Analytics, News, and Forecasts for CFD Markets: currency news — 09-02-2021.

FXStreet notes that the MSCI UK Index generally underperformed the rest of the MSCI World Index of developed market (DM) equities for much of 2020. Strategists at Capital Economics think that the UK's equities will outperform their peers elsewhere this year, as some of the headwinds that they faced in 2020 fade or even act as tailwinds.

“Now that the uncertainty about the future relationship of the UK and EU has been removed and a ‘no deal’ scenario avoided, we think that it is more likely that the discount that UK equities have been trading at since 2016 will gradually unwind a little, rather than widen further.”

“We forecast the MSCI UK Index to end the year at around 2,100, an increase of ~16% from its current level, compared to our forecasts of a ~8% rise from the MSCI USA Index and a ~10% rise from the MSCI EMU Index. This translates into a forecast for the FTSE 100 to end the year at around 7,500, compared to around 4,200 for the S&P 500.”

The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department on Tuesday revealed a 1.1 percent m-o-m gain in the U.S. job openings in December after a revised 0.9 percent m-o-m decline in November (originally a 1.6 percent m-o-m drop).

According to the report, employers posted 6.646 million job openings in December compared to the November figure of 6.572 million (revised from 6.527 million in the original estimate) and economists’ expectations of 6.500 million. The job openings rate was 4.5 percent in December, up from an unrevised 4.4 percent in the prior month. The report showed that the number of job openings increased in professional and business services (+296,000), but dropped in state and local government, excluding education (-65,000), arts, entertainment, and recreation (-50,000); and nondurable goods manufacturing (-30,000).

Meanwhile, the number of hires plunged 6.7 percent m-o-m to 5.539 million in December from a revised 5.935 million in November. The hiring rate was 3.9 percent in December, down from an unrevised 4.2 percent in November. Hires fell in accommodation and food services (-221,000); transportation, warehousing, and utilities (-133,000), and arts, entertainment, and recreation (-82,000), but rose in retail trade (+94,000).

The separation rate in December was 5.460 million or 3.8 percent, compared to 5.523 million or 3.9 percent in November. Within separations, the quits rate was 2.3 percent (+0.1 p.p. m-o-m), and the layoffs rate was 1.3 percent (-0.1 p.p. m-o-m).

FXStreet reports that the GBP/USD pair has pushed to a new high for the year and above-trend resistance at 1.3788, which should reinforce the existing major base for a move to 1.4000, ahead of 1.4302/77, analysts at Credit Suisse appraise. 

“GBP/USD continues to push higher following last week’s bullish ‘reversal day’ for a move above the 1.3759 high to turn the focus back on trend resistance from the beginning of the year seen at 1.3788 today. We would then see resistance next at 1.3804 ahead of 1.4000 and then our first major objective at 1.4302/77 – the key 2018 highs and 50% retracement of the 2014/2020 bear trend – which we expect to cap for a fresh consolidation phase.”

“Support is seen at 1.3759/58 initially, then 1.3731, with the 13-day exponential average now at 1.3700 and with the immediate risk seen higher whilst above 1.3681.”

• Says Fed measures certainly have impact on financial assets
• Sees strong boost to GDP growth in 2021
• Sees above-trend growth in 2022
• Says he is watching for excess risk-taking

FXStreet reports that Senior Economist at UOB Group’s Global Economics & Markets Research Alvin Liew reviews Friday’s release of the Nonfarm Payrolls for the month of January.

“The US economy returned to jobs increase in January although it was hardly a roaring start to the New Year. US nonfarm payrolls (NFP) rose by just 49,000 (NFP) jobs in Jan, in line with the Bloomberg median estimate for an already low 50,000 job creation. Notably, the number of jobs lost in December was revised significantly higher to -227,000 (from the previous estimate of -140,000). The latest NFP number was well below the private sector ADP print of 174,000 jobs increase reported during mid-week (3 Feb).”

“Even as the US economy managed to etch out 49,000 new jobs (including 43,000 government jobs – implying just 6,000 private sector jobs in Jan), the weak number masks the reality that several important sectors continued to lose jobs amidst the worsening pandemic and tighter restrictions.”

USD fell against its major rivals in the European session on Tuesday amid signs that the House Democrats were moving forward with a $1.9 trillion stimulus bill. 

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, dropped 0.37% to 90.60, its lowest level since January 29.

The House Democrats unveiled a draft of the coronavirus stimulus package on Monday night, which includes $1400 stimulus checks with $75,000/year eligibility, a $400 per week unemployment benefit supplement, a $3600 child credit, funding to state and local governments and vaccine distribution among the proposals. This draft, however, could change over the next month-plus of negotiations. The White House Press Secretary Jen Psaki said that the stimulus plan probably would advance under a fast-tracked procedure Democrats could use to clear the package with just a simple majority vote in the Senate.

