CFD Markets News and Forecasts — 24-02-2021

• U.S. real unemployment rate is closer to 10%, not 6.3%
• While expectations have picked up, inflation remains low
• Economy is still far from employment and inflation goals; it will take some time to achieve substantial further progress
• May see transitory price pressure reflecting imbalance
• Looking for signs labor market healing is broad
• Recovery is playing out unevenly for different groups of workers, sectors and parts of the country, leading to “K-shaped” recovery

• That's actual progress not forecast progress
• This will be the year in which the Fed engages with public on digital dollar
• We could well need legislative authority for digital dollar
• Repeats that there is  lot of slack in the labor market, there is long way to go to full employment
• We want inflation expectations anchored at 2%, not below
• We believe we can and will get to 2%, may take longer than three years to do so

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories rose by 1.285 million barrels in the week ended February 19. Economists had forecast a decline of 5.190 million barrels.

At the same time, gasoline stocks edged up 0.012 million barrels, while analysts had expected a plunge of 3.062 million barrels. Distillate stocks declined by 4.969 million barrels, while analysts had forecast a decrease of 3.746 million barrels.

Meanwhile, oil production in the U.S. tumbled by 1.100 million barrels a day to 9.700 million barrels a day.

U.S. crude oil imports averaged 4.6 million barrels per day last week, decreased by 1.3 million barrels per day from the previous week.

The U.S. Commerce Department announced on Thursday that the sales of new single-family homes surged 4.3 percent m-o-m to a seasonally adjusted annual rate of 923,000 units in January 2021.

Economists had forecast the sales pace of 855,000 last month.

December’s sales pace was revised up to 885,000 units from the originally reported 842,000 units.

According to the report, new home sales in the South, the largest area, rose 3.0 percent m-o-m in January. Meanwhile, sales in the Midwest surged 12.6 percent m-o-m and those in the West increased 6.8 percent m-o-m. In the Northeast, however, new home sales plunged 13.9 percent m-o-m in January.

In y-o-y terms, new home sales were up 19.3 percent in January.

• Risks for UK unemployment are in both directions
• There is clear risk that unemployment will rise significantly once support for low schemes come to end
• No indication from bond markets that investors see MPC's actions as anything other than necessary to meet inflation objective
• Brexit deal doesn't have big direct inflation impact
• We have seen sterling appreciate because of EU trade deal that would have some depressive effect on UK inflation
• Hard to know if trade frictions are having opposite effect on inflation

• Downside risks to February forecasts are much more prevalent
• Concerned about dampening effect from high uncertainty in UK-EU trade links
• Firms' ability to repay debts and avoid insolvency represents a sizable downside risks
• Risk that worries me most is highly transmissible Covid variants
• Risk to activity are very much on downside; risks to supply are balanced
• Says he remains open to possibility economy might need further support

• Noticeable that EU location policy for financial institutions seems to be coming to surface
• Asking firms to move businesses would be escalation
• We would be concerned from financial stability perspective if EU tried to force institutions to localise some operations in EU
• Erosion of stability of global clearing system would be a concern
• Numbers on Covid are now more positive for UK economy
• Evidence so far of current lockdown is that activity puts it midway between first and second lockdown

FXStreet reports that economists at Credit Suisse now expect 10yr U.S. Bond Yields to rise to 1.82% by the end of 2021, which is the 50% retracement of the entire fall from 2018. 

“US 10yr Bond Yields have broken clearly above our prior Q1 objective at the 1.25/27% March high and trend support from 2012 with ease. This should open up a relatively direct move to 1.43/48%, which is the 38.2% retracement of the move from 2018 and the potential trend support from 2016. We expect to see a concerted pause below this level during Q1, however, the ‘double bottom’ base in 10yr US Real Yields suggests we will see a break above here later in the year, with next supports at 1.685/705%, then our new core 2021 objective at 1.82%.”

U.S. stock-index futures fell on Wednesday, as the heavily-weighted technology stocks remained under pressure amid rising Treasury yields.

Global Stocks:

FXStreet reports that according to the Morgan Stanley Institute for Sustainable Investing, sustainable funds outperformed traditional peer funds and reduced investment risk during coronavirus in 2020.

