CFD Markets News and Forecasts — 20-05-2020

FXStreet reports that analysts at Credit Suisse note that USD/MXN is seeing a key test of support from the lower end of its range at 23.25/22.84.

“Even though the market is currently under pressure, the USD/MXN range still looks more like a bullish ‘triangle’ continuation pattern.” 

“Above 25.79 is needed to add weight to the bullish view and complete the ‘triangle’ for a move to 26.26, ahead of 27.00, where we would expect to see fresh sellers at first.”

“Key support at 23.25/22.84 needs to hold to maintain the range. Below though would, in contrast, suggest a top has been completed to turn the medium-term risks back lower, with support seen at 22.15/04 next, then 21.30.”

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories fell by 4.983 million barrels in the week ended May 15. Economists had forecast a build of 1.151 million barrels.

At the same time, gasoline stocks rose by 2.830 million barrels, while analysts had expected a drop of 2.134 million barrels. Distillate stocks climbed by 3.832 million barrels, while analysts had forecast an increase of 1.429 million barrels.

Meanwhile, oil production in the U.S. decreased by 100,000 barrels a day to 11.500 million barrels a day.

U.S. crude oil imports averaged 5.2 million barrels per day last week, down by 194,000 barrels per day from the previous week.

FXStreet notes that the AUD/USD pair has traded at its highest levels since early March this week. However, this week’s AUD gains come at a time when a souring in the relationship between the US and China is leading to concerns about the growth outlook in the world’s second-largest economy and Australia’s biggest export partner, per Rabobank.

“Insofar as US suspicions of China extend on both sides of Washington’s political divide, tensions between the US and China are likely to last well beyond the US election irrespective of the outcome.  This could pose difficulties for Australia.”

“If coal or iron ore, Australia’s biggest export goods, were considered to be the subjects of Chinese retaliation, the risk to the country’s economy and to the AUD would be accentuated.”

“We would expect the AUD/USD 0.66 area to act as psychological resistance and look for AUD/USD to turn lower on a 1 to 3-month view.”   

“In the approach to the US November Presidential election, we see of another dip towards the AUD/USD 0.60 area.”

The European Commission (EC) said on Wednesday its flash estimate showed the consumer confidence indicator for the Eurozone recovered by 3.2 points to -18.8 in May from a revised -22.0 in the previous month (originally, -22.7). Economists had expected the index to worsen to -24.0.

Considering the European Union (EU) as a whole, consumer sentiment improved by 2.5 points to -19.5.

Despite this month's gains, both indicators remained well below their long-term averages of -11.1 (Eurozone) and -10.4 (EU).

• We think stress on banks has some way to go
• We do not rule out anything for policy
• Keeping lower bound under active review
• Negative rates are under active review
• Structure of financial systems in countries with negative rates is important
• Negative rates quiet a nuanced policy in countries where they're implemented
• We will review purchase of risky assets
• We may have to act rapidly, having tools under review to do that is important

Statistics Canada reported on Wednesday the wholesale sales fell 2.2 percent m-o-m to CAD63.85 million in March, following an unrevised 0.7 percent m-o-m gain in February. That represented the biggest decline in wholesale sales since January of 2015.

Economists had forecast a 3.8 m-o-m decrease for March.

According to the report, lower sales were recorded in three of seven subsectors, accounting for 29 percent of total wholesale sales. The motor vehicle and motor vehicle parts and accessories subsector (-21.2 percent m-o-m, the largest monthly drop since January 2009) contributed the most to the March decline. Excluding this subsector, wholesale sales rose 2.1 percent m-o-m.

In y-o-y terms, wholesale sales decreased 0.3 percent in March.

In the first quarter of 2020, wholesale rose 1.4 percent y-o-y, following a 1.4 percent y-o-y decline in the fourth quarter of 2019.

FXStreet notes that USD/CAD rejected another probe, its third, below 1.39 yesterday. Analysts at TD Securities are heavy again, but technically, the charts point to a descending triangle. Credit Suisse also points to higher USD/CAD levels.

“While a break of support around 1.3850 could be significant we have yet to hear an argument as to why you would want to own CAD.” 