Some experts believe that a fresh round of the U.S. fiscal stimulus along with record low-interest rates in the country will weigh on USD in the coming months.

FXStreet notes that еhe USD/JPY pair has seen a decisive rejection as expected the 200-day average at 105.57 and analysts at Credit Suisse see scope for a deeper setback to the near-term uptrend at 104.20.

“USD/JPY has retested and again rejected our first target of the 200-day average and November high at 105.59/75 and we remain of the view this barrier should remain intact initially, clearing the way for a deeper pullback/consolidation.”

“Below 105.33 has already seen a minor top complete to add weight to this view for a move below the ‘measured top objective’, 38.2% retracement of the January/February rally and price support at 104.93/83. This should see weakness extend back to 104.46/44, then the near-term uptrend at 104.20, with our bias then for a fresh floor here.” 

FXStreet suggests that with oil prices currently at $60/barrel, EUR/NOK should trade around 10.10. Economists at Nordea see some downside in the pair from the current 10.25 in the short-term. Toward the summer, NOK should continue to strengthen in tandem with the normalization. 

“We see more downside in EUR/NOK from the current level, not only over the longer horizon but also in the short-term. An oil price at $60/barrel implies EUR/NOK around 10.10 according to our simple model. If oil prices hold their ground, as we expect, we will get there in the near-term. If market sentiment for some reason should sour, we see resistance on the upside at 10.40.”

“The oil price will determine how low EUR/NOK will go this year and we are very comfortable with our prediction that the cross will come below 10.00 later this year.” 

“Risk sentiment will likely continue on a positive note – also supporting NOK. And when Norges Bank sees that the economy is about to normalize, the central bank could easily signal sooner rate hikes. This should prove additional support for NOK down the road, as most other central banks are nowhere near even thinking about hiking rates.”

FXStreet reports that the Credit Suisse analyst team notes that the AUD/USD pair saw another positive session on Monday, breaking above the crucial resistance area at 0.7683/7704, negating the small top to suggest further near-term strength, with key resistance seen initially at 0.7782.

“With a bullish ‘reversal day’ in place and daily MACD momentum also about to turn higher again, we look for further near-term upside, with immediate resistance seen initially at 0.7731. Beyond here would see a move back to 0.7764/70, removal of which would negate the bearish ‘reversal day’ and expose 0.7782, where we would expect to see fresh sellers at first.” 

“Support moves initially to 0.7694, then 0.7651, beneath which would ease the immediate upside pressure and see a move back to 0.7610/01, where we would expect to see a first attempt to hold. Removal of here though would expose Friday’s low at 0.7583.”

FXStreet reports that economists at MUFG Bank note that the euro has benefitted from the broad-based US dollar sell-off which has helped to lift EUR/USD back towards the 1.2100-level after hitting an intra-day low at the end of last week of 1.1952. It provides some relief for the euro after a bad start to the year. 

“We continue to believe that the recent correction lower for EUR/USD will prove to be only temporary and have been encouraged by the euro’s ability to quickly bounce back above the 1.2000-level.”

“Market participants have become less concerned by political risks in Italy over the past week which at the margin has helped ease some downward pressure on the euro in the near-term. Mario Draghi will continue to hold meetings today with Italy’s biggest parties in an attempt to secure enough support to form a technocratic government. According to recent reports, he has received positive signals from both former government forces and the opposition during exploratory talks.”

FXStreet reports that UOB Group’s FX Strategists noted that a further decline in USD/CNH is predicted to meet strong contention at the 6.4130 level in the short-term horizon.

24-hour view: “The subsequent sharp drop in USD came as a surprise as it dropped to 6.4388. Strong downward momentum suggests USD is likely to weaken further towards 6.4280 (minor support is at 6.4350). Resistance is at 6.4480 followed by 6.4550.”

Next 1-3 weeks: “USD dropped below 6.4400 yesterday and shorter-term momentum has improved. The risk has shifted to the downside even though month’s low near 6.4130 is expected to offer solid support. On the upside, a break of 6.4750 would indicate the current downside risk has dissipated.”

FXStreet reports that with market expectations of a global economic recovery, economists at HSBC expect the AUD to strengthen against the USD this year. 

“The RBA is simply matching its QE programme and forward guidance to that of other central banks, including the Federal Reserve. This neutralises the FX impact and is consistent with our view that rate differentials will play a much smaller role for the AUD than in recent years. Individual monetary policy actions are dwarfed by bigger global drivers.”

