CFD Markets News and Forecasts — 18-11-2020

• Fed Chairman Powell supports extending the programs

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories increased by 0.768 million barrels in the week ended November 13. Economists had forecast a build of 1.650 million barrels.

At the same time, gasoline stocks rose by 2.611 million barrels, while analysts had expected a gain of 0.087 million barrels. Distillate stocks plunged by 5.217 million barrels, while analysts had forecast a decrease of 1.457 million barrels.

Meanwhile, oil production in the U.S. surged by 400,000 barrels a day to 10.900 million barrels a day.

U.S. crude oil imports averaged 5.3 million barrels per day last week, down by 245,000 barrels per day from the previous week.

According to ActionForex, analysts at TD Bank Financial Group note that U.S. housing starts rose by 4.9% to 1.53 million units (annualized) in October, which was well above market expectations, calling for a milder increase of 3.3% to 1.46 million units. 

"As in previous months, the increase was driven by single-family starts, which rose by 6.4% to 1.18 million. By contrast, starts in the more volatile multi-family segment held flat at 351k for the second straight month."

"Overall, building permits were flat in October, after increasing by 4.7% the month prior. However, single-family permits continued their seven-month streak of advances, rising by a modest 0.6%. This was offset by a drop in multifamily permits (-1.6%), the third consecutive month of decline."

"Homebuilding continues to hold up. Overall, starts have increased in five of the last six months, powered by an impressive rebound in single-family starts. Construction in this segment has now surpassed its pre-crisis level by 14%, while multi-family starts have dipped 34% below after posting some improvement in the early months of the recovery. As discussed in a recent report, the recent trends exhibited by housing starts and permits speak to the growing shift in housing preferences toward bigger homes and more outdoor space."

"Buoyed by strong sales growth, builder confidence has soared to new all-time highs in each of the past three months. Despite this optimism, the near-term outlook presents some distinct challenges. With home prices continuing to climb higher, housing affordability has deteriorated, and fell to nearly a two-year low last quarter. Homebuilders have been faced with supply constraints which have pushed construction costs higher, contributing to higher prices. These factors could weigh on housing demand growth in upcoming months at the same time as the economic recovery loses some momentum as infections rise."

U.S. stock-index futures rose slightly on Wednesday, signaling market participants' attempt to resume a Covid-19 vaccine rally, paused on Tuesday. 

Global Stocks:

FXStreet тщеуы that EUR/USD continues to push its way steadily higher and the spotlight turns back to key resistance at 1.1910/20, above which would suggest the consolidation phase from September is finally over for a resumption of the core bull trend for a move back to 1.2011, per Credit Suisse.

“After successfully holding above support at 1.1725 and with the EUR/USD pair back above its rising 13 and 55-day averages as well as price resistance at 1.1834/44, we continue to view this current phase as consolidation within the broader core uptrend.” 

“The immediate spotlight is now back on the recent high and potential trend resistance at 1.1910/20. Beyond here would suggest we are finally seeing the consolidation from early September coming to an end with resistance seen at 1.1962/66 next, then the 1.2011 September high and eventually our 1.2145/55 first core upside objective – the ‘neckline’ to the early 2018 top and 78.6% retracement of the 2018/2020 bear trend. Whilst we would expect a fresh phase of consolidation from here, our broader outlook stays positive for an eventual move above 1.2500.”

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

Honeywell (HON) downgraded to Hold from Buy at HSBC Securities; target $200

Honeywell (HON) downgraded to Hold from Buy at Jefferies; target raised to $210

Boeing (BA) upgraded to Outperform from Neutral at Robert W. Baird; target raised to $306

Tesla (TSLA) upgraded to Overweight from Equal-Weight at Morgan Stanley; target raised to $540

Statistics Canada reported on Wednesday the country’s consumer price index (CPI) rose 0.4 percent m-o-m in September, following a 0.1 percent m-o-m drop in the previous month. This was the first m-o-m advance in consumer prices since June.

On the y-o-y basis, Canada’s inflation rate increased 0.7 percent last month after gaining 0.5 percent in September.

Economists had predicted inflation would increase 0.2 percent m-o-m and 0.4 percent y-o-y in October.

