CFD Markets News and Forecasts — 25-09-2020

CNBC reports that Goldman strategists suggested in their note Thursday that while it may be too early to engage with high-yield emerging market (EM) bets, with risks still prevalent and the dollar on the move, it is not too early to start thinking systematically about opportunities once the crisis subsides. 

They identified the Mexican peso (MXN) as the most attractive among “high cyclical beta, high carry longs.” It was closely followed by the South African rand (ZAR) and Russian ruble (RUB).

“The peso remains our top choice in this group: while it appears to have less ‘room to run’ than some other EM high-yielders, this week’s sell-off means that USD/MXN still stands well over 10% higher than its pre-coronacrisis level of roughly 19,” Goldman's Co-Head of Global Foreign Exchange Kamakshya Trivedi and Head of EM Cross-Asset Research Caesar Maasry said in the note. “From a medium-run perspective, the peso’s combination of currency-supportive macro fundamentals and still-high yields make it an attractive choice.”

• To target 2021 budget deficit at 7%
• To raise debt-to-GDP target to 160% from 157.6% in August; to aim to lower it to 156% in 2021
• To set 2021 GDP growth target at 6%, up from 4.7% in April

FXStreet notes that the U.S. Durable Goods Orders report released on Friday showed an increase of 0.4%, below expectations. Analysts at Wells Fargo point out the slowdown in core orders was more gradual and shows the capex recovery continues.

“Durable goods orders slowed sharply in August, increasing just 0.4% after an upwardly revised gain of 11.7% in July. The downdraft stemmed in part from a 4.0% drop in motor vehicles as pent up demand from shutdowns shows signs of exhaustion.”

“The rise in core orders suggests that while slowing, the recovery in capex is not screeching to a halt and starting from a better place.”

FXStreet reports that analysts at Credit Suisse note that USD/CAD maintains a base to suggest further corrective strength to the medium-term bear trend, with the “measured base objective” at 1.3496/3525.

“USD/CAD has seen the recent upswing come to a temporary pause ahead of the 61.8% retracement of the June/September fall at 1.3340, in line with the broader BBDXY index. Post this near-term consolidation though, we look for an extension of the current corrective phase and see resistance initially at 1.3365, then 1.3418/21, ahead of the aforementioned 1.3340. Removal of here would expose the late July highs at 1.3451/60 next, ahead of the ‘measured base objective’ and 200-day average at 1.3496/3525, where we would look for a cap for the medium-term downtrend to then reassert itself.” 

Commenting on the latest ECB’s report on the monetary developments, Bert Colijn, a Team Lead Global Macro at ING, notes that stable lending to the private sector and slower growth in monetary aggregates indicate that emergency liquidity effects are waning, but also indicate that business investment is likely to remain weak amid high economic uncertainty

"Broad money (M3) growth decreased from 10.1% in July to 9.5% in August and the more narrow monetary aggregate M1 fell from 13.5% to 13.2%. Money growth had been elevated since the start of the crisis, thanks to a strong surge in asset purchases by the European Central Bank and government measures aimed at providing liquidity to businesses and households. The August monthly increase in M3 was below the average increase for 2019 for the first time since the coronavirus outbreak, indicating that some normalisation in the money supply is occurring after the unprecedented demand for liquidity which started with the lockdowns."

"Annual growth in loans to households and non-financial corporates was stable at 3 and 7.1% respectively, showing stabilisation in the borrowing environment. The monthly net increase in loans was small in August, as it has been in June and July as well. This indicates that now that emergency liquidity funding has been drawn, there is no increase in investment demand noticeable in these figures. That is, of course, no surprise given the high uncertainty surrounding the economic outlook at the moment."

U.S. stock-index futures were mixed on Friday, as market participants assessed whether the U.S. lawmakers could agree on a new relief package. Rising coronavirus infections in Europe and uncertainty surrounding the upcoming presidential elections in the U.S. also continued to unnerve investors.

Global Stocks:

Wall Street. Stocks before the bell

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

Amazon (AMZN) resumed with an Overweight at Piper Sandler; target $3860

The U.S. Commerce Department reported on Friday that the durable goods orders rose 0.4 percent m-o-m in August, following a revised 11.7 percent m-o-m jump in July (originally an 11.2 percent m-o-m surge).