“An analysis of more than 3,000 US mutual funds and exchange-traded funds (ETFs) shows that sustainable equity funds outperformed their traditional peer funds by a median total return of 4.3% in 2020. During the same period, sustainable taxable bond funds beat their non-ESG counterparts by a median total return of 0.9%.”

“Sustainable US equity and taxable bond funds also proved less risky than their traditional counterparts in 2020. US sustainable equity funds’ median downside deviation was 3.1% less than traditional peer funds, and 0.4% less for US sustainable bond funds, compared to their non-ESG counterparts.”

“For the full-year 2019, sustainable equity funds outpaced traditional peer funds by a median of 2.8%, while sustainable taxable bond funds outperformed their traditional peer funds by a median of 0.8%.” 

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

FXStreet notes that S&P 500 has achieved its “measured top objective” at 3819/17 within the space of two sessions and the Credit Suisse analyst team now shifts its bias back higher, looking for a resumption of the core uptrend.

“Our bias is to look for the recovery from Tuesday to continue with resistance seen at 3903/07 initially, above which should see a move back to 3930/34. Beyond this latter area is needed to further reinforce the likelihood the core uptrend has indeed resumed for strength back to the 3950/51 highs. Above here in due course should see a move to 4070/75.” 

“Support moves to 3852/51 initially, with 3832 now ideally holding further weakness."

EUR traded mixed against its major counterparts in the European session on Wednesday. The single European currency rose against safe-haven USD, CHF and JPY, but fell against GBP and commodity-linked AUD, CAD and NZD, as improving sentiment boosted demand for riskier currencies, which are expected to benefit from the economic recovery.

The latest lift in sentiment was driven by the U.S. Federal Reserve Chair Jerome Powell's pledge to continue loose monetary policy and better-than-expected Germany's Q4 GDP data.

Speaking to the Senate Banking Committee in Washington on Tuesday, the Fed's Chair Powell reiterated that interest rates would remain ultra-low despite indications of accelerating inflation, easing investors' concerns of a near-term change in monetary policy.

The Federal Statistics Office (Destatis) announced on Wednesday that Germany's economy grew by 0.3 percent q/q in the fourth quarter of 2020 instead of +0.1 percent q/q estimated previously, helped by strong exports and solid construction activity. On y/y basis, Germany's economy shrank 3.7 percent in the fourth quarter of 2020, less than the initially estimated drop of 3.9 percent. The Office also revised upward its 2020 full-year GDP reading for Europe's largest economy to -4.9% from -5.0% in an earlier estimate.

FXStreet notes that GBP strength has been gathering momentum allowing the pound to top the G10 performance table in the year to date. Nonetheless, economists at Rabobank see hurdles for GBP heading into the spring though expect the EUR/GBP pair to settle in the 0.85 zone by year-end.

“Issues related to red tape at the UK’s borders and problems connected with the Northern Ireland protocol have ensured that Brexit continues to cast shadows.”

“Another hurdle for GBP could be the Scottish elections in May. If the SNP performs well, as expected, the possibility of another Independence Referendum will rise. Scottish press are reporting on the possibility of an ‘illegal’ vote potentially this year. This could raise further questions about the state of the union in the UK.” 

“While the UK economy will be opening up this year, the PM’s plan is more cautious than many had expected and this could also hinder the pace of the economic bounce back.”

“Bullish momentum in the pound has pushed EUR/GBP through our long held 0.87 medium-term target. The move may have further to run in the near-term. However, we see bumps in the road ahead and see scope for pullbacks in the spring before EUR/GBP settles in the 0.85 area later in the year.”

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. plunged 11.4 percent in the week ended February 19, following a 5.1 percent decrease in the previous week. This marked the largest weekly decline since April 5 of 2020.

According to the report, refinance applications dropped 1.3 percent, while applications to purchase a home fell 11.6 percent.

Meanwhile, the average fixed 30-year mortgage rate rose from 2.98 percent to 3.08 percent, the highest since the week ended September 20.

“Mortgage rates have increased in six of the last eight weeks, with the benchmark 30-year fixed rate last week climbing above 3% to its highest level since September 2020,” noted Joel Kan, an MBA economist. “As a result of these higher rates, overall refinance activity fell to its lowest level since December 2020.” Kan also added that the severe winter weather across the South last week, and especially the power outages across Texas definitely played a role. That state witnessed a more than 40% drop in purchase and refinance applications last week, he said.