According to the report, prices rose in five of the eight major components on a year-over-year basis in October, led by gains in prices for food (+2.3 percent y-o-y), shelter (+1.8 percent y-o-y) and health and personal care (+1.8 percent y-o-y).

Meanwhile, the closely watched the Bank of Canada's core index rose 1.0 percent y-o-y in October, the same pace as in September. Economists had forecast an advance of 0.9 percent y-o-y.

The Commerce Department reported on Wednesday the housing starts climbed by 4.9 percent m-o-m in September to a seasonally adjusted annual pace of 1.530 million (the highest since February), while building permits unchanged at a seasonally adjusted annual rate of 1.545.

Economists had forecast housing starts increasing to a pace of 1.460 million units last month and building permits rising to a pace of 1.560 million units.

Data for September was revised to show homebuilding growing to a pace of 1.459 million units, instead of increasing at a rate of 1.415 million units as previously reported.

According to the report, permits for single-family homes, the largest segment of the market, rose 0.6 percent m-o-m to a rate of 1.120 million units in October, while approvals for the multi-family homes segment declined 1.6 percent m-o-m to a 425,000 unit-rate.

In the meantime, groundbreaking on single-family homes jumped 6.4 percent m-o-m to a rate of 1.179 million units in October, while housing starts for the multi-family remained unchanged m-o-m at a 351,000 -unit pace.

FXStreet reports that economists at Credit Suisse apprise that GBP/USD is expected to see a break above 1.3310/19 for a test of long-term resistance at 1.3473/1.3514.

“GBP/USD is pushing steadily higher as expected after being supported above its 13-day average, now at 1.3162 and we remain of the view the recent pullback has been corrective only ahead of a retest of resistance at 1.3310/19 – the 78.6% retracement of the September fall.” 

“Beyond 1.3310/19 should reassert the rally for a move to 1.3403/09 next and eventually back to long-term price and ‘neckline’ resistance at 1.3473/1.3514. Above here, which we eventually look for is needed to see a major base secured, clearing the way for a move above 1.4300.” 

• However we respond to this pandemic there will be costs, the question is where the costs should fall
• There will be no compulsory vaccination in this pandemic

• Substantial work is still to be done on Brexit

GBP rose against most of its major counterparts in the European session on Wednesday amid increased hopes that London and Brussels would come to an agreement on their future trade relations prior to Britain's formal exit from the block at the end of the year.

Those hopes have been fueled by recent optimistic media reports about progress in the UK-EU trade talks, positive comments from the UK officials, as well as the announcement that Dominic Cummings, who masterminded the 2016 Brexit referendum vote, will step down as Prime Minister Boris Johnson's top adviser by the end of the year. 

The UK's Business Secretary Alok Sharma said on Wednesday that Britain hoped to get a free trade agreement with the EU, but the block must understand "that the UK is a sovereign nation and that's the basis on which our arrangement with the EU is in the future."

The statement came after Bloomberg reported Tuesday, citing people familiar with trade negotiations, that London and Brussels could strike a deal early next week as the two sides edge closer to the agreement on the biggest sticking points, and the Sun reported that the UK’s chief Brexit negotiator David Frost told PM Boris Johnson there was a “possible landing zone” that could be reached as early as next Tuesday.

Investors also received the UK's consumer price data for October, which showed that the country's inflation accelerated more-than-expected to a three-month high last month. The Office for National Statistics (ONS) reported that the UK's consumer price index (CPI) rose 0.7% y/y in October, following a 0.5% y/y advance in September. This was the highest reading in three months, but well below the Bank of England's (BoE) target of 2 percent. Economists had forecast the CPI to increase 0.6% y/y in October.

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. fell 0.3 percent in the week ended November 13, following a 0.5 percent drop in the previous week.

According to the report, applications to purchase a home rose 3.5 percent, while refinance applications decreased 1.8 percent.

Meanwhile, the average fixed 30-year mortgage rate edged up to 2.99 percent from a record low level of 2.98 percent.

“Housing demand remains supported by the ongoing recovery in the job market, and an increased appetite from households seeking more space because of the pandemic,” noted Joel Kan, MBA’s associate vice president of economic and industry forecasting.