Economists had forecast a 1.5 percent m-o-m gain.

According to the report, orders for durable goods excluding transportation also increased 0.4 percent m-o-m in August, following a revised 3.2 percent m-o-m advance in July (originally a gain of 2.4 percent m-o-m), missing economists’ forecast of 1.2 percent m-o-m rise.

Meanwhile, orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 1.8 percent m-o-m in August after a revised 2.5 percent advance m-o-m in July (originally a 1.9 percent m-o-m gain). Economists had called for a 1.0 percent m-o-m advance in core capital goods orders in August.

Shipments of these core capital goods rose 1.5 percent m-o-m in August after a 2.4 percent m-o-m jump in the prior month.

• Working with EU on Northern Ireland Brexit protocol 
• Working hard to reach a deal with EU

FXStreet notes that S&P 500 has extended its decline following its expected rejection of resistance at 3319/29. Economists at Credit Suisse stay biased lower for a deeper corrective setback with support seen at 3204/00 and eventually the 200-day average at 3106.

“The S&P 500 has extended its setback after being capped as expected at near-term resistance at 3319/29 and with the falling 13-day average now also here and with a large bearish ‘outside day’ established we continue to look for a deeper corrective setback.” 

“Support is seen initially at 3230 initially, then yesterday’s low at 3209, which is just ahead of our next objective at 3204/3198, which we continue to look to hold at first. A break in due course though can expose the 200-day average at 3106, ahead of which we would look to establish an important floor.” 

FXStreet reports that analysts at Credit Suisse note that NZD/USD has shifted into a near-term consolidation phase, but maintains its “double top”, with support seen next at 0.6489/85, then 0.6413/.6393, which is the ‘measured top objective’ and 200-day average.

“NZD/USD is seeing a pause near-term, in line with daily RSI momentum approaching oversold territory. However, with a ‘double top’ in place we remain of the view that this halt is merely temporary and further weakness should unfold in due course.”

“Support is seen initially at 0.6512, then 0.6500, removal of which would subsequently see a fall back to 0.6489/85 – the late August low and 23.6% retracement of the entire surge from March – where we would expect fresh buyers at first. Beyond here could then see the back of the broken 2014 downtrend at 0.6456 next. It is worth highlighting though that the ‘double top measured objective’ is seen much lower at 0.6413, just above the 200-day average at 0.6393."

FXStreet notes that EUR/USD has shifted from the 1.18-1.20 range to testing 1.16. Economists at Danske Bank are set to trade a wider interval, 1.15-1.19, as Fed failed to provide a boost. On a three-to-six month horizon, Brexit, Fed, US election and COVID-19 can give test of 1.20.

“We see EUR/USD staying on the weak side versus recent history as an unexpected vacuum of policy and economic direction has come about. Looking further ahead, next year may still potential provide a new test of 1.20. Overall, do note the scope for USD appreciation due to the current global sell-off will be limited by Fed's response function.”

“In the best case for EUR/USD from here, we see several new EUR-positive factors but this will not be priced before some time. We are thus set to trade a wider interval, 1.15-1.19 and while equities remain weak, downside risk to spot is prevalent. Early next year, things may/should still change for the better.”

USD firmed against most major currencies in the European session on Friday, erasing its earlier losses, as investors cast doubts on whether the U.S. lawmakers would agree on a new relief package next week.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, rose 0.16% to 94.51.

Media reported on Thursday that House Democrats were drafting a new, smaller coronavirus relief package expected to cost about $2.4 trillion in an effort to break stalled fiscal-stimulus talks with the Trump administration. According to the reports, the House could vote on the package as soon as next week, but it's unlikely to get the support of Republicans. Earlier, the U.S. President Donald Trump claimed that he wouldn't go higher than $1.5 trillion.

FXStreet notes that The outlook for oil demand remains challenging as prospects of new mobility restrictions continue to rise. Lower refining margins and a rising possibility of storms in the US are leaving little room for refiners to increase their demand materially. Elevated inventories of oil and oil products remain another drag for the sector, per ANZ Bank. WTI holds gains near $40.50 on Friday but is heading for a weekly loss.

