Analytics, News, and Forecasts for CFD Markets: currency news — 10-08-2020.

ForexLive reports that MUFG Research adopts a cautious bias on GBP in the near-term.

"Over the last two weeks the GBP has been the best performing G10 currency. Unless there is a broader deterioration in overall investor risk sentiment, the GBP appears well placed to extend its advance in the near-term."

 "If cable is able to break above the 1.3200 where the highs from earlier this year are located, it will open the door to a potential test of the December 2019 high at close to the 1.3500."

"We would become more confident in further near-term GBP gains if EUR/GBP was able to break more decisively back below the 0.9000-level."

FXStreet reports that strategists at TD Securities remark that the AUD/USD pair has found support at the 0.7140 today and is now trading at 0.7175, up 0.20% on  the day. The aussie should see a test of the 0.7243 18-month high amid USD weakness.

“We note that AUD/USD found good support at a trendline that intersects at 0.7140 today.”

“While we remain biased toward a weaker USD overall, a further pullback would first see a test of the 0.7120 pivot, while good support should be seen in the 0.7065/7080 zone.”

“If the upside does get traction once again, the post-crash, 18-month high at 0.7243 as forms the most obvious objective.”

The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department on Monday revealed a 9.6 percent m-o-m jump in the U.S. job openings in June after a revised 7.5 percent m-o-m surge in May (originally an 8.0 percent m-o-m climb).

According to the report, employers posted 5.889 million job openings in June compared to the May figure of 5.371 million (revised from 5.397 million in the original estimate) and economists’ expectations of 4.910 million. The job openings rate was 4.1 percent in June, up from an unrevised 3.9 percent in the prior month. The report showed that job openings rose in a number of industries with the largest increases in accommodation and food services (+198,000 jobs), other services (+69,000), and arts, entertainment, and recreation (+34,000), but decreased in construction (-70,000) and in state and local government education (-26,000).

Meanwhile, the number of hires fell by 7.0 percent m-o-m to 6.696 million in June from a revised 7.199 million in May. This was the second-highest level in series history (the series high occurred in May 2020). The hiring rate decreased to 4.9 percent in June from a revised 5.4 percent in May. The hires level declined in a number of industries, with the largest fall in other services (-326,000), followed by health care and social assistance (-282,000), and construction (-181,000). These declines, however, were partially offset by increases in professional and business services (+255,000), accommodation and food services (+78,000), and state and local government, excluding education (+30,000).

The separation rate in June was 4.758 million or 3.5 percent, compared to 4.236 million or 3.2 percent in May. Within separations, the quits rate was 1.9 percent (+0.3 pp m-o-m), and the layoffs rate was 1.4 percent (flat pp m-o-m).

The changes in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus pandemic and efforts to contain it, the report noted.

• U.S. states have more than enough money to handle shortfalls
• Legislation needs to get passed for COVID aid
• There is room for compromise on talks, but $1 trillion for state and local governments is an "absurd number"
• There is money for PPP program
• Cannot just split the difference with Democrats over COVID-19 aid package costs, must go line-by-line
• If we can get a "fair" deal, we'll do it this week
• President Trump willing to sign a stand-alone bill on education funding
• We are not in the same "emergency' state on COVID-19 aid as before

• We are working to resume publication of daily data on coronavirus deaths
• We can and will act quickly on quarantine from abroad if data shows we need to
• Schools would be the absolute last sector to close in any local lockdown

S&P 500 Index to see a test of the 3394 record high - Credit Suisse

FXStreet reports that еhe S&P 500 Index maintains its break above resistance from the top of the February “pandemic” price gap at 3328/38 and although the uptrend is seen a little sluggish, economists at Credit Suisse look for this to clear the way for a challenge on the 3394 record high.

“S&P 500 is grinding its way higher following its break above resistance from the top of the February price gap at 3328/38 and whilst we remain concerned the trend is getting overstretched this suggests we can see strength extend further yet with resistance above 3356 seen next at 3373 and then and critically the 3394 record high, where we would expect to see at least some form of rejection, even if this proves only to be a brief pullback.”

“Support moves to 3329 initially, with 3318/17 needing to hold to keep the immediate risk higher. A break can see a deeper setback to 3307, then what we would look to be better support from its 13-day average, recent lows and gap support at 3286/71.”