FXStreet notes that gold (XAU/USD) has recently failed just ahead of the 1973.80 mid-September high but continues to hold over the 1850 low. For now, strategists at Commerzbank are neutral.

“Should a breach of the 1850 support be seen we would allow for further losses to the 200-day ma at 1792.24 and possibly the May high at 1765.61. This in turn protects the 1721.15 55-week ma.” 

“In order to regenerate upside interest, the market will need to regain the mid-September high at 1973.8, for a rally to the 78.6% retracement at 2025 which guards the target band of 2070/2088."

Japan: Full year GDP contraction seen at 5.5% - UOB

FXStreet reports that Senior Economist at UOB Group Alvin Liew assesses the latest GDP figures in the Japanese economy.

“Japan staged a strong rebound in 3Q following the pandemic-ravaged trough in 2Q. Its 1st preliminary estimate of 3Q 2020 GDP recorded a significant rebound in economic activity with a growth of 5% q/q (+21.4% annualized rate) strongest since 1980. Private consumption and external demand led the recovery of GDP but continued weakness in business spending and a drawdown in inventories damped the overall recovery.”

“Based on the significant improvement in the 3Q GDP and a milder rebound projection in 4Q, we now expect Japan’s full-year GDP to contract by 5.5% in 2020 (from -6% previously). We expect the GDP to grow at an above-potential rate of 2.8% in 2021 (down from 3.0% previously). The key risks to our outlook continue to be centred around COVID-19 developments. Downside risk is a repeat of (at least) some of the restrictive measures to contain COVID-19, and thus, reinflicting some the economic damage previously experienced in 2Q. On the other hand, the primary upside risk to the forecasts will be the successful and quick deployment of a vaccine against COVID-19.”

• UK economy surpassed expectations in Q3
• Economic prospects for Q4 are very uncertain
• Economic activity very likely to be below levels at the start of the year
• The potential macro-economic benefits of easing ZLB [zero-lower-bound] constraint appear to be significant
• The macro-economic costs of ZLB constraint require thorough exploration
• Three R’s – Recovery, Rebalancing, Revitalisation – are more important than ever; so too is the need for optimism about opportunities this crisis will serve up, as all crises do
• Digital opportunities in the areas of payments and lending are large and could deliver lasting benefits to individuals and companies

CNBC reports that former Dallas Fed President Richard Fisher told that President-elect Joe Biden’s administration will have to get “creative” in its attempts to rebuild America’s relationship with trade partners in the Asia-Pacific region.

The comments from Fisher came days after China and 14 other countries in the region signed an agreement to form the world’s largest free-trade bloc. The U.S. was not included in the deal, which Fisher said was “not a good thing.” 

The U.S. had once been “viewed as the most important economy in the world. You couldn’t do anything without us. Well, they’ve done something without us in the Pacific region,” Fisher said, noting the participating countries represent almost one-third of the world’s population.

Fisher said Biden will have to work to overcome the approach to the Asia-Pacific region employed by President Donald Trump.

“It’s going to be very hard. I think the Biden administration is going to have to be very creative in coming up with a new way to figure out new relationships on other planes, not just tariff cuts, but show also that they are going to be rules based, which is what the Trump administration threw to the winds,” Fisher said.

FXStreet reports that economists at HSBC continue to favour the USD over the EUR and GBP in the year ahead.

“As certain aspects of uncertainty lift going into 2021 – the US elections, optimism about a potential COVID-19 vaccine – we believe FX will shift away from recent Risk On-Risk Off (RORO) behaviour to idiosyncratic drivers. However, interest rate differentials, one of the key traditional FX drivers, may be less useful in the months ahead compared to during the Global Financial Crisis (GFC) recovery.”

“Our economists expect the UK and the Eurozone to fare the worst among G10 economies, while the US sits in the middle. Against this backdrop, we continue to favour a divergent outlook for the USD in G10 currencies in 2021. The USD is likely to underperform the AUD and NZD, but outperform the EUR and GBP.”

According to the report from Eurostat, the euro area annual inflation rate was -0.3% in October 2020, stable compared to September. A year earlier, the rate was 0.7%. European Union annual inflation was 0.3% in October 2020, stable compared to September. A year earlier, the rate was 1.1%. Core CPI rose by 0.2% y/y versus +0.2% previous and +0.2% expectations. On a monthly basis, core CPI arrived at 0.1% versus 0.2% expected and -0.1% last.

