CFD Markets News and Forecasts — 16-09-2021

• It is important for U.S. government to find a debt limit solution that avoids counterproductive brinksmanship

FXStreet reports that еhe S&P 500 Index has staged a strong rebound on increased volume. However, analysts at Credit Suisse suggest that the market still needs to see 4485/98 cleared to suggest the corrective setback is over.

“A break above the 13-day exponential average and price resistance at 4485/98 would increase the likelihood that the corrective setback may already be over, clearing the way for a test of 4520/30 next.”

Whilst we would expect sellers at 4520/30 for now, above in due course should see a move back to the 4546 high, then 4565.” 

“Whilst 4485/98 caps, the threat of a deeper corrective setback can remain with support seen at 4459/58 initially, then 4436/26.” 

The Commerce Department announced on Thursday that business inventories increased 0.5 percent m-o-m in July, following a revised 0.9 percent m-o-m gain in June (originally a 0.8 percent m-o-m jump).

This was in line with economists’ forecast for a 0.5 percent m-o-m gain and marked the 13^th consecutive monthly gain in business inventories.

According to the report, inventories at wholesalers rose 0.6 percent m-o-m, while those at manufacturers increased 0.5 percent m-o-m and at retailers went up 0.4 percent m-o-m.

In y-o-y terms, business inventories surged 7.2 percent in July.

The Manufacturing Business Outlook Survey, released by the Federal Reserve Bank of Philadelphia on Thursday, revealed the region's manufacturing activity continued to expand in early September at a faster pace than in August. 

According to the survey, the diffusion index for current general activity rose from 19.4 in August to 30.7 this month.

Economists had forecast the index to slip to 18.8.

A reading above 0 signals expansion, while a reading below 0 indicates contraction.

According to the report, the current shipments index rose 11.0 points to 29.9 this month, while the new orders index dropped 6.9 points to 15.9 and the current employment index fell 6.3 points to 26.3. On the price front, the prices paid diffusion index declined 3.9 points to 67.3, while the current prices received index decreased 1.0 point to 52.9. Despite these drops, both indicators remained elevated.

U.S. stock-index futures changed little on Thursday,  as investors assessed a mixed set of the U.S. economic data that showed an unexpected jump in August retail sales and a bigger-than-forecast increase in weekly jobless claims.

Global Stocks:

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

American Express (AXP) upgraded to Neutral from Underperform at BofA Securities; target $169

Cisco (CSCO) upgraded to Outperform from Neutral at Credit Suisse; target raised to $74

The Commerce Department reported on Thursday the sales at U.S. retailers rose 0.8 percent m-o-m in August, following a revised 1.8 percent m-o-m fall in July (originally a 1.1 percent m-o-m decrease). 

Economists had expected total sales would decline 0.8 percent m-o-m in August.

According to the report, the August increase in retail sales was led by higher sales at nonstore retailers (+5.3 percent m-o-m), furniture stores (+3.7 percent m-o-m), general merchandise stores (+3.5 percent m-o-m) and food and beverages stores (+1.8 percent m-o-m). These gains, however, were partly offset by a decline in sales at motor vehicles and parts dealers (-3.6 percent m-o-m).

Excluding auto, retail sales surged 1.8 percent m-o-m in August after a revised 1.0 percent m-o-m drop in the previous month (originally a 0.4 percent m-o-m fall), being much better than economists’ forecast of a 0.1 percent m-o-m decrease.

Meanwhile, closely watched core retail sales, which exclude automobiles, gasoline, building materials and food services, and are used in GDP calculations, climbed 2.5 percent m-o-m in August after a revised 1.9 percent m-o-m decline in July (originally a 1.0 percent m-o-m drop).

In y-o-y terms, the U.S. retail sales climb 15.1 percent in August after a revised 15.1 percent surge in the previous month (originally an15.8 percent jump).

The data from the Labor Department showed on Thursday the number of applications for unemployment rose slightly more than forecast last week.

According to the report, the initial claims for unemployment benefits increased by 20,000 to 332,000 for the week ended September 11.

