thus the unemployment rate was below its level a year earlier for youths (-1.5 points) and almost at the same level for their elders (+0.1 points for those aged 25-49; -0.1 points for those aged 50 and over).

EUR/USD

Resistance levels (open interest**, contracts)

$1.2233 (2918)

$1.2201 (2650)

$1.2175 (3996)

Price at time of writing this review: $1.2136

Support levels (open interest**, contracts):

$1.2072 (1751)

$1.2048 (2093)

$1.2017 (2094)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 5 is 83663 contracts (according to data from February, 12) with the maximum number of contracts with strike price $1,2300 (4656);

GBP/USD

Resistance levels (open interest**, contracts)

$1.4032 (3190)

$1.3996 (445)

$1.3965 (596)

Price at time of writing this review: $1.3930

Support levels (open interest**, contracts):

$1.3663 (1079)

$1.3623 (914)

$1.3536 (840)

Comments:

- Overall open interest on the CALL options with the expiration date March, 5 is 16187 contracts, with the maximum number of contracts with strike price $1,4000 (3190);

- Overall open interest on the PUT options with the expiration date March, 5 is 13773 contracts, with the maximum number of contracts with strike price $1,3100 (1225);

- The ratio of PUT/CALL was 0.85 versus 0.84 from the previous trading day according to data from February, 12

* - 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.