“With stocks at their post-crash highs and USD/CAD trading where it is, a lot of good news is in the price - whatever good news that may be.”

“We remain focused on upside risks overall. We think 1.3970/00 will be the first notable topside threshold for the pair, which will put 1.4050/80 daily downtrend resistance into focus.”

U.S. stock-index futures surged on Wednesday, as investors clung to hopes that solid fiscal and monetary stimulus would support the recovery of the coronavirus-hit economy, while assessing solid quarterly earnings reports from Target (TGT; +0.7%) and Lowe's (LOW; +4.8%).

Global Stocks:

• My guess is that Fed will need to do more
• Thinks we will need more fiscal action
• You can't legislate or stimulate consumer activity, people need to feel safe

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

JPMorgan Chase (JPM) upgraded to Buy from Hold at Odeon; target $105.75

Statistics Canada reported on Wednesday the country's consumer price index (CPI) fell 0.7 percent m-o-m in March, following a 0.6 percent m-o-m fall in the previous month.

On the y-o-y basis, Canada's inflation rate decreased 0.2 percent last month after a 0.9 percent advance in March. That was the first y-o-y decline in the CPI since September 2009.

Economists had predicted CPI would decrease 0.6 percent m-o-m and 0.1 percent y-o-y in April.

According to the report, prices rose in five of the eight major components on a y-o-y basis, with food prices (+3.4 percent) recording the largest increase of any major component. On the contrary, energy prices continued to decline due to the COVID-19 pandemic, with gasoline prices (-39.3 percent) posting the largest y-o-y decrease on record. Excluding energy, the CPI rose 1.6 percent y-o-y in April. In addition, consumers paid less for clothing and footwear (-4.1 percent) and recreation, education and reading (-0.7 percent).

The closely watched the Bank of Canada's core index rose 1.2 percent y-o-y in April, after a revised 1.6 percent y-o-y gain in March (originally, a 1.7 percent y-o-y advance).

FXStreet reports that analysts at Credit Suisse suggest that EUR/SEK may be building a significant top as the pair has retreated in the last weeks falling from the 19 March high at 11.534 to the current level at 10.564.

“We are seeing EUR/SEK breaking its uptrend for 2017, despite EUR weakness elsewhere. Below 10.5603 should confirm a clear break for a test of long-term price and ‘neckline’ support at 10.4327/10.4130.” 

“A close below 10.4327 at any stage would mark a long-term top and core change of trend lower, with support then seen next at 10.1697.”

GBP traded mostly lower against other major currencies in the European session on Wednesday as the release of the UK's cooler-than-forecast inflation data raised speculation that the Bank of England (BoE) could cut interest rates below zero and increase its asset purchases to support the country's economy, hit by COVID-19 pandemic. The pound fell against EUR, CHF, CAD, NZD and AUD, but was little changed against USD and JPY.

The Office for National Statistics (ONS) reported that the UK's consumer price inflation decelerated to 0.8 percent y/y in April from 1.5 percent y/y in March. Economists had forecast the rate to slow to 0.9 percent y/y. That was the lowest rate since August 2016 and significantly below the BoE's 2 percent target. Meanwhile, core inflation, which excludes energy, food, alcoholic beverages and tobacco, eased to 1.4 percent y/y in April from 1.6 percent y/y in March.

A separate report from the ONS revealed that output prices fell in April for the first time since June 2016. According to the report, output prices dropped 0.7 percent y/y in April after a 0.3 percent y/y advance in March. Economists had forecast a 0.4 percent decrease. That was the first decline in factory prices since June 2016 and the highest since March 2016. At the same time, input prices fell the most since December 2015.

The UK's chancellor of the exchequer Rishi Sunak warned on Tuesday that the country is facing "a severe recession, the likes of which we haven't seen" and that an immediate bounceback is unlikely.

FXStreet reports that the rebound in AUD/USD has turned out to be stronger than analysts at Credit Suisse initially expected, but has come to a halt well below the 200-day average and 78.6% retracement at 0.6664/6706 which is expected to cap. Commerzbank’s Karen Jones also sees the Aussie struggling at that level. 

“We ideally look for the pivotal 0.6664/6706 zone area to continue to cap and post a correction, we look for the downtrend to resume.”