The lowest annual rates were registered in Greece (-2.0%), Estonia (-1.7%) and Ireland (-1.5%). The highest annual rates were recorded in Poland (3.8%), Hungary (3.0%) and Czechia (2.9%). Compared with September, annual inflation fell in fifteen Member States, remained stable in two and rose in ten.

In October, the highest contribution to the annual euro area inflation rate came from food, alcohol & tobacco (+0.38 percentage points, pp), followed by services (+0.19 pp), non-energy industrial goods (-0.03 pp) and energy (-0.81 pp).

FXStreet reports that FX Strategists at UOB Group noted further downside remains in place for USD/CNH with the next target at the 6.5200 level.

Next 1-3 weeks: “We highlighted yesterday that ‘the rapid improvement in shorter-term momentum suggests that a break of 6.5475 would not be surprising’. We added, ‘the next support is at 6.5200 followed by a major level at 6.4960’. USD subsequently edged below 6.5475 (low of 6.5458) before recovering. Oversold shorter-term conditions could lead to a 1 to 2 days of consolidation. However, as long as 6.6000 (‘strong resistance’ level was at 6.6250 yesterday) is intact, USD is expected to weaken further to 6.5200.”

Reuters reports that ECB bank supervisor Andrea Enria said that a European Deposit Insurance Scheme, long advocated by the ECB, is unlikely to be agreed on in the coming years.

"A fully fledged EDIS should remain the goal but will not be there in the coming months and years," Enria told.

The absence of the euro zone-wide insurance scheme is seen as a key impediment in the integration of the bank sector, which is now fragmented along national lines, keeping profitability and efficiency low.

eFXdata reports that Bank of America discusses the trajectory of the Fed policy path.

"Fed Chair Powell famously described the Fed's policy stance in June as "We're not even thinking about thinking about raising rates." But the market is thinking about it, and we are starting to see that dynamic come back in play," BofA notes. 

"While it seems almost crazy to imagine the Fed hiking rates, the fact is that 10y rates incorporate Fed policy expectations over the full span of the next 10 years, and it is not unreasonable to imagine the Fed embarking on a hiking cycle within 3 or 4 years of today, or even sooner if everything goes right with the pandemic and the economy. Currently, the market is pricing the first hike by 1Q24," BofA adds.

FXStreet reports that strategists at HSBC believe more immediate-term downside is likely but the longer-term outlook remains positive for the yellow metal.

“Some of the risks (that had built into the market and propelled gold higher) came out of the market. Two outright bearish developments – a surging USD and jump in US Treasury yields – pulled the rug from under gold.”

“The psychological relief and a shift in risk sentiment may still weigh on gold in the immediate term.”

“The broader economic climate (such as high debt, likely defaults and vulnerable asset price declines) is still gold-friendly. The risk now is whether the pandemic worsens and how quickly a vaccine can be made available – assuming it does provide protection from COVID-19. The fiscal and monetary response to the pandemic globally will remain highly accommodative. A Democratic administration with the commensurate likelihood of bigger fiscal stimulus packages to come will likely buoy gold. All this should continue to provide gold with a reason to go higher in the medium to longer-term.”

CNBC reports that the chief executive of BNP Paribas China said that China’s push to internationalize the yuan will be driven by two things — funds flowing into the country and a relaxation of rules that restrict the Chinese currency from moving abroad.

China maintains strict control of the onshore yuan’s trading rate on the mainland. The offshore yuan —which trades outside the mainland, mostly in Hong Kong and Singapore — is influenced by demand and supply, but that volume is comparatively small.

The yuan isn’t expected to unseat the dollar anytime soon, but its prominence is rising in global reserves and international trade owing to Beijing’s growing economic influence. The yuan is said to be the sixth most used currency in international payments and is used to settle about 20% of China’s trade.

Globalization of the yuan “will be driven by two things: One is the incoming funds into this country, and then the Chinese government and also the [People’s Bank of China] need to relax to allow the renminbi to go outside,” CG Lai said.

