CFD Markets News and Forecasts — 17-09-2021

FXStreet notes that the Canadian dollar has likely discounted some degree of political uncertainty. Economists at ING think a workable majority should ultimately be the key to allow the loonie to benefit from good fundamentals.

“The best-case scenario for CAD is undoubtedly a majority win by either one of the two parties, but that seems to be a low-probability outcome if the latest polls are to be trusted. The most likely scenario of either the Liberals or the Conservatives winning most seats but having to rely on other parties (either on a case-by-case basis like the latest government, or through coalition deals) to govern may ultimately have a quite contained impact on CAD.”

"A minority win would pave the way for a potential hung parliament... from an FX point of view, we think that any political-noise risk premium embedded in CAD may remain in place until a clear working majority materialises.”

“The latest data (labour market and inflation) have all but confirmed the view that the Bank of Canada will have to step in with another round of tapering in October, which should leave it on track to fully unwind QE by year-end, or by early-2022. The set of good fundamentals should provide some sustained support to CAD into year-end, and we expect USD/CAD to trade consistently below 1.25 in 4Q21.”

• Could lead to cuts in critical state services
• Economic growth would falter, unemployment would rise, and labor market could lose millions of jobs

A report from the University of Michigan revealed on Friday the preliminary reading for the Reuters/Michigan index of consumer sentiment rose 1.0 percent m-o-m to 71.0 in early September.

Economists had expected the index would come in at 72.0 this month, up from August’s final reading of 70.3.

According to the report, the index of current U.S. economic conditions fell 1.8 percent m-o-m to 77.1 in September from 78.5 in the previous month. Meanwhile, the index of consumer expectations surged 3.1 percent m-o-m to 67.1 this month from 65.1 in August.

According to Surveys of Consumers chief economist, Richard Curtin, the small gain still meant that consumers expected the least favorable economic prospects in more than a decade. “Just two components posted additional declines: buying attitudes for household durables fell again in early September to a low reached only once before in 1980, and long term economic prospects fell to a decade low. The decline in assessments of buying conditions for homes, vehicles, and household durables left all three near all-time record lows, with the declines due to spontaneous references to high prices.”

FXStreet reports that the Credit Suisse analyst team notes that S&P 500 Index remains capped below resistance at 4485/98, which threatens a deeper corrective setback.

“The S&P 500 remains capped at the 13-day exponential average and price resistance at 4483/98. Whilst capped here the threat of a deeper corrective setback can remain with support seen at 4459/58 initially, then 4436/26. 

“Beneath 4436/26 can see a fall to what we still look to be better support from the rising 63-day average at 4407/03, which we look to remain a solid floor."

“A close above 4498 would increase the likelihood the corrective setback is already over, clearing the way for a test of 4520/30 next."

U.S. stock-index futures changed little on Friday,  as investors remained cautious on the back of a spike of Covid virus and ahead of the U.S. Federal Reserve meeting next week, which could provide clues on tapering timing.

Global Stocks:

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

• Says fears of excessive inflation in Eurozone is overstated
• Expects similar levels of Eurozone inflation in the coming months after 3% increase in August
• Current inflation trend is transitory, would not disagree that a number of pressures are longer lasting
• If this is more than transitory, we will respond
• Says quantitative easing program will probably end before we hike rates; refrains from commenting on timing
• Some of us do believe at the moment that forecast of 1.5% inflation in 2023 is too low
• There is debate and discussion to be had

FXStreet notes that the price of natural gas has experienced a brief pause within its relentless up move after facing interim resistance at 5.65 earlier this week. Strategists at Société Générale suggests that the next targets are located at 5.91 and 6.11/6.18.

“Daily MACD histogram is at a record high which denotes the move is a bit stretched and phase of consolidation can’t be ruled out.”

“First layer of support is at the daily Tenkan line near 5.06. Only a break below this will indicate an extended pullback.” 

“Beyond 5.65, next projections are located at 5.91 and 6.11/6.18."

USD slipped against most of its major rivals in the European session on Friday,  receding from three-week highs it approached the day before, helped by a surprisingly strong U.S. August retail sales data. 