“Key near-term support is seen at 0.6373, removal of which would see a small ‘triple top’ complete with next support at 0.6254, ahead of a move back to the early April lows at 0.5990/80.”

“Above 0.6706 on a closing basis would end the core bear view, with resistance seen next at 0.6745/50.”

USD/RUB: A weak path for the ruble in the short-term – Nordea

FXStreet notes that since the recovery in April, the RUB has been trading in a narrow range of 73.5-74 versus the USD and slightly below 80 vs. the EUR. Analysts at Nordea see the USD/RUB below 70 if oil prices increase. Credit Suisse is also pointing to strength in the pair with higher oil prices.

“Should external risks not materialise, we believe the RUB could reach levels of 72 against the USD and 80 against the EUR by the end of June.”

“A more pronounced recovery to levels below 70 against the USD may be possible in H2 2020 if we see a strong rebound in global economic activity boosting risk sentiment and oil prices.”

Target (TGT) reported Q1 FY 2020 earnings of $0.59 per share (versus $1.53 per share in Q1 FY 2019), beating analysts' consensus estimate of $0.40 per share.

The company's quarterly revenues amounted to $19.371 bln (+11.3% y/y), beating analysts' consensus estimate of $19.038 bln.

TGT fell to $121.47 (-1.38%) in pre-market trading.

USD/CAD: A renewed rebound back higher towards the resistance at 1.4114 – Credit Suisse

FXStreet reports that analysts Credit Suisse note that USD/CAD holds in its range, above the pivotal support seen at 1.3856/3793, after posting a potentially bullish ‘hammer’ candlestick on Tuesday. 

“We look for a renewed swing higher within the range, with resistance initially seen at 1.3961/70, then 1.4080/89, ahead of 1.4114/17. Above here would see resistance back at 1.4141/47, ahead of 1.4173.” 

“A clear and conclusive break below 1.3793 would turn the short-term risk back lower and see weakness extend further, with support seen at 1.3734 next.”

Lowe's (LOW) reported Q1 FY 2020 earnings of $1.77 per share (versus $1.22 per share in Q1 FY 2019), beating analysts' consensus estimate of $1.32 per share.

The company's quarterly revenues amounted to $19.675 bln (+10.9% y/y), beating analysts' consensus estimate of $18.330 bln.

LOW rose to $126.10 (+7.90%) in pre-market trading.

Gold: A new record high is expected – Credit Suisse

FXStreet notes that gold has completed a small bull triangle for a resumption of its core uptrend, although poor momentum and consensus positioning lends a note of caution. Big picture though, analysts at Credit Suisse maintain a long-held view from June last year for an eventual move to a new record high above $1921. 

“Gold has completed a small bullish ‘triangle’ continuation pattern above the $1747 high and although we have concerns with respect to momentum and consensus positioning, we look for the bull trend to resume for a test of $1796/1803 next. We look for this to then cap for a fresh consolidation phase.”

“Big picture, we continue to eventually look for new highs above $1921, with resistance then seen next at $2000, then $2075/80.”

“Support at $1660 needs to hold to keep the immediate risk higher.”

Forexlive reports that in a note to its clients, the UBS Wealth Management argues that talks of negative rates and no-deal Brexit concerns may only pose short-term risks for the pound with valuations set to take over the cable trade in the bigger picture later in the year.

Adding that while the probability of negative rates has risen, "QE will remain the BOE's first line of defense" and the central bank should add another £100 billion to that end during the monetary policy meeting later in June.

Meanwhile, the firm is of the view that Brexit fears are "overdone" as the "possibility of the UK leaving the transition period at the end of the year without a deal is relatively low".

They argue that there will either be a minimal deal achieved or a short extension seen.

On the dollar side of the equation, they view that the dollar's strength is set to fade given the near-zero rates in the US and the Fed's easing measures should also weigh on the currency, with the Fed likely to remain expansive longer than the BOE would.

As such, strategists at the firm see the pound as "deeply undervalued, with GBP/USD equilibrium rate three years ahead at 1.53".

FXStreet reports that a close above 117.77/83 can mark an important base with resistance next at 118.58/63, per Credit Suisse. Analysts at Commerzbank also see upside potential on the EUR/JPY pair.