EUR/GBP breaks with ease below 0.8609/07 to extend the bear trend to 0.8520 - Credit Suisse

FXStreet reports that analysts at Credit Suisse note that EUR/GBP has removed with ease the 0.8609/07 mark and this should see the trend stay directly lower with next support seen at 0.8520 – the 38.2% retracement of the entire 2015/2020 bull trend.

“EUR/GBP has seen a sharp fall and spike lower overnight and this sees the market remove with ease our first core objective of the “neckline” to the late 2019/early 2020 base and long-term uptrend from late 2015 at 0.8609/07. This sees the immediate trend stay directly lower with support seen next at 0.8542/33, then 0.8520 – the 38.2% retracement of the entire 2015/2020 bull trend.” 

“Whilst we would look for the 0.8520 mark to hold at first, below in due course should see a move to the ‘measured objective’ from the large ‘head & shoulders’ top at 0.8430, and now we think an eventual test of the 0.8281/39 lows of 2019 and 2020”. 

FXStreet reports that according to FX Strategists at UOB Group, there is still scope for USD/JPY to re-test the 104.40-region in the near-term.

24-hour view: “Our expectation for USD to ‘weaken further’ did not materialize as it rebounded strongly after touching 104.91. Downside risk has more or less dissipated and the current movement is viewed as part of a consolidation. For today, USD is likely to trade within a 105.00/ 105.50 range.”

Next 1-3 weeks: “The positive phase came to an end as USD took out our ‘strong support’ level at 105.00 yesterday (low of 104.97) The current movement is viewed as a pullback that has scope to test month-to-date low at 104.40. At this stage, the prospect for a sustained decline below this level is not high. On the upside, a break of the ‘strong resistance’ at 105.65 would indicate the current downward pressure has eased.”

FXStreet reports that analysts at Credit Suisse note that USD/CHF saw a strong and unexpected surge higher, breaking above the crucial early February high and the downtrend from early 2020, currently at 0.9036/46 to suggest further short-term upside.

“We shift our immediate bias in favor of further upside, with the first and initial test seen at the 61.8% retracement of the fall from September 2020 at 0.9090. Although we ideally look for this area to cap for a move lower, we see scope for an overshoot back to the 200-day average at 0.9142. We expect a more concerted effort to hold at this point.” 

“Support is initially seen at 0.9039, beneath which would see a small intraday top completed to suggest a move back to 0.8975/57 – a cluster of key short-term averages.” 

CNBC reports that Central banks from the United Arab Emirates, China, Thailandand Hong Kong are exploring a digital currency cross-border payment project together.

The Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BOT) worked together to study the application of central bank digital currencies (CBDC) last year.

They are now expanding their work to include the People’s Bank of China’s (PBOC) digital currency research institute and the Central Bank of the United Arab Emirates.

Central bank digital currencies have been gaining steam with monetary authorities around the world. They broadly relate to central banks attempting to digitalize their fiat currency.

FXStreet reports that analysts at Credit Suisse discusses EUR/USD outlook.

“Above 1.2190 should establish a near-term ‘head & shoulders’ base to confirm a move back to the 1.2345/55 highs. Whilst we a fresh rejection from here should be catered for, we continue to look for an eventual break for a move to our 1.2518/98 core long -held target – the 2018 high and 38.2% retracement of the entire 2008/2017 bear market. We expect this to remain a major barrier. Support moves to 1.2135 initially, then the 13-day exponential average at 1.2119.”

Reuters reports that Bank of Japan Governor Haruhiko Kuroda said the central bank is already buying exchange-traded funds (ETF) flexibly, but will seek ways to make the programme more effective and sustainable in a scheduled review of its policy tools in March.

Kuroda said the BOJ is mindful of the need to address the side-effects of its massive stimulus, adding that he was aware of criticism its ETF purchases were distorting stock prices.

"We're already buying ETFs in a nimble and flexible manner," Kuroda told parliament on Wednesday.

"The BOJ's various tools, including its ETF buying, will be the target of the March review," he said. "We'll examine how our tools are affecting markets and look at what we can do better."