Economists had expected 330,000 new claims last week.

Claims for the prior week were revised upwardly to 312,000 from the initial estimate of 310,000. That was the lowest weekly total since the pandemic began.

Meanwhile, the four-week moving average of jobless claims dropped to 335,750 from an upwardly revised 340,000 in the previous week.

As for continuing claims, they declined to 2,665,000 from an upwardly revised 2,852,000 in the previous week. This was the lowest reading since March 2020.

The Canada Mortgage and Housing Corp. (CMHC) reported on Thursday the seasonally adjusted annual rate of housing starts was at 260,239 units in August, down 3.9 percent from a downwardly revised 270,744 units in July (originally 272,176 units). This was the lowest reading since December 2020.

Economists had forecast an annual pace of 268,000 for August.

According to the report, urban starts fell 4.7 percent m-o-m last month to 235,782 units, as multiple urban starts plunged 5.7 percent m-o-m to 173,120 units, while single-detached urban starts dropped 2.0 percent m-o-m to 62,662 units.

At the same time, rural starts were estimated at a seasonally adjusted annual rate of 24,457 units. 

FXStreet reports that the U.S. Dollar Index (DXY) is resilient despite the delay in Fed taper timing. Economists at Westpac suggest that lingering doubts about Delta’s impact on the global rebound should continue to buttress DXY too. 

“Labour demand remains robust and service sectors PMIs are holding at multi-year highs. The US seems well placed to sustain recovery momentum. That, and lingering concerns about Delta’s impact on the global rebound, should help shore up the DXY near term.” 

“Real interest rate differentials have stabilised. But they’re unlikely to move back more convincingly in the USD’s favour until there’s a significant divergence in monetary policy outlooks between the Fed and the ECB.”

“DXY is likely to bide its time comfortably within recent ranges (92.0-94.0) into next week’s FOMC meeting, and likely beyond.”

USD appreciated against most of its major rivals in the European session on Thursday, as investors awaited the release of the U.S. weekly jobless claims and retail sales data for August later today (12:30 GMT), which could provide more clarity on the health of the country’s economy and hint at the Federal Reserve's future path regarding the withdrawal of its stimulus measures.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, increased  0.19% to 92.73.

According to economists’ forecast, the U.S. jobless claims totaled 330,000 last week, up from 310,000 in the week prior, and the retail sales declined 0.8% m/m in August, following a 1.1% m/m fall in the previous month. 

It is expected that these statistics could influence the Fed officials’ decision on the tapering of the bond purchases, when they gather for a two-day policy meeting on September 21. The August data on employment, which showed a sharp slowdown in the U.S. jobs growth, and consumer inflation, which showed a moderate slowdown in the price increase, eased somewhat concerns of a sudden tapering in the  Fed’s monetary stimulus but provided no certainty on the timing of the process. 

Earlier this month, several Fed officials stated that the U.S. central bank should start reducing bond purchases by the end of the year, despite disappointing August jobs data.

FXStreet notes that USD/JPY has seen a further sharp fall after the repeated rejection of its falling 55-day average. Economists at Credit Suisse stay biased lower for support at the August low at 108.73 and more likely the 200-day average at 108.19/07. 

“We see the risk lower still and we look for a clear break below 109.12 for a test of the 108.73 August low. Whilst a fresh hold will be looked for here at first, we suspect the overall roadmap for the market remains for a fall back to what we would look to be better support from the rising 200-day average and 38.2% retracement of the 2021 uptrend at 108.19/07.” 

“Resistance is seen at 109.46/53 initially, with the immediate risk seen lower whilst below 109.75.”

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, suggests that EUR/USD may fall below the 1.1750 level.

“EUR/USD is still pretty sidelined. It recently tested and failed at the end of July high at 1.1909, but so far has found nearby support just ahead of the 1.1752 mid-July low.”

“We are ideally looking for the market to ideally stabilise ahead of 1.1750, however, it should be noted that the intraday Elliott wave counts are negative and implying failure ahead of 1.1840.”