"EUR/JPY has cleared key resistance from the late April/early May highs at 117.77/83 and assuming a close above here is achieved, this would not only see the large bear 'triangle' negated, it would instead see a base established to mark an important turn higher, with resistance next at 118.58/63, then the April highs at 119.01/04."

"Support is seen at 117.58/52 initially, then 117.02, which we look to ideally now hold to maintain thoughts of a base."

According to the report from Eurostat, in April 2020, a month marked by COVID-19 containment measures in all countries, the euro area annual inflation rate was 0.3%, down from 0.7% in March. A year earlier, the rate was 1.7%. While the core figures rose by 0.9% versus +0.9% previous and +0.9% expectations. European Union annual inflation was 0.7% in April 2020, down from 1.2% in March. A year earlier, the rate was 1.9%..

The lowest annual rates were registered in Slovenia (-1.3%), Cyprus (-1.2%), Estonia and Greece (both -0.9%). The highest annual rates were recorded in Czechia (3.3%), Poland (2.9%) and Hungary (2.5%). Compared with March, annual inflation fell in twenty-six Member States and remained stable in one.

In April, the highest contribution to the annual euro area inflation rate came from food, alcohol & tobacco (+0.67 percentage points, pp), followed by services (+0.52 pp), non-energy industrial goods (+0.09 pp) and energy (-0.97 pp).

FXStreet reports that economists at UBS believe distortions in oil markets are likely to contribute to continued volatility in markets.

"We believe distortions in oil markets are likely to contribute to continued volatility in markets. But while the market is heavily oversupplied this quarter, we expect it to move toward balance next quarter and become undersupplied in 4Q this year."

"We forecast WTI to recover to USD 40/bbl by year-end. This creates investment opportunities in operators in the US energy equity market whose financial position is strong; in the defensive end of the European energy market; and in fixed income, where we continue to see opportunities across almost the entire rating spectrum, with a preference for issuers with low production costs, comparatively strong fundamentals, and access to capital."

World Trade Organization said that the Goods Trade Barometer provides real-time information on the trajectory of world merchandise trade relative to recent trends. The current reading captures the initial phases of the COVID-19 outbreak, and shows no sign of the trade decline bottoming out yet. This measure is consistent with the WTO's trade forecast issued on 8 April 2020, which estimated that world merchandise trade could decline by between 13% and 32% in 2020, depending on the duration of the pandemic and the effectiveness of policy responses.

All of the barometer's component indices are currently well below trend. The automotive products index (79.7) was weakest of all, due to collapsing car production and sales in major economies. The sharp decline in the forward-looking export orders index (83.3) suggests that trade weakness will persist in the short-run. Declines in the container shipping (88.5) and air freight (88.0) indices reflect weak demand for traded goods as well as supply-side constraints arising from efforts to suppress COVID-19. Only the indices for electronic components (94.0) and agricultural raw materials (95.7) show signs of stability, although they too remain below trend.

Trade had already been slowing in 2019 before the pandemic, weighed down by persistent trade tensions and weakening economic growth. WTO trade statistics show that the volume of world merchandise trade shrank by 0.1% in 2019, marking the first annual decline since 2009, during the global financial crisis. Trade was relatively weak in the final quarter of 2019, but this is unlikely to have been influenced by COVID-19, which was first detected very late in the year.

Like its counterpart for services, the Goods Trade Barometer aims to gauge momentum and identify turning points in global trade growth. As such, it complements trade statistics and forecasts from the WTO and other organizations. Readings of 100 indicate growth in line with medium-term trends; readings greater than 100 suggest above-trend growth, while those below 100 indicate below-trend growth.

According to the report from European Central Bank, in March 2020 the current account of the euro area recorded a surplus of €27 billion, compared with a surplus of €38 billion in February 2020. Surpluses were recorded for goods (€32 billion), services (€2 billion) and primary income (€2 billion). These were partly offset by a deficit for secondary income (€9 billion). Amid the coronavirus (COVID-19) pandemic and the measures implemented to contain its spread, both exports and imports of goods and services decreased compared with February 2020 as did credit and debit flows in primary income.