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, decreased  0.14% to 92.80.

The official data showed on Thursday the U.S. retail sales unexpectedly increased in August, posting a 0.7% m/m gain despite expectations of a 0.8% m/m drop. In addition, the September Philadelphia Fed Index came in much better than expected with a reading of 30.7 versus economists’ forecast of 18.8, and the 4-week moving average for both initial claims and continuing claims showed a  continued decrease last week. 

The latest round of data increased bets on the strength of the U.S. economic recovery and earlier tapering of asset purchases by the Federal Reserve, which helped lift the DXY to its three-week highs.

Investors’ focus is now shifting towards the Fed’s two-day policy meeting, set to begin on September 21.

FXStreet reports that economists Société Générale suggest that USD/JPY should break either 108.72 or 110.45 to see the next direction leg established.

“USD/JPY has experienced a directionless price action since July.”

“Low formed in August at 108.72 is crucial support.”

“Break above recent high of 110.45 is essential to affirm an extended up-move.”

• Growth across euro area has improved strongly since the pandemic
• Inflation is likely to weaken again to levels below 2% over the medium-term
• There is, however, considerable uncertainty about the persistence of price pressures
• Pandemic is bringing about structural changes in our economy
• It will be important to maintain an accommodative monetary policy stance for some time
• Raising interest rates in response to a temporary rise in prices would be harmful as we are trying to nurse the economy back to health
• With correct monetary and fiscal policies in place, a sufficiently strong demand-driven recovery should see inflation return to 2% over medium-term

FXStreet reports that USD/CHF surged higher on Thursday, breaking above resistance at 0.9242/43 to leave the top of the recent range at 0.9264/75 under severe pressure. In the view of economists at Credit Suisse, the franc is set for a short-term phase of weakness, with a breakout above 0.9264/75 opening up 0.9345/81.

“The April/June fall at 0.9264/75 is under severe pressure and we now look for a break above here, which would finally confirm a sustained trending move higher, with scope then for the multi-year downtrend and more minor retracement resistance at 0.9345/56. We expect this level to prove a tough barrier if reached.”

“The pair should now ideally hold above the 0.9242/43 minor breakout point to maintain the direct upside pressure. Below here the next level is seen at 0.9192/90.”

FXStreet reports that FX Strategists at UOB Group note that USD/CNH has now moved to a consolidative phase, likely within 6.4200 and 6.4680 in the next weeks.

24-hour view: “We expected USD to trade sideways yesterday. Our view was incorrect as USD surged to an overnight high of 6.4550.  The rapid rise appears to be overdone and USD is unlikely to strengthen much further even though there is room for it to test 6.4600. A sustained advance above this level is unlikely (next resistance is at 6.4680). Support is at 6.4450 followed by 6.4330.”

Next 1-3 weeks: We did not anticipate the strong surge during NY session that cracked 6.4540 (high of 6.4550). The build-up in downward momentum fizzled out quickly. The outlook is mixed now and USD could trade within a 6.4200/6.4680 range for a period of time.”

• ECB's inflation outlook is likely to be revised higher
• Doesn't see 2%-price goal sustainably reached in the medium-term

FXStreet reports that according to economists at MUFG Bank, the USD/JPY pair could find a tailwind from a big jump in foreign bond buying,.

“The weekly MoF data released on Thursday revealed JPY1,761.4 B worth of foreign bond purchases – a year-to-date record and the largest since November last year. Foreign investor buying of Japanese stocks recorded a third week of buying although the pace of buying slowed. The total reported last week was the largest since April. But there was limited follow-through in buying in this week’s data and we are sceptical of there being any meaningful change in policy direction that will fuel any great shift in cross-border flows. Greater outflows to foreign bonds could play a role in providing support for USD/JPY, especially at lower levels.”

According to first estimates from Eurostat, in July 2021 compared with June 2021, seasonally adjusted production in the construction sector increased by 0.1% in the euro area, while it decreased by 0.1% in the EU. In June 2021, production in construction fell by 0.6% in the euro area and by 0.4% in the EU.