The BOJ will conduct a review of its policy tools in March to make them more sustainable, as the COVID-19 pandemic heightens the chance of a prolonged battle to reflate growth.

FXStreet reports that FX Strategists at UOB Group said that the outlook for USD/CNH is expected to remain constructive as long as it trades above the 6.4200 level.

Next 1-3 weeks: “One week ago, we held the view ‘the current rebound in USD could extend to 6.4500’. As USD advances, we noted in our latest narrative from last Friday (19 Feb, spot at 6.4580) that ‘outlook for USD is still positive’ and ‘the next resistance level of note is at 6.4920’. USD rose to 6.4760 yesterday before easing off. Shorter-term momentum has waned somewhat but there is no change in our view for now. Only a break of 6.4200 (no change in ‘strong support’ level) would indicate that 6.4920 is out of reach this time round.”

Reuters reports that Spain's Prime Minister Pedro Sanchez announced on Wednesday an additional 11 billion euro package for small and mid-sized companies and the self-employed to help them cope with the economic crisis due to the coronavirus pandemic.

Government source said the plan, whose details were still being discussed with the Bank of Spain and the banking sector, would include haircuts for state-back loans and recapitalisation of SMEs.

That would aim to bolster corporate solvency after the Spanish government initially provided mainly state-backed loans, while the sectors most hit by the crisis, including restaurant owners, demanded direct aid.

Spain has been one of the countries most hit by the pandemic with more than 3 million cases and more than 68,000 deaths, although coronavirus incidence slipped below 250 cases per 100,000 people - for the first time in two months on Tuesday.

FXStreet reports that economists at MUFG Bank discusses NZD/USD outlook.

“The kiwi has derived some support from the RBNZ’s more upbeat economic outlook although they have stressed that they will maintain loose policy for longer. The RBNZ now views risks to the economic outlook as ‘balanced’ rather than ‘less skewed to the downside’. The RBNZ still sees one more quarter of GDP contraction in Q1 before the economy recovers more sustainably. The GDP forecast for this year was lifted to 4.0% up from 3.6%.”

“While we believe that the RBNZ is unlikely to lower rates further, the RBNZ has emphasized that stimulative settings will be maintained for a prolonged period of time, until it is confident of employment reaching the maximum sustainable level and inflation is sustainably around 2%.” 

“The RBNZ are understandably cautious that laying out plans to tighten policy well ahead of other major central banks would encourage an even stronger kiwi. The fundamentals though still point to further strength which the RBNZ can only dampen.”

eFXdata reports that Credit Agricole CIB Research discusses CAD outlook.

"The CAD could remain supported especially if market expectations of fairly aggressive growth rebound in H221 and thus BoC QE taper materialise. That said, we also believe that the recent CAD rally has captured most of these positives with our analysis of positioning and long-term fair value suggesting that the CAD is looking a bit overbought and overvalued. We also think that the USD could regain some lost ground more broadly on the back of the improving US outlook that attracts inflows into USD-denominated assets in the next 3M-6M," CACIB adds.

According to business leaders surveyed between 28 January and 19 February 2021, the business climate in France has weakened slightly: at 90, the synthetic indicator has lost one point and therefore remains significantly below its long-term average (100).

As in the previous month, this slight decrease reflects different moves depending on the business sector, in a context of a continuing health crisis. The business climate has deteriorated in the tertiary sectors (services and retail trade) while it has continued to recover in manufacturing. In building construction, business leaders remain confident about their business prospects.

At the same time, the employment climate has deteriorated. At 85, it has lost three points, after two months of slight improvement, and therefore remains well below its pre-crisis level. This deterioration is mainly due to the fall in the balances of opinion on the change (recent as expected) in the workforce size in retail trade.

The business climate in France in January 2021 has been revised downwards by one point and that in industry downwards by two points. The business climate in services for January has been revised upwards by one point, as the employment climate in France. These revisions are mainly explained by the inclusion of late responses from companies.

During today's Asian trading, the dollar fell slightly against the euro, but rose against the yen after the speech of US Federal Reserve Chairman Jerome Powell to the Senate Banking Committee.