“A move above 1.1863 (resistance line) is needed to alleviate immediate downside pressure and would allow for a retest of 1.1909 and the 1.1990/1.2014 August 2020 high and 200-day ma.”

FXStreet reports that economists at Westpac suggest that the kiwi may surge above the 0.73 level as markets are pricing a 50% chance of a 50bp move by the Reserve Bank of New Zealand (RBNZ) after New Zealand's outstanding growth data.

“NZD/USD may have completed its two-week old correction at 0.7075. If so, we will watch for a range break above 0.7170, which would signal a move beyond 0.7300.”

“Markets have priced a 100% chance of a 25bp hike in October, and a 50% chance of a 50bp move then.”

“The 2.8% QoQ gain was well above consensus at 1.1% and the RBNZ’s forecast of 0.7%. The end result of all of this is that the level of GDP as at the end of June is much higher than was previously thought, with obvious implications for capacity pressures and therefore monetary policy.”

FXStreet notes that the Canadian dollar shows signs of improvement and has been one of the better performing G10 currencies so far this week. Economists at MUFG Bank note that fundamentals are moving in favour of a stronger CAD.

“The price of Brent has almost fully reversed the sell-off from between July and August and is now trading back above $75/barrel.”

“Canadian CPI report for August revealed that headline inflation reached an eighteen-year high at 4.1% in August. Core inflation continued to edge higher as well in August. While base effects are expected to ease in the coming months and some of the inflationary pressures from the economy reopening, there remains a risk that inflationary could prove more persistent. It will keep pressure on the BoC to keep normalizing policy by slowing QE purchases further at their next meeting on 27th October.”

“We continue to see scope for the loonie to rebound from weaker levels.”

“USD/CAD will need to break through key support between 1.2525 and 1.2575 before to provide stronger bullish signal that the tide is beginning to turn.”

FXStreet reports that strategists at TD Securities believe the upside for the black gold is quite limited.

“While we think that both WTI and Brent may move above their current $72.50/b and $75.38/b, there is limited upside for now as most of the positives have been priced. WTI is not expected to go much above $73.55/b. However, should OPEC+ continue struggling to deliver on the promised production increases, a move north of $75/b is quite likely.”

“OPEC+ supply increases should also start hitting the market before a demand recovery fully materializes, which may well drive prices just below $70/b into Q3-2021.”

RTTNews reports that the State Secretariat for Economic Affairs, or SECO, said in its Autumn forecast that the Swiss economy is expected to expand at a faster pace next year after losing the momentum temporarily this year.

Gross domestic product is forecast to grow 3.4 percent this year, down from the previous outlook of 3.8 percent, the report showed. Nonetheless, the economic activity is likely to have exceeded pre-crisis levels during the summer, the SECO noted.

The projection for 2022 was upgraded to 3.6 percent from 3.5 percent as domestic demand and foreign trade will pick up with growth momentum in the global economy.

Driven in particular by catch-up effects in consumer spending and investment, and also by considerable growth in exports, the Swiss economy is set to grow significantly faster than the historical average in the coming quarters, the SECO said.

The agency raised its inflation outlook for this year to 0.5 percent from 0.4 percent and that for next year to 0.8 percent from 0.5 percent.

According to the report from Eurostat, the first estimate for euro area exports of goods to the rest of the world in July 2021 was €206.0 billion, an increase of 11.4% compared with July 2020 (€184.9 bn). Imports from the rest of the world stood at €185.3 bn, a rise of 17.1% compared with July 2020 (€158.2 bn). As a result, the euro area recorded a €20.7 bn surplus in trade in goods with the rest of the world in July 2021, compared with +€26.8 bn in July 2020. Intra-euro area trade rose to €179.7 bn in July 2021, up by 16.8% compared with July 2020.

In January to July 2021, euro area exports of goods to the rest of the world rose to €1 378.3 bn (an increase of 14.8% compared with January-July 2020), and imports rose to €1 255.9 bn (an increase of 15.5% compared with January-July 2020). As a result the euro area recorded a surplus of €122.4 bn, compared with +€112.8 bn in January-July 2020. Intra-euro area trade rose to €1 230.5 bn in January-July 2021, up by 20.1% compared with January-July 2020.