“The key question for the AUD outlook is to assess whether the global growth tailwinds will remain supportive, not to speculate over what the RBA might do next. For now, we believe that the USD is still in a modest cyclical downtrend and AUD/USD is likely to increase gradually this year, as Australia's terms of trade are higher than 2018, the last time the currency pair was above the level of 0.80.”

Reuters reports that Citi said that a squeeze of short positions looks set to drive a further rally in the S&P 500 index.

Nearly $10 billion worth of shorts were unwound last week on the S&P 500, the largest rate since April, and $21 billion shorts still remain and are in loss, analysts at Citi said.

"There is potential for further short squeezes supporting market gains for another week or two given the size of the remaining short base," they wrote in a report.

They also said that at 4,000 points holders of long positions on the index could be tempted to take profit, potentially holding back the market in the short term.

RTTNews reports that data from the People's Bank of China showed that China's bank lending increased notably in January.

Banks extended a record CNY 3.58 trillion new loans in January. Economists had forecast the lending to rise to CNY 3.5 trillion from December's CNY 1.26 trillion.

The broad money supply M2 climbed 9.4 percent annually.

January's net new credit figures are usually the highest of the year, so this high level does not signify much, Sheana Yue and Mark Williams, economists at Capital Economics, said.

FXStreet reports that economists at MUFG Bank discuss EUR/USD prospects.

“We continue to believe that the recent correction lower for EUR/USD will prove to be only temporary and have been encouraged by the euro’s ability to quickly bounce back above the 1.2000-level.”

“Market participants have become less concerned by political risks in Italy over the past week which at the margin has helped ease some downward pressure on the euro in the near-term. Mario Draghi will continue to hold meetings today with Italy’s biggest parties in an attempt to secure enough support to form a technocratic government. According to recent reports, he has received positive signals from both former government forces and the opposition during exploratory talks.”

FXStreet reports that economists at Capital Economics discuss the prospects of the US dollar.

“The dollar’s rebound is not all that surprising. The pace of its decline, especially since the start of November, was close to the fastest on record. And speculative positioning against the dollar is near record levels. This suggests the scope for it to fall further in the near-term is limited.”

“More than 10% of Americans have now received a first vaccine dose, a significantly faster pace of vaccine rollout than any other major economy aside from the UK. To the extent that this divergence continues, it could help the dollar rally further. And expectations about the relative pace of monetary policy normalisation in the US and the rest of the world might shift in favour of the dollar.”

“Currency performance has been closely linked to the relative changes in long-term government bond yields since the start of the year. The currencies of economies where yields have kept pace with those in the US have not lost much ground against the dollar. But the yen and the euro have suffered, as bond yields there have not risen much. Of course, this pattern may not last. But if US yields continue to edge up and those in Europe and Japan lag, that would challenge our forecast that the euro and the yen will appreciate against the dollar this year.”

According to the report from Istat, in December 2020 the seasonally adjusted industrial production index decreased by 0.2% compared with the previous month. The change of the average of the last three months with respect to the previous three months was -0.8%. The index measures the monthly evolution of the volume of industrial production (excluding construction). 

The calendar adjusted industrial production index decreased by 2.0% compared with December 2019 (calendar working days being 21 versus 20 days in December 2019).

The unadjusted industrial production index increased by 1.0% compared with December 2019.

Bloomberg reports that the Bank of France said that French economic activity is running at 5% below pre-crisis levels as the government holds off from imposing a full Covid-19 lockdown beyond the current curfew and closures in some sectors.

After dipping to 7% below normal during November’s lockdown, the economy improved somewhat in December and is expected to remain steady through February, according to the central bank’s monthly survey of 8,500 companies conducted between Jan. 27 and Feb. 3.

“Confronted with a hard shock, the French economy is resisting well overall,” Bank of France Governor Francois Villeroy de Galhau said. “This resilience is both a good surprise concerning the end of 2020, and a source of reassurance for 2021.”

Villeroy confirmed the central bank’s forecast of 5% growth in 2021, which he described as “robust and rather cautious.”

Still, the situation could change quickly if the government opts for more restrictions to contain the virus. According to statistics agency Insee, such a lockdown could cause the economy to contract again in the first quarter.

FXStreet reports that economists at ANZ Bank think the latest bout of euro weakness is corrective as positive drivers for the euro will resurface as the business cycle improves.

“In the near-term, euro weakness may run further as January’s exceptionally high core inflation print (1.4% YoY, the highest in five years) has helped to push real yields down. The slow rollout of the vaccine program across the European Union is also weighing on sentiment.”