Powell said yesterday that the regulator will maintain a soft monetary policy until the US economy fully recovers from the effects of the crisis. "We are still far from our employment and inflation targets," he said.

The Federal Open Market Committee (FOMC) will continue to stick to ultra-loose monetary policy for some time, despite the improved growth prospects for the US economy, analysts say.

Meanwhile, consumer prices in the euro zone in January 2021 increased by 0.9% in annual terms, the Statistical Office of the European Union reported yesterday. Inflation was the highest since February 2020. Compared to December, consumer prices in the region increased by 0.2%.

The ICE Dollar index, which shows the value of the US dollar against six major world currencies, fell by 0.12%.

CNBC reports that JPMorgan Private Bank said that a recent spike in bond yields spooked global markets, but it may be a reflection of “growth optimism” as the global economy bounces back from the coronavirus pandemic.

“If you think about rising bond yield(s) or stronger growth, or even a little bit more inflation at this point in the cycle — these are healthy signs,” Julia Wang, executive director and global market strategist at the firm, told CNBC.

The rise in bond yields comes amid optimism over the global economy, and as coronavirus vaccination campaigns in major economies worldwide continue.

“I think that the global economy is going through this cyclical recovery phase and a rising bond yield (is) very much a reflection ... of this growth optimism,” Wang said.

Much of this optimism is expected to be “realized” in Asia this year, which is seeing a “really strong” growth impulse, the strategist said.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2230 (3010)

$1.2200 (2535)

$1.2179 (4005)

Price at time of writing this review: $1.2155

Support levels (open interest**, contracts):

$1.2119 (386)

$1.2098 (1826)

$1.2069 (2404)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 5 is 97055 contracts (according to data from February, 23) with the maximum number of contracts with strike price $1,1200 (6982);

GBP/USD

Resistance levels (open interest**, contracts)

$1.4317 (122)

$1.4276 (2078)

$1.4238 (740)

Price at time of writing this review: $1.4173

Support levels (open interest**, contracts):

$1.4029 (169)

$1.3965 (140)

$1.3884 (129)

Comments:

- Overall open interest on the CALL options with the expiration date March, 5 is 14431 contracts, with the maximum number of contracts with strike price $1,4250 (2078);

- Overall open interest on the PUT options with the expiration date March, 5 is 15848 contracts, with the maximum number of contracts with strike price $1,3100 (1225);

- The ratio of PUT/CALL was 1.10 versus 0.97 from the previous trading day according to data from February, 23

* - 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 Federal Statistical Office (Destatis), the gross domestic product (GDP) rose by 0.3% in the fourth quarter of 2020 compared with the third quarter of 2020 after adjustment for price, seasonal and calendar variations. Economists had expected a 0.1% increase. After the historic 9.7% slump of the GDP in the second quarter of 2020, the German economy had recovered in the third quarter of 2020 (+8.5%). In the fourth quarter, however, the recovery process slowed due to the second coronavirus wave and another lockdown imposed at the end of the year. According to figures from Destatis, the GDP development was slightly more positive than reported in the first release of 29 January 2021, both regarding the fourth quarter (+0.3%) and the entire year of 2020 (-4.9%; calendar-adjusted: -5.3%).

Due to the restrictions of the second lockdown as of November 2020, household final consumption expenditure in the fourth quarter of 2020 was down 3.3% on the third quarter of 2020 after price, seasonal and calendar adjustment. This means that the decrease of household final consumption expenditure was smaller than in the second quarter of 2020 (-11.0%). Government final consumption expenditure, too, recorded a 0.5% quarter-on-quarter decrease in the fourth quarter of 2020, following increases in the first three quarters of the year. Gross fixed capital formation in construction contributed to growth in the fourth quarter of 2020 as it rose 1.8% on the third quarter of 2020 after price, seasonal and calendar adjustment. Seasonally adjusted gross fixed capital formation in machinery and equipment was roughly the same as in the previous quarter (-0.1%).

Foreign trade increased at the end of the year and had an upward effect on the GDP. In the fourth quarter of 2020, exports of goods and services were up 4.5% compared with the third quarter of 2020, after price, seasonal and calendar adjustment. The total increase of imports (3.7%) was slightly smaller as the imports of services was down on the previous quarter.