In the 12-month period to March 2020, the current account recorded a surplus of €338 billion (2.8% of euro area GDP), compared with a surplus of €350 billion (3.0% of euro area GDP) in the 12 months to March 2019. This decline was driven by a reduction in the surplus for services (from €115 billion to €61 billion) and for primary income (from €100 billion to €81 billion). These developments were partly offset by a larger surplus for goods (up from €295 billion to €339 billion) and a smaller deficit for secondary income (down from €160 billion to €143 billion).

In the financial account, euro area residents made net acquisitions of foreign portfolio investment securities totalling €241 billion in the 12-month period to March 2020 (up from €81 billion in the 12 months to March 2019). Over the same period, non-residents made net acquisitions of euro area portfolio investment securities amounting to €334 billion (up from €3 billion).

Bloomberg reports that investors need to guard against violent price swings as markets become increasingly fragile, according to Bank of America Corp.

Fragility has increased due to high-frequency traders shutting down machines as stress rises, which hurts liquidity, as well as by trend-chasing among investors reaching for better returns "against their better judgment in a world addicted to the central bank put," BofA strategists led by Nitin Saksena wrote in a note. That's also created "a massive log-jam for liquidity" when things go sour, as players with little conviction rush for the exits, they said.

"With most institutional investors believing this is a bear rally, but at risk of being forced to chase the trend if it continues (having been conditioned as such in the last 10 years), the risk is of bigger bubbles leading to larger shocks," the strategists wrote. "There will be plenty of opportunity (and time) for negative surprises to arise, given the sheer size of this economic crisis, even with a vaccine on fast-track."

Asset prices have certainly moved with speed as Covid-19 wreaked havoc on economies and markets worldwide. The S&P 500 suffered its quickest-ever downdraft from a record into a correction. And as markets recovered amid waves of central-bank pledges and fiscal measures, the rebound was quick, too. Both the Cboe Volatility Index, or VIX, and Europe's VStoxx have fallen near their fastest paces in history, BofA said.

• Implied policy rates at minus 6Bps by end-2020

FXStreet reports that FX Strategists at UOB Group now see USD/JPY advancing to the mid-108.00s in the next weeks.

24-hour view: "While we expected USD to move higher yesterday, we noted that the upward pressure is mild and did not expect a break of 107.80. However, USD surged past 107.80 and touched 108.08 before retreating. Despite the pull-back, momentum remains firm and from here, barring a move below 107.45, USD could rise towards 108.15 first before a more sustained pullback can be expected. For today, the next resistance at 108.50 is not expected to come into the picture."

Next 1-3 weeks: "After trading in a quiet manner for about a week, USD was jolted awake as it surged past the major 107.80 resistance (high of 108.08) before closing at 107.68 in NY (+0.33%). While we would prefer a daily closing above 107.80, the rapid pick-up in momentum suggests USD could head higher towards 108.50 in the coming days. At this stage, the prospect for a move to the next resistance at 108.90 is slim. Overall, the outlook for USD is positive as long as the 'strong support' at 107.15 is not taken out."

During today's Asian trading, the euro continued to grow against most "safe" currencies on optimism about the Franco-German initiative to restore the European economy after the crisis caused by the COVID-19 pandemic.

France and Germany launched a joint initiative on Monday for the post - crisis recovery of the European economy-the creation of a Fund of 500 billion euros of budget funds.

According to analysts, the euro has every chance to overcome the symbolic mark of $1.1 this week.

The ICE Dollar index, which shows the value of the us dollar against six major world currencies, rose by 0.12% compared to the previous trading day.

Traders were also assessing the speeches of US Treasury Secretary Steven Mnuchin and Federal reserve Chairman Jerome Powell to the US Senate banking Committee on Tuesday.

According to Mnuchin, the US will emerge from the COVID-19 coronavirus pandemic stronger than ever before. He also said that the Ministry of Finance is ready to increase the amount of money provided to the Federal reserve system, and take on more risks in the framework of lending programs.

Meanwhile, Powell noted that the Federal reserve and the Finance Ministry can do more to help the economy. He believes that the main support programs of the fed will work until the end of this month or in the first week of June.

The pound fell slightly against the US dollar on the background of inflation data for the UK.