“Our business cycle analysis implies that euro weakness should prove temporary and that the move is corrective in nature. The slow start to vaccinations will correct as serum production improves. The net effect will be to push recovery in aggregate demand into late spring and summer rather than Q1. Whilst that delay to the anticipated rebound is frustrating, positive cyclical developments will re-emerge to support the euro as 2021 progresses.”

Reuters reports that data from the China Association of Automobile Manufacturers (CAAM) showed that auto sales in China, the world’s biggest market, surged in January with a 30% jump from the same month a year earlier, the tenth month of gains.

Sales reached 2.5 million vehicles in January, data showed.

Sales of new energy vehicles (NEVs), including battery-powered electric vehicles, plug-in petrol-electric hybrids and hydrogen fuel-cell vehicles, increased 239% in January to 179,000 units.

NEV makers are expanding manufacturing capacity in China where the government has promoted greener vehicles to reduce air pollution.

During today's Asian trading, the US dollar fell against the euro and the yen as investors reassess the resilience of the US economic recovery.

The ICE Dollar index, which shows the value of the US dollar against six major world currencies, fell by 0.24%.

"The currency market is in a state of uncertainty," said Societe Generale analyst Keith Jukes, who highlighted the mixed economic outlook in the US.

Although US unemployment fell to 6.3% in January, the number of jobs is growing at a slow pace, and the pandemic continues to negatively affect the labor market.

"This is a reminder that we are still far from full employment, which is the goal of the US Federal Reserve, and this should lower expectations of a tightening of US monetary policy," said MUFG analyst Lee Hardman.

At the same time, some economists believe that the adoption of a new $1.9 trillion stimulus package proposed by US President Joe Biden could lead to faster inflation, which will force the Fed to take action.

The Australian dollar rose 0.25% against the US dollar on the back of the Australian data. The Australian business confidence index rose to 10 points in January from 5 points a month earlier, according to data from National Australia Bank (NAB).

RTTNews reports that data from the British Retail Consortium showed that UK retail sales declined for the first time since last spring as the current lockdown has hit non-essential retailers harder than in November.

Total sales decreased 1.3 percent on a yearly basis in January, while like-for-like sales grew 7.1 percent.

"The current lockdown has hit non-essential retailers harder than in November, with the new variant hampering consumer confidence and leading customers to hold back on spending - especially on clothing and footwear," Helen Dickinson, chief executive at BRC, said.

"Meanwhile, retailers have worked incredibly hard to expand their online delivery and click and collect offerings to ensure everyone can get the products they need during lockdown," Dickinson added.

According to the report from the Federal Statistical Office (Destatis), in December 2020, German exports were up 0.1%, while imports were down by 0.1% on November 2020, after calendar and seasonal adjustment. Based on provisional data, Destatis also reports that, after calendar and seasonal adjustment, exports were 4.6%, and imports 0.1%, lower than in February 2020, the month before restrictions were imposed due to the corona pandemic in Germany.

Germany exported goods to the value of 100.7 billion euros and imported goods to the value of 85.9 billion euros in December 2020. Compared with December 2019, exports increased by 2.7%, and imports by 3.5% in December 2020. In the whole of 2020, exports were 9.3%, and imports 7.1%, lower than in 2019.

The foreign trade balance showed a surplus of 14.8 billion euros in December 2020. In December 2019, the surplus of the foreign trade balance amounted to 15.1 billion euros. In calendar and seasonally adjusted terms, the foreign trade balance recorded a surplus of 16.1 billion euros in December 2020.

The German current account of the balance of payments showed a surplus of 28.2 billion euros in December 2020, which takes into account the balances of trade in goods (+17.3 billion euros), services (+2.5 billion euros), primary income (+14.2 billion euros) and secondary income (-5.8 billion euros). In December 2019, the German current account showed a surplus of 25.3 billion euros.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2186 (1870)

$1.2154 (5082)

$1.2128 (1493)

Price at time of writing this review: $1.2078

Support levels (open interest**, contracts):

$1.2028 (1738)

$1.2011 (2171)

$1.1987 (1260)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 5 is 78936 contracts (according to data from February, 8) with the maximum number of contracts with strike price $1,2100 (5082);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3871 (2007)

$1.3845 (998)

$1.3823 (554)

Price at time of writing this review: $1.3770

Support levels (open interest**, contracts):

$1.3623 (1061)

$1.3591 (924)

$1.3556 (447)

Comments:

- Overall open interest on the CALL options with the expiration date March, 5 is 16166 contracts, with the maximum number of contracts with strike price $1,4200 (3191);

- Overall open interest on the PUT options with the expiration date March, 5 is 13298 contracts, with the maximum number of contracts with strike price $1,3100 (1223);

- The ratio of PUT/CALL was 0.82 versus 0.78 from the previous trading day according to data from February, 8

* - 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.