China had previously eased trading restrictions around the yuan between 2010 and 2015, according to Lai. He explained that with funds now flowing into China, the country’s central bank “will have the flexibility to allow the renminbi to go outside.”

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

On Tuesday, statistics showed a slowdown in US retail sales growth to 0.3% in October from 1.6% in September. Commenting on retail sales data, the chairman of the Federal reserve Bank of Atlanta, Raphael Bostic, noted that compared to the strong recovery that began in May and was observed in the summer, the statistical data in the fourth quarter may be weak.

Meanwhile, Fed Chairman Jerome Powell said that the increase in the incidence of coronavirus will pose a serious risk to the economy in the coming months. He also noted that it is too early to say whether the appearance of the vaccine will change the forecasts.

The yen rose against the dollar. Exports from Japan fell in October for the 23rd consecutive month, but the pace of decline slowed significantly due to strong demand in all regions of the world, with the exception of Europe, amid a gradual recovery of economies after the shock caused by the COVID-19 pandemic.

The pound also rose. Investors continue to follow the discussions on a trade agreement between London and Brussels. Britain's chief negotiator David Frost has informed Prime Minister Boris Johnson that a deal could be reached early next week.

The ICE index, which tracks the US dollar against six currencies (the euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell 0.17%.

According to the report from European Automobile Manufacturers' Association (ACEA), In October 2020, the EU passenger car market slipped back into negative territory, after posting the first increase of the year in September. Registrations of new cars declined by 7.8% to 953,615 units last month, as several European governments reimposed restrictions to battle a second wave of the coronavirus. With the exception of Ireland and Romania, losses were posted in all EU markets, including the four major ones. Demand fell markedly in Spain (-21%) while more moderate decreases were observed in France (-9.5%) and Germany (-3.6%). In Italy, on the other hand, demand remained almost unchanged (-0.2%) compared to October 2019 levels.

From January to October, new-car registrations fell by 26.8% in the European Union. Ten months into the year the impact of COVID-19 on car demand remains unprecedented. Indeed, across the EU some 8 million passenger cars were registered from January to October, which translates into a decline of more than 2.9 million units compared to the same period last year. Looking at the major EU markets, Spain saw the steepest drop (-36.8%) so far this year, followed by Italy (-30.9%), France (-26.9%) and Germany (-23.4%).

According to the report from Office for National Statistics, the Consumer Prices Index (CPI) 12-month rate was 0.7% in October 2020, up from 0.5% in September. Economists had expected a 0.6% increase.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 0.9% in October 2020, up from 0.7% in September 2020.

The largest contribution to the CPIH 12-month inflation rate in October 2020 came from recreation and culture (0.26 percentage points).

Clothing; food; and furniture, furnishings and carpets made the largest upward contributions (with the contribution from these three groups totalling 0.16 percentage points) to the change in the CPIH 12-month inflation rate between September and October 2020.

These were partially offset by downward contributions of 0.06 and 0.04 percentage points, respectively, from the recreation and culture, and transport groups.

Eight CPIH items were unavailable to UK consumers in October, unchanged from September and accounting for 1.1% of the CPIH basket by weight; for October, we collected a weighted total of 90.0% of comparable coverage collected previously (excluding unavailable items).

EUR/USD

Resistance levels (open interest**, contracts)

$1.1948 (3962)

$1.1922 (2015)

$1.1903 (2741)

Price at time of writing this review: $1.1876

Support levels (open interest**, contracts):

$1.1823 (119)

$1.1799 (687)

$1.1768 (2431)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date December, 4 is 102382 contracts (according to data from November, 17) with the maximum number of contracts with strike price $1,1200 (6547);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3373 (1645)

$1.3351 (2186)

$1.3333 (1472)

Price at time of writing this review: $1.3266

Support levels (open interest**, contracts):

$1.3202 (480)

$1.3184 (1000)

$1.3139 (688)

Comments:

- Overall open interest on the CALL options with the expiration date December, 4 is 23908 contracts, with the maximum number of contracts with strike price $1,3500 (2735);

- Overall open interest on the PUT options with the expiration date December, 4 is 27296 contracts, with the maximum number of contracts with strike price $1,2500 (2670);

- The ratio of PUT/CALL was 1.14 versus 1.13 from the previous trading day according to data from November, 17

* - 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.