In July 2021 compared with July 2020, production in construction increased by 3.3% in the euro area and by 3.8% in the EU.

In the euro area in July 2021, compared with June 2021, building construction increased by 0.4% while civil engineering decreased by 1.7%. In the EU, civil engineering decreased by 1.8%, while building construction increased by 0.3%.

In the euro area in July 2021, compared with July 2020, building construction increased by 3.8% and civil engineering by 0.8%. In the EU building construction increased by 4.7% and civil engineering by 0.8%.

According to the report from Eurostat, the euro area annual inflation rate was 3.0% in August 2021, up from 2.2% in July. A year earlier, the rate was -0.2%. European Union annual inflation was 3.2% in August 2021, up from 2.5% in July. A year earlier, the rate was 0.4%. On a monthly basis, the bloc’s CPI for August arrived at 0.4%, while the core CPI numbers came in at 0.3%, both meeting market expectations.

The lowest annual rates were registered in Malta (0.4%), Greece (1.2%) and Portugal (1.3%). The highest annual rates were recorded in Estonia, Lithuania and Poland (all 5.0%). Compared with July, annual inflation remained stable in one Member State and rose in twenty-six.

In August, the highest contribution to the annual euro area inflation rate came from energy (+1.44 percentage points, pp), followed by non-energy industrial goods (+0.65 pp) and food, alcohol & tobacco and services (both +0.43 pp).

FXStreet reports that economists at Danske Bank continue to see downside risks to EUR/USD over the coming year.

“For the dollar, the key remains that tapering is being viewed as a ‘done deal’ in the sense that it will be coming by Q4. Amid this, it appears that global growth is slowing.”

“The continued push towards tighter global liquidity conditions (Chinese deleveraging, ECB fading PEPP and Fed tapering), slower growth amid inflation uncertainty but where Fed seems reactive to the latter will likely add up to dollar strength too.” 

“We view Fed’s push to tighten in light of these trends and continue to see downside risk to EUR/USD over the coming year, targeting 1.15 in 12M, 1.13 in 15M.”

According to the report from the European Central Bank, the current account of the euro area recorded a surplus of €21,6 billion in July 2021 compared to €21.8 billion in June 2021. Surpluses were recorded for goods (€26 billion), services (€6 billion) and primary income (€3 billion). These were partly offset by a deficit for secondary income (€14 billion).

In the 12 months to July 2021, the current account recorded a surplus of €320 billion (2.7% of euro area GDP), compared with a surplus of €232 billion (2.0% of euro area GDP) in the 12 months to July 2020. This increase was driven by larger surpluses for goods (up from €313 billion to €369 billion), services (up from €40 billion to €87 billion) and primary income (up from €32 billion to €35 billion). These developments were partly offset by a larger deficit for secondary income (up from €153 billion to €171 billion).

In financial account, euro area residents’ net acquisitions of non-euro area portfolio investment securities totalled €961 billion and non-residents’ net acquisitions of euro area portfolio investment securities totalled €61 billion in 12 months to July 2021

Reuters reports that China has filed an application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the commerce ministry said, as the world’s second-biggest economy looks to bolster its clout in trade.

The CPTPP was signed by 11 countries including Australia, Canada, Chile, Japan and New Zealand in 2018.

Before that, it was known as the Trans-Pacific Partnership (TPP) and seen as an important economic counterweight to China’s regional influence.

Japan, the CPTPP’s chair this year, said it will consult with member countries to respond to China’s request, but stopped short of signalling a timeline for doing so.

Accession to the CPTPP would be a major boost for China following the signing of the 15-nation Regional Comprehensive Economic Partnership (RCEP) free trade agreement last year.

Beijing has lobbied here for its inclusion in the pact, including by highlighting that the Chinese and Australian economies have enormous potential for cooperation. However, relations between the two countries have soured.

During today's Asian trading, the US dollar declined against the euro, the pound and the australian dollar, but rose against the yen. However, the dollar index continues to remain close to the highest level in the last three weeks after data published on Thursday showed an unexpected increase in retail sales in the United States.