USD rose against its major rivals in the European session on Monday, as investors looked to signals of a re-start of stimulus talks between the White House and congressional Democrats and escalating U.S.-China tensions.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, increased 0.20% to 93.62.

Negotiations over the next stimulus package collapsed on Friday, prompting the U.S. president Donald Trump to take executive actions to extend unemployment benefits for Americans who lost their jobs during the COVID-19 pandemic. However, the U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin hinted on Sunday that they were open to resume stimulus talks and to discuss a narrower deal that would extend some aid until the end of the year.

Worsening tensions between the U.S. and China also continued to support the U.S. currency. China announced the imposition of sanctions against U.S. officials in retaliation to the Trump administration's decision to sanction Chinese officials over Hong Kong-related issues. China's Foreign Ministry said that it would sanction 11 Americans, including Senators Marco Rubio and Ted Cruz, "in response to the U.S.’s wrong behaviors". However, it should be noted that the sanction list does not include any members of the Trump administration.

Market participants are also preparing for the U.S.-China trade talks later this week. Both sides' senior officials are to hold a teleconference on August 15 to review the implementation of their Phase 1 trade agreement. Rising tensions between Washington and Beijing raised concerns that their trade deal could be in jeopardy.

• Countries in western Europe and elsewhere now need to see how fast they can respond to flare-ups of COVID-19
• This virus is proving exceptionally difficult to stop

FXStreet reports that USD/CAD is seeing a deeper pullback as trades around 1.3390 after reaching its lowest level since late February earlier last week, although strength stays seen as corrective for now and analysts at Credit Suisse look for resistance at 1.3421 to ideally cap.

“USD/CAD extended its correction higher, in line with daily MACD momentum now also breaking higher and above 1.3383 can see a deeper rebound to test the downtrend from March, 21-day exponential average and 38.2% retracement of the June/August fall at 1.3418/21, but we look for this to then ideally cap and for the core bear trend to resume.”

“Above 1.3421 though would see the downtrend break to increase the threat of a small base, although this would only be confirmed above 1.3460, with resistance next at 1.3486/91.”

“Support is seen at 1.3368 initially, then 1.3285/67, below which should see bearish pressure resume with support then seen next at 1.3233 and then more importantly at 1.3206/1.3191.”

Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING, notes that EUR/USD is consolidating in a 1.17-1.19 trading range and may gravitate to the 1.1800 area for a large options expiry at 16 CET today. 

"Net speculative long EUR positioning continues to grow to extreme levels portraying a conviction view that the recent EUR/USD rally constitutes the start of a new, major bull trend."

"We certainly back a stronger EUR/USD into November – and Fed policy looks set to weigh heavily on the dollar – although we think the result of the election will have a major impact on the dollar trend for 2021. The Eurozone data calendar looks unlikely to have too much bearing on EUR/UD this week."

• Urges people to consider the government's guidance when making holiday plans

EUR/USD is trading at around 1.1760, down -0.22% on the day, as the US dollar is correcting higher. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, notes that RSI has diverged and expects a deep consolidation on the pair.

“EUR/USD last week rallied to and failed at the 1.1915 January 2018 low and last month's high at 1.1908. There is now a large divergence of the RSI and we would allow for a deeper correction lower.”

“Initial support lies 1.1646/36 (a double Fibo) ahead of the three-month uptrend at 1.1500 and the March high at 1.1495.” 

“Above 1.1915/20 we will just go with it and look for further gains to 1.2635/66, the 200-month ma.”

FXStreet reports that Nathan Peterson from Charles Schwab remains bullish on the S&P 500 index after the index closed above the 3,350 mark last week, the highest close since late February.  

“With roughly 85% of the S&P 500 companies having reported earnings so far, 64% have beat estimates on the top line while 84% have beat on the bottom line. This compares to the respective 59% and 65% seen in the prior quarter.”

“It feels like the path of least resistance is still probably higher (perhaps traders want to see a fresh all-time cross the tape), but if there is a continued delay in a fiscal relief bill we may see some more downside first. In that scenario it appears that the first level of support would come in around the 20-day Simple Moving Average (3,254). Translation = bullish.”