Consumer prices in the UK in April 2020 increased by 0.8% in annual terms, according to data from the National statistics office. Thus, inflation slowed down compared to March's 1.5%. Experts on average expected a slowdown in consumer price growth to 0.9%.

eFXdata reports that Credit Agricole Research flags a key risk event for GBP in the month of June.

"Consistent with our Q220 FX forecasts, the GBP outlook has worsened sharply of late on the back of market expectations of further BoE easing (including negative rates) as well as persistent fears about a notrade-deal Brexit. The selling pressure should persist in our view especially if the BoE acts more decisively by expanding its QE programme more aggressively on 18 June and the EU and the UK fail to agree on extending the transition period at the EU summit on 18-19 June," CACIB notes.

"Our fair value analysis suggests that GBP/USD could slip to 1.20 or lower and EUR/GBP could rise to 0.92 or higher if no-trade-deal Brexit risks escalate in the coming months," CACIB notes.

According to the report from Office for National Statistics, the Consumer Prices Index (CPI) 12-month rate was 0.8% in April 2020, down from 1.5% in March.Economists had expected a 0.9% increase.

The Consumer Prices Index including owner occupiers' housing costs (CPIH) 12-month inflation rate was 0.9% in April 2020, down from 1.5% in March 2020. The largest contribution to the CPIH 12-month inflation rate in April 2020 came from recreation and culture (0.31 percentage points). Falling energy and fuel pump prices resulted in the largest downward contributions to the change in the CPIH 12-month inflation rate between March and April 2020. Rising prices for recreational goods resulted in a partially offsetting upward contribution to change.

A separate report from ONS showed that the headline rate of output inflation for goods leaving the factory gate was negative 0.7% on the year to April 2020, down from 0.3% in March 2020.

The price for materials and fuels used in the manufacturing process displayed negative growth of 9.8% on the year to April 2020, down from negative growth of 3.1% in March 2020.

Petroleum products made the largest downward contribution to the change in the annual rate of output inflation.

Crude oil provided the largest downward contribution to the annual rate of input inflation.

Crude oil prices have seen a record fall on the month and the year, driven by factors including reduced global demand during the coronavirus (COVID-19) pandemic and oversupply after Organization of the Petroleum Exporting Countries plus group (OPEC+) failed to cut production in March and April 2020.

• CNBC reports that Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell testified before the Senate Banking Committee on the Trump administration's efforts to deal with the financial fallout of the pandemic. Mnuchin specifically addressed how money from the $2 trillion CARES Act was distributed to individuals and businesses and said the Treasury and Fed are "fully prepared to take losses in certain scenarios" on the remaining capital.

• The World Health Organization's assembly continues for a second day as President Trump told reporters that the World Health Organization must "clean up" its act or the U.S. won't "be involved with them anymore." Trump threatened to pull support from the agency permanently Monday and started a 30-day clock for the WHO to commit to changes.

• Global cases: Around 4.9 million

• Global deaths: More than 323,000

• Top 5 countries: United States (More than 1.5 million), Russia (299,941), Brazil (271,885), United Kingdom (250,138), Spain (232,037)

EUR/USD

Resistance levels (open interest**, contracts)

$1.1016 (779)

$1.0996 (1582)

$1.0981 (826)

Price at time of writing this review: $1.0943

Support levels (open interest**, contracts):

$1.0882 (1260)

$1.0856 (1105)

$1.0821 (2113)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 5 is 91292 contracts (according to data from May, 19) with the maximum number of contracts with strike price $1,0600 (4569);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2394 (677)

$1.2353 (307)

$1.2326 (262)

Price at time of writing this review: $1.2262

Support levels (open interest**, contracts):

$1.2212 (430)

$1.2188 (1214)

$1.2129 (1051)

Comments:

- Overall open interest on the CALL options with the expiration date June, 5 is 23736 contracts, with the maximum number of contracts with strike price $1,3500 (3420);

- Overall open interest on the PUT options with the expiration date June, 5 is 29191 contracts, with the maximum number of contracts with strike price $1,3500 (3095);

- The ratio of PUT/CALL was 1.23 versus 1.24 from the previous trading day according to data from May, 19

* - 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.