In August, retail sales increased by 0.7% compared to the previous month, the Ministry of Commerce reported. Analysts on average expected a decline of 0.8%.

In addition, the market is beginning to prepare for the meeting of the Federal Reserve System, which will be held next week. It is expected that the Fed leadership will announce the beginning of a gradual curtailment of the asset purchase program.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell by 0.10%.

Bloomberg reports that Christophe Barraud, chief economist at Market Securities LLP, said that China’s tough virus curbs mean economic activity in the third quarter could be close to flat compared with the previous three months.

“My view is that the Chinese economy should slow sharply in the third quarter, mainly due to the virus but also controls on property,” Barraud said.

Barraud’s prediction of 0.3% growth in the July-September period from the previous three months is below the median estimate of 1.1% in a Bloomberg survey of economists. He is also bearish on China’s growth for 2021 compared to the market’s median estimate of 8.4%. 

“It should be close to 8% but with risks tilted to the downside,” he said. “If there is another outbreak in the fourth quarter, forecasts should be adjusted below 8%.” The government has set a target of above 6% growth for the year. 

“Risks are tilted to the downside because China will keep implementing a zero-tolerance policy concerning Covid-19, particularly ahead of the Winter Olympics in February,” Barraud said.

China is scheduled to release third-quarter gross domestic product data on Oct. 18. In the second quarter, GDP rose 7.9% from the same period in 2020, and 1.3% from the previous quarter.

FXStreet reports that strategists at TD Securities discuss gold prospects.

“Lackluster changes in global gold ETF holdings contrast with the rise in stagflation-themed news stories, suggesting that high inflation and slowing growth is increasingly capturing the market's share of mind, but the theme has yet to translate into inflows for gold.” 

“Dry-powder analysis in Comex gold highlights that while the gold bug may not be widespread, position sizes are bloated relative to historical data.” 

“With Shanghai gold length nearing historical lows, a cleaner discretionary and CTA positioning slate suggests the decline in gold prices is unlikely to morph into a rout.”

EUR/USD

Resistance levels (open interest**, contracts)

$1.1877 (2393)

$1.1845 (828)

$1.1820 (417)

Price at time of writing this review: $1.1771

Support levels (open interest**, contracts):

$1.1729 (3355)

$1.1704 (2896)

$1.1671 (3278)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 8 is 66840 contracts (according to data from September, 16) with the maximum number of contracts with strike price $1,2200 (8309);

GBP/USD

$1.3940 (1091)

$1.3907 (371)

$1.3857 (232)

Price at time of writing this review: $1.3796

Support levels (open interest**, contracts):

$1.3752 (1301)

$1.3713 (1775)

$1.3653 (1078)

Comments:

- Overall open interest on the CALL options with the expiration date October, 8 is 11934 contracts, with the maximum number of contracts with strike price $1,4150 (2073);

- Overall open interest on the PUT options with the expiration date October, 8 is 14453 contracts, with the maximum number of contracts with strike price $1,3800 (1775);

- The ratio of PUT/CALL was 1.21 versus 1.18 from the previous trading day according to data from September, 16

* - 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.

According to the report from the Office for National Statistics, retail sales volumes fell by 0.9% in August 2021, following a 2.8% fall in July; however, volumes were up by 0.3% in the three months to August compared with the previous three months, and in August 2021 were 4.6% higher than their pre-coronavirus (COVID-19) pandemic February 2020 levels. Economists had expected a 0.5% increase in August.

Food store sales volumes fell by 1.2% in August 2021, with some evidence to suggest that the further easing of hospitality restrictions had an impact on sales; people increased their social spending such as eating and drinking at restaurants and bars.

Non-food stores reported a fall of 1.0% in sales volumes in August 2021, driven by falls in department stores (negative 3.7%) and other stores, such as sports equipment and computer stores (negative 1.2%).

Automotive fuel sales volumes rose by 1.5% in August 2021 as people continued to increase their amount of travel; however, they remained 1.2% below their pre-pandemic February 2020 levels.

The proportion of retail sales online rose to 27.7% in August 2021 from 27.1% in July, substantially higher than the 19.7% in February 2020 before the pandemic.