“At its current level of roughly 23, the VIX is suggesting daily changes in the S&P 500 of roughly 40 points. That seems a bit high when you look at the recent price action in the S&P 500, but remember that the VIX represents a 30-day future volatility estimate. A 23 VIX doesn’t seem unreasonable in my opinion given the high level of uncertainty in the current economic environment.”  

Reuters reports that italian banks increased their lending to companies in June, as business resumed after a government-imposed national lockdown was gradually lifted, data showed on Monday.

A monthly Bank of Italy report on domestic banks' balance sheets showed that loans to non-financial companies were up 3.7% year-on-year, almost double the 1.9% rise seen in May.

Gross unpaid loans were down to 68.05 billion euros ($79.98 billion) a the end of June versus 71.21 billion euros a month earlier.

Italian residents' deposits with domestic banks kept rising, reaching 2.64 trillion euros, while holdings of domestic government bonds were steady at 434.3 billion euros in June compared to 419.3 billion euros in April.

FXStreet reports that Andrew Sheets, Chief Cross-Asset Strategist at Morgan Stanley, discusses the case to be more optimistic in the near-term and why he thinks this remains a bull case outcome rather than his base case expectation. The strategist breaks this story down along three main themes: economic fundamentals, market valuations and supply versus demand.

"On economic fundamentals, the near-term bull case is that global economic data will continue to recover and really shrug off any new Autumn resurgence of the Coronavirus. We think the economic recovery has been greatly aided by government stimulus; stimulus that in the US may soon start to run out. As of this recording, there was still no sign that more federal spending would be on the way."

"The US and global equity markets are now trading near their recent valuation highs in price-to-earnings and other metrics. And this is probably the most worrying element of today's market. But current valuations are also very bifurcated, with stocks in high growth segments like technology, very expensive, and other parts of the market, far more average versus history. The bull case is that the expensive parts of the market can manage to hang on to the valuations they have, and the rest of the market can see its valuations go higher."

"The strongest argument for continued market strength is likely the idea that there remains a lot of 'cash on the sidelines,' so to speak. Central banks are continuing to buy assets in large numbers. Investors raised a lot of cash during February and March, as the virus hit, that they haven't fully put back into the market. The optimistic case is that this money finally relents and buys into the market in the face of heavy central bank intervention."

"In the near-term, we simply think that people could hold onto their cash a little while longer. Whether it's the uncertainty over further government stimulus, or the coming US elections, or US-China trade tensions, or simply how the virus will evolve as schools try to reopen, there remain a host of uncertainties. With investors now enjoying year-to-date gains across many asset classes, they simply may not try to push their luck."

According to the report from Sentix, iIn August, the sentix overall index for the eurozone economy climbed by +4.8 to -13.4 points for the fourth time in a row. The current situation values increased by 8.2 points, but are still in recession at -41.3 points. At +19.3 points, expectations remain stably positive, meaning that the economic recovery should continue. We also measure the fourth consecutive improvement for Germany. The current situation values increased by 10 points month-on-month and now stand at -30.8 points. Internationally, the Asian region is leading the improvement: The overall index for Asia ex-Japan is even above zero. The recovery in the USA and Latin America remains disappointing.

The process of economic recovery is proving sluggish. Nevertheless, the August figures of the sentix economic indices are surprising. More and more attention is now being paid to the development of the current situation values, as in the previous months the expectations values have been clearly on the rise and have made considerable upfront investments. With the highest value since March 2020 and a level of -41.3, there is still no rejoicing in absolute terms. After all, such a low index level means that the third quarter is still in recession. Nonetheless, the recovery is progressing, especially since the expectations for August were almost unchanged from the previous month's level of +19.5 at +19.3. It is remarkable in this context that a second wave of corona infections does not leave a new fear reflex in the economic indicators!

FXStreet reports that analysts at Goldman Sachs see more pain for Turkish lira, which fell to a record low of 7.3558 per US dollar on Friday and has depreciated by nearly 23% this year. 

“Over the short run, risks to USD/TRY are skewed to the upside, given rising foreign currency deposits locally and a backdrop that features a deteriorating inflation outlook, limited reserves, an external financing gap and an unconventional policy mix that is running up against binding constraints,” Goldman’s Zach Pandl noted in a report, according to Bloomberg. 