According to the report from Istat, in July 2021 seasonally-adjusted data, compared to June 2021, increased by +2.6% for outgoing flows and by +1.3% for incoming flows. Exports grew for non EU countries (+7.5%) and dropped for EU countries (-1.8%). Imports rose by +2.5% for non EU countries and by +0.5% for EU countries.

Over the last three months, seasonally-adjusted data, compared to the previous three months, increased by +3.1% for exports and by +4.9% for imports.

In July 2021, compared with the same month of the previous year, both exports and imports grew (+16.1% and +23.8% respectively). Outgoing flows increased by +14.9% for EU countries and by +17.4% for non EU countries. Incoming flows rose by +23.2% for EU area and by +24.4% for non EU area. The trade balance in July 2021 amounted to +8,762 million Euros (+1.914 million Euros for EU countries and +6,848 million Euros for non EU countries).

Reuters reports that the DIW economic institute said that the German economy will grow slower than expected this year as supply chain problems and shortages of raw materials keep a lid on the industrial recovery.

The DIW trimmed its growth forecast for 2021 year to 2.1% from a previous 3.2%, but predicted a jump of 4.9% in 2022 assuming production constraints lift towards the end of the year. It sees growth normalising at 1.5% in 2023.

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

Next 1-3 weeks: “Our latest narrative was from Monday where we held the view that the outlook for USD remains mixed and it could trade within a 6.4240/6.4800 range. USD dropped to within several pips of 6.4240 yesterday (low of 6.4251) before rebounding slightly. Downward momentum is beginning to build but USD has to close below 6.4200 before a sustained decline can be expected. The odds for USD to close below 6.4200 are relatively high as long as USD does not move above 6.4540 (‘strong resistance’ level) within these couple of days. Looking ahead, a daily closing below 6.4200 would indicate that USD could weaken further to 6.4000.”

Reuters reports that Australia's new security pact with the US and the UK, seen as a move to contain China, may worsen strained ties with its biggest export customer, but China's insatiable appetite for resources may limit its punitive responses, say analysts.

The security pact with the Western powers will be seen by Beijing, which is embroiled in a long-running trade spat with Canberra, as a threat, said Michael Sullivan, International Relations Lecturer at Flinders University.

"China will view the decision to expand defence cooperation with the US and UK and, in the future, base US strategic strike capabilities in Australia as confirmation that we are a growing military threat to its interests, such as the Belt and Road Initiative," said Sullivan.

China has in recent years imposed hefty tariffs and restrictions on Australian exports including wine, beef and barley, and outright banned coal imports to express its displeasure over Canberra's foreign policies, though with only limited success so far.

Another point of pressure on Australia had been Beijing's control over Chinese tourists and students that used to spend time and money in the country.

The pandemic has put paid to that for now by effectively closing Australia's international borders, though the local tourism and education sectors are pushing hard for a re-opening by the end of this year.

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

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose by 0.13%.

The Federal Reserve System (Fed) is preparing for the next meeting, which will be held next week. The August data on inflation in the United States, which showed a slight slowdown in consumer price growth, is probably good news for the Federal Reserve, as the leaders of the Fed expressed confidence that the inflationary pressure that has increased due to the pandemic is temporary, experts say.

Consumer prices in August increased by 5.3% compared to the same month last year, the Ministry of Labor reported. In July, the increase was 5.4%, becoming the highest in 13 years.

"Inflationary pressure in the United States began to weaken last month, confirming the forecasts of the Federal Reserve leaders, as well as market participants who had long expected that the pace of consumer price recovery would slow down when the effects of the pandemic begin to fade," said Karl Shamotta, an analyst at Cambridge Global Payments.

According to him, the slowdown in inflation may weaken investors ' expectations regarding the pace of raising the base interest rate by the Fed. At the same time, inflation is still quite high and has only slightly fallen from the 13-year low recorded in July.