“The recovery in oil demand is slowing as mobility restrictions are reimposed in some countries. Rising daily COVID-19 case numbers are the key risk to a sustainable recovery in energy demand.”

“Demand for oil products is constrained by several factors at the moment. Subdued refining margins could lead to longer maintenance shutdowns. The increased likelihood of hurricanes in the US due to La Niña may disrupt refinery operations.”

“Inventories have started normalizing from their Q2 highs. The level of global floating storage has been retreating as well. Nevertheless, stocks remain burdensome and recent steepening of the forward curve suggests a well-supplied market.” 

GBP/USD: Break above 1.2777 to ease the pressure off the 1.2722 support - Credit Suisse

FXStreet reports that the Credit Suisse analyst team notes that GBP/USD still holds a cluster of supports a 1.2721/1.2655, but with a break above 1.2777/81 needed to ease the pressure off this support.

“GBP/USD continues to stabilise at our target of a cluster of supports at 1.2722/1.2655 – the 200-day average, the 38.2% retracement of the entire March/September rally, 23.6% retracement of the entire rally from the March low and ‘measured top objective’.”

“Above 1.2777/81 is needed to ease the immediate pressure of this support for a recovery back to 1.2835, then more important resistance from the 13-day average and 23.6% retracement of the September decline at 1.2864/71. Only a close above here though would suggest we have seen a near-term base for strength back to challenge what we see as more important resistance, starting at 1.2967 ad stretching up to 1.3007.”

• Government will continue to support economic recovery from coronavirus crisis

FXStreet reports that analysts at Natixis suggest that the switch to a long euro market position after a long period of a short euro position shows that financial markets are beginning to believe in this prospect of both a rise in the euro’s share of global foreign exchange reserves and an appreciation of the euro.

“There is a clear parallelism between the euro's share of global foreign exchange reserves and the euro’s exchange rate against the dollar: the euro’s share fell and the euro depreciated from 1999 to 2001; the euro’s share then rose sharply and the euro appreciated from 2002 to 2008; then the euro’s share fell again, especially from 2013, and the euro depreciated. If the euro’s share of global foreign exchange reserves rose again today, the euro would therefore appreciate anew.”

“The increase in the euro’s share of global foreign exchange reserves would stem from the increase in the US’ external debt, which may worry international investors; the fact that China, Russia and Japan are no longer buying dollar-denominated bonds; recognition of the progress being made in Europe: development of new technologies and corporate modernisation, newfound solidarity between the countries with the European recovery plan, an employment rate that has become higher than that of the US; the emergence of a European Union debt, which will attract European savings at the expense of US Treasury debt.”

NFXStreet notes that NZD/USD has bounced off lows as USD strength takes a breather and the market consolidates after retracing almost 3 cents off last Friday night’s high. The pair is trading around 0.6575, up 0.5% on the day, but economists at ANZ Bank watch out several headwinds that the kiwi is facing.

“Kiwi does face challenges on the monetary policy front and as bond yields go lower we are likely to see more investor allocation out of the local market.”

“We are also mindful of other risks on the horizon – like the US elections and clear signs that COVID-19 isn’t under control globally – which are resulting in some caution on the risk appetite front.”

USD/CAD to stabilize within the 1.33-1.34 range - OCBC

FXStreet notes that the USD/CAD pair found little traction north of the 1.3400 resistance, before retreating back towards the 1.3350-locus. The loonie is trading on Friday in the mentioned 1.3350-neighborhood and Terence Wu, FX strategist at OCBC Bank, expects USD/CAD to consolidate within the 1.3300-1.3400 range.

“Downside impetus for the loonie is limited.” 

“Expect the USD/CAD pair to turn consolidative between 1.3300 and 1.3400, with a slight upside bias going forward.”

The ECB’s report on the monetary developments in the euro area revealed that annual growth rate of broad monetary aggregate M3 decelerated to 9.5 percent in August from revised 10.1 percent in July (originally from 10.2 percent). Economists had forecast M3 annual growth rate to stay at 10.2 percent in August.