The investment bank has raised USD/TRY forecasts to 7.75, 8, and 8.25 in three, six, and 12 months, respectively, from the previous projection of 7, 7.50, and 8.

“Amid August illiquidity, a discontinuous move in the lira would still reverberate across EM HY markets as investors would likely worry about ‘the next domino to fall’ as a result of the COVID crisis”

FXStreet reports that West Texas Intermediate (WTI), the North American oil benchmark, is nearing $42.00 per barrel. Strategists at TD Securities note that the demand side is still a concern for investors but supply cuts should mean the market will rebalance by 2021.

“Amid large crude oil inventory draws in the US, money managers increased their long WTI crude oil exposure. But, specs also added shorts as OPEC+ production increases came near, at a time when demand growth remains a worry.”

“While demand continues to be a concern, the supply side is providing more support as US production fell back down to 11 millon barrels per day, showing signs that a revival in shale supply in the US looks to be a long shot. This suggests the global market should rebalance into 2021 as demand normalizes and creates a set-up in which an eventual recovery in demand could see energy prices trade significantly higher in the future.”

Reuters reports that a Turkish regulator said on Monday it lowered deposit banks’ asset ratio to 95% from 100%, easing a rule set in April in the face of coronavirus that effectively forced private banks to lend more and buy more government debt.

The decision had been expected after a meeting last week - when the Turkish lira plunged to a historic low - between bankers and Turkish authorities who had hinted at flexibility.

The BDDK banking watchdog on Monday made a handful of adjustments meant to help lenders cover their ratios, which could provide leeway as the central bank moves to tighten credit channels in the face of the currency depreciation.

The asset ratio required for Islamic banks was eased to 75% from 80%, the statement said.

April’s decision was also designed to protect the economy from fallout from the pandemic, which prompted the government to ramp up borrowing.

During today's Asian trading, the US dollar changed slightly against the euro and the Japanese yen.

The ICE Dollar index, which shows the value of the US dollar against six major world currencies, fell by 0.01% compared to the previous day.

Commonwealth Bank of Australia (CBA) experts expect the dollar to remain weak this week. Pressure on the US national currency is exerted by diverging forecasts for the US economy and other countries of the world.

At the same time, the periodic increase in tensions between Washington and Beijing may provide temporary support to the dollar, but the CBA doubts that this will be enough to compensate for the downward pressure on the US currency.

US President Donald Trump over the weekend signed an executive order partially returning additional payments to unemployment benefits for tens of millions of Americans who lost their jobs due to the coronavirus pandemic. According to the decree, the payments, which will amount to $400 a week, will be 75% funded by the Federal government and 25% by state authorities.

Other executive orders signed by Trump include deferring payroll tax payments for people earning less than $100,000 a year, extending the moratorium on student loan payments, and measures to help homeowners and renters.

Statistics released on Friday indicated a more significant than expected increase in the number of jobs in the United States. This week, investors are also waiting for data on retail sales and industrial production in the US in July.

FXStreet reports that Lee Sue Ann, Economist at UOB Group, sees the RBNZ sticking to the current monetary conditions at its meeting on August 12.

“We cannot rule out the possibility of negative interest rates in time, but that will come with considerable baggage and we do not expect the RBNZ to employ that option for now.”

“It will continue to use volume announcements (eg the programme is currently NZD60bn in size) as it fine-tunes its policy stance.”

“We expect QE to be expanded to a cap of NZD90bn by August. Another option for the RBNZ is to adjust the QE programme to a type of ‘yield curve control’.”

Reuters reports that economic activity in France ran at 7% below normal levels in July, a slight improvement on June, as the construction sector neared pre-coronavirus crisis levels of activity and industrial capacity usage nudged higher, the Bank of France said.

In its monthly update on business conditions, the central bank said on Monday the euro zone's second biggest economy contracted 13.8%, in line with its forecast.

"The rebound continued in July, at a more moderate rhythm, in line with the trajectory anticipated last month," the bank said.

In June, economic activity was 9% below normal levels, up from the 32% reduction seen during the first two weeks of lockdown in March.