Reuters reports that Japan cut its economic view for the first time in four months as a surge in COVID-19 cases disrupted manufacturers' global supply chains and dampened consumer confidence.

"The economy continued picking up amid severe conditions due to the coronavirus, but the pace has recently been slowing," the government said in its September report.

Among key economic elements, authorities downgraded their view of production for the first time in 17 months, and private consumption for the first time in four months.

"Automobile production weakened lately ... as parts supply shortages due to COVID-19 outbreaks in Southeast Asia have had material impacts on carmakers," a government official told reporters before the cabinet approved the report.

Domestically, declining sales of new cars and household electronics showed that consumers are turning more cautious and keeping their purse strings tight not just for services but also for goods, the report said.

The government upgraded its view on home construction given growing demand for suburban houses and rental rooms in cities.

FXStreet reports that according to economists at OCBC Bank, should rate hikes expectations continue to be entrenched, the GBP/USD downside should be limited going forward, .

“August inflation prints ran hotter than expected on Wednesday, adding fuel to the already higher BoE Feb 2022 rate hike expectations. The lift-off rate hike is fully priced by May 2022, and another by end-2022. Should these expectations crystallise into the base case, the GBP may turn supported into the year-end.”

According to the report from the European Automobile Manufacturers' Association (ACEA), in July 2021, the European passenger car market suffered a significant setback after four months of accelerated growth, with new registrations down 23.2% to 823,949 units. The EU’s four major markets showed similar trends, all posting strong losses. France saw the steepest decrease (-35.3%) in July, followed by Spain (-28.9%), Germany (-24.9%) and Italy (-19.2%).

During the month of August, car registrations across the European Union decreased by 19.1% – compared to the same month last year – to reach 622,993 units. For the second month in a row, the largest car markets posted double-digit declines: Spain (-28.9%), Italy (-27.3%), Germany (-23.0%) and France (-15.0%).

Over the first eight months of 2021, sales volumes saw a year-on-year increase of 11.2%, counting 6.8 million new passenger cars in total. Despite the weak performance of EU markets during the summer months, substantial gains earlier in the year kept cumulative growth in positive territory. As a result, each of the four major markets posted growth so far this year: Italy (+30.9%), France (+12.8%), Spain (+12.1%) and Germany (+2.5%).

EUR/USD

Resistance levels (open interest**, contracts)

$1.1928 (2099)

$1.1897 (2347)

$1.1872 (840)

Price at time of writing this review: $1.1804

Support levels (open interest**, contracts):

$1.1781 (1278)

$1.1756 (3348)

$1.1723 (2493)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 8 is 66608 contracts (according to data from September, 15) with the maximum number of contracts with strike price $1,2200 (8310);

GBP/USD

$1.3954 (1068)

$1.3926 (371)

$1.3884 (155)

Price at time of writing this review: $1.3826

Support levels (open interest**, contracts):

$1.3780 (1301)

$1.3731 (1768)

$1.3700 (955)

Comments:

- Overall open interest on the CALL options with the expiration date October, 8 is 11919 contracts, with the maximum number of contracts with strike price $1,4150 (2167);

- Overall open interest on the PUT options with the expiration date October, 8 is 14084 contracts, with the maximum number of contracts with strike price $1,3800 (1768);

- The ratio of PUT/CALL was 1.18 versus 1.16 from the previous trading day according to data from September, 15

* - 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.

RTTNews reports that Statistics New Zealand said that New Zealand's gross domestic product expanded 17.4 percent on year in the second quarter of 2021. That exceeded expectations for an increase of 16.3 percent following the upwardly revised 2.9 percent gain in the previous quarter (originally 2.4 percent).

On a seasonally adjusted quarterly basis, GDP was up 2.8 percent - also beating forecasts for 1.3 percent following the downwardly revised 1.4 percent gain in the three months prior (originally 1.6 percent).

GDP per capita rose 2.6 percent on quarter, while real gross national disposable income rose 3.4 percent and average annual GDP to June 2021 rose 5.1 percent.