Among the components of M3, annual growth rate of narrower monetary aggregate M1, comprising currency in circulation and overnight deposits, slowed to 13.2 percent in August from 13.5 percent in the previous month. In the meantime, the annual growth rate of short-term deposits other than overnight deposits (M2-M1) eased to 0.4 percent in August from 1.4 percent in the previous month., and the annual growth rate of marketable instruments (M3-M2) weakened to 8.3 percent from 11.4 percent in July.

The report also revealed that annual growth rate of adjusted loans to households was 3.0 percent in August unchanged from July, while annual growth rate of adjusted loans to non-financial corporations stood at 7.1 percent, also unchanged from the previous month.

USD fell against other major currencies in the Asian session on Friday as the prospects of another economic package eased investors’ concerns that the recovery of the U.S. economy is slowing, which are vindicated by incoming data, as well as election-related risks. 

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, dropped 0.16% to 94.20.

Media reported on Thursday that House Democrats were preparing a new, smaller coronavirus relief package expected to cost about $2.4 trillion in an effort to break stalled talks with the Trump administration. The House could vote on the package as soon as next week, but it's unlikely to get the support of Republicans.

• There is no doubt about our determination to act as much as needed
• ECB has "free hands" for future action
• We have ample room to manoeuvre
• Inflation is not yet where we want it
• ECB might let inflation rise above 2% for some time
• Inflation target should be perceived as flexible, symmetric and medium-term
• Symmetric means that our numerical objective is target, not ceiling
• Medium-term inflation target cannot ignore the past
• We should examine whether current formulation of inflation target casts doubt on ECB’s commitment to symmetry

FXStreet notes that USD/CHF gained traction for the fifth consecutive session on Thursday and shot to fresh two-month tops around 0.9270. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, sees the pair inching higher heading to the six-month downtrend at 0.9446.

“USD/CHF continues to work higher and remains on course for the 38.2% retracement of the move down from the March peak at 0.9342.”

“It should be noted that there is scope for a test of the six-month downtrend at 0.9446.”

“Dips should remain contained by 0.9094 the near term uptrend.”

FXStreet reports that FX Strategists at UOB Group suggest that cable is seen attempting a consolidation move ahead of a potential drop to the mid-1.2600s.

24-hour view: “We highlighted yesterday that GBP ‘could drift downwards but any weakness is viewed as part of lower trading range of 1.2650/1.2760’. Our expectation did not materialize as GBP traded in a relatively quiet manner between 1.2692 and 1.2780. Momentum indicators are turning ‘neutral’ and GBP could continue to trade sideways for today, expected to be within a 1.2700/1.2800 range.”

Next 1-3 weeks: “GBP subsequently dropped to a low of 1.2676 but it has not been able to make further headways on the downside. Shorter-term momentum is beginning to ease and this could lead to a couple of days of consolidation first. As long as the ‘key resistance’ at 1.2830 is not taken out, another down-leg towards 1.2650 is still a distinct possibility.”

Office for National Statistics (ONS) reported on Friday that UK’s public sector net borrowing (excluding public sector banks, PSNB) was GP35.9 billion in August, up from a revised GBP14.7 billion in July (originally GBP25.9). Economists had forecast the PSNB to increase to GBP35.1 billion in August. This represented the third-highest borrowing in any month since records began in 1993.

Borrowing in the first five months of this financial year (April to August 2020) amounted to GBP173.7 billion, GBP146.9 billion more than in the corresponding period last year. This was the highest borrowing in any April-to-August-period since records began in 1993.

FXStreet reports that FX Strategists at UOB Group notes that further downside in AUD/USD is probable and faces important contention in the 0.6970 area.

24-hour view: “We expected AUD to weaken yesterday but held the view that ‘0.7030 is expected to offer solid support’. The support did not materialize as AUD dropped to a low of 0.7016 before rebounding. While downward momentum has eased somewhat, it is too early to expect a sustained recovery.”

Next 1-3 weeks: “Yesterday (24 Sep, spot at 0.7075), we noted that 0.7030 is a solid support and ‘a break of this level could potentially trigger further rapid decline’. AUD subsequently cracked 0.7030 but it rebounded after touching a low of 0.7016. Slowing shorter-term momentum could lead to a couple of days of consolidation first. As long as the ‘strong resistance’ at 0.7180 is intact (no change in level from yesterday), the current negative phase still appears to have room to run. The next support is at 0.6970.”