The positive trend continued just as France and other European governments took new measures to curb a renewed rise in infection rates, desperate to avoid a return to the lockdowns that battered economies globally.

In the manufacturing industry, capacity utilisation in July rose 3 points to 72%.

Manufacturing and service sector activity would be stable in August, the bank projected.

CNBC reports that Gold prices could forge ahead to $4,000 per ounce in the next three years, but factors such as the development of a coronavirus vaccine and the November U.S. elections could change the fortunes of the precious metal, analysts say.

This year, gold prices have shot to record highs not seen since September 2011. Investors have been fleeing to “safe haven” assets as the pandemic shows no signs of abating. Last week, gold prices surged above $2,000 per ounce for the first time.

“It’s quite easy to see gold going to $4,000,” Frank Holmes, CEO at investment firm U.S. Global Investors, told CNBC on Monday.

He pointed to the trillions of dollars needed in stimulus to tide the U.S. economy during the coronavirus pandemic, and added that G-20 finance ministers and central banks are “working together like a cartel and they’re all printing trillions of dollars.”

“We’ve not seen this level where central banks are printing money at a zero interest rate. At zero interest rates, gold becomes a very, very attractive asset class,” Holmes said.

A looser monetary policy generally means investors are more likely to seek out gold as an asset. When real yields go down, gold prices will go up, and vice versa. In such a scenario, the opportunity cost of holding gold, a non-yielding asset, is lower as investors are not foregoing interest that would be otherwise earned in yielding assets.

While Yung-yu Ma, chief investment strategist at BMO Wealth Management — U.S., agreed that there are many factors supporting gold, he pointed to two big events that could change the direction of prices.

“We’re just cautious extrapolating these current factors ... especially when we know there are two big events on the horizon that could change that trajectory. One is of course the vaccine development, and the other is the elections,” he told CNBC on Monday. “We think ... especially the vaccine has potential to shift some of those positive factors that are working right now in the favor of gold,” he said.

Depending on how the U.S. elections go, analysts have said that gold prices could react accordingly.

According to New York-based research provider Third Bridge Group, gold prices could fall to below the $1,600 mark after the elections, before rallying again next year.

RTTNews reports that China's consumer price inflation accelerated in July on higher food costs as regional flooding disrupted transportation, and the decline in factory gate prices slowed further reflecting the recovery in economic activity, official data showed Monday.

Inflation rose to 2.7 percent in July from 2.5 percent in June, the National Bureau of Statistics reported. The rate was marginally above economists' forecast of 2.6 percent.

Food prices advanced 13.2 percent annually as pork prices surged 85.7 percent amid supply disruptions. Food price inflation increased from 11.1 percent in June.

Meanwhile, non-food prices remained flat versus June's 0.3 percent rise.

Core inflation, which excludes food and energy prices, slowed to 0.5 percent from 0.9 percent in June.

On a monthly basis, consumer prices climbed 0.6 percent, offsetting a 0.1 percent drop in June. Economists had forecast a monthly increase of 0.4 percent.

Amid higher commodity prices, producer prices declined at a slower pace of 2.4 percent annually in July, after posting a 3 percent decrease in June, another report from NBS showed. Prices were expected to fall 2.5 percent.

Month-on-month, producer prices were down 2.4 percent in July.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1925 (2374)

$1.1895 (1356)

$1.1869 (1130)

Price at time of writing this review: $1.1790

Support levels (open interest**, contracts):

$1.1716 (1190)

$1.1696 (533)

$1.1672 (467)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date September, 4 is 83724 contracts (according to data from August, 7) with the maximum number of contracts with strike price $1,1400 (4026);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3202 (869)

$1.3176 (826)

$1.3153 (2171)

Price at time of writing this review: $1.3066

Support levels (open interest**, contracts):

$1.2929 (354)

$1.2902 (1083)

$1.2872 (358)

Comments:

- Overall open interest on the CALL options with the expiration date September, 4 is 21813 contracts, with the maximum number of contracts with strike price $1,3800 (3256);

- Overall open interest on the PUT options with the expiration date September, 4 is 14873 contracts, with the maximum number of contracts with strike price $1,3000 (1083);

- The ratio of PUT/CALL was 0.68 versus 0.96 from the previous trading day according to data from August, 7

* - 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.