Analytics, News, and Forecasts for CFD Markets: currency news — 11-02-2021.

eFXdata reports that TD Research flags a scope for a broad USD rally in the near-term.

"The price action is quiet but major market themes remain intact. It's a tug of war of greater growth divergence and the global central bank liquidity trade. It's likely markets will continue to blend the two of them, especially as positive vaccine, mobility, and growth news would challenge existing policy measures."

"The process itself will trigger a shift in market positioning and valuations that reflect the old state, while what comes next is largely unknown. We believe that the USD short purge would reflect a state that matches US exceptionalism, where the broad USD rallies in the next four to six weeks... The winners and losers will reflect growth expectations, policy normalization, and other traditional drivers, offering up a mixed picture for the USD if we get the initial positioning squeeze."

FXStreet notes that the COVID-19 crisis has led to something of a paradox: Italy’s public debt ratio has risen, but the probability of default has fallen. That’s largely because BTP yields are likely to stay far lower than seemed plausible before the pandemic, meaning that interest costs will fall. As a result, economists at Capital Economics now think Italy’s debt ratio is likely to decline over the next decade.

"Italy’s debt dynamics have actually improved. The most important reason for this is that, thanks to the ECB, bond yields are likely to remain far lower than seemed likely before the pandemic.”

“Italy’s debt ratio will trend down over the next decade, rather than keep rising. And lower debt interest spending will make default much less of a risk.”

“There are three key downside risks to our forecast. The first is that the ECB reins in its asset purchases too quickly. The second is that there is another major economic crisis over the next few years which puts additional strain on the public finances. And the third is that a populist government brings the state’s commitment to honouring its debt into question. Nonetheless, overall risk is lower now than before the pandemic.”

• Despite the fact that we’ve supplied all of necessary paperwork and are one of world’s most preeminent financial centers, EU still hasn’t granted us full equivalence
• This has meant that some meant number of EU shares that were previously traded on UK venues, had moved to EU venues on advice of European regulator
• Our position is the fragmentation of share trading across financial centres is in no one's interest
  

  
  

FXStreet notes that Brent crude is currently trading at $61 - a rise of over $10pb since the start of the year which takes it back to its pre-pandemic level. If this is sustained as strategists at Capital Economics expect, the Gulf countries will benefit as oil output is raised and officials hold back from further harsh austerity.

“The rise in prices (and higher output) will help to narrow twin budget and current account deficits. If oil prices stay at their current level for the rest of this year, we estimate that this would translate into a 45% rise in hydrocarbon export revenues from the Gulf compared with 2020. This would, on average, lead to an improvement in current account positions equal to 8% of GDP.”

“Budget deficits would narrow and, in the case of Qatar and Kuwait, may even return to a surplus. This would reinforce our view that policymakers in the Gulf are unlikely to pursue further harsh austerity. Equally, though they are unlikely to loosen the purse strings and this will hold back recoveries in non-oil sectors.”

• In the near term, the global economic outlook has deteriorated and become more uncertain
• We cannot be complacent about potential risks to financial stability from COVID-19 impact
• Eurozone banking sector has been resilient so far
• Asset quality to worsen

The data from the Labor Department revealed on Thursday the number of applications for unemployment declined last week, but remained elevated, as the U.S. labor market struggles to recover from its biggest shock in history, caused by the COVID-19 pandemic.

According to the report, the initial claims for unemployment benefits decreased by 19,000 to 793,000 for the week ended February 6. Still, claims remained well above pre-pandemic levels.

Economists had expected 757,000 new claims last week.

Claims for the prior week were revised upwardly to 812,000 from the initial estimate of 779,000.

Meanwhile, the four-week moving average of jobless claims fell to 823,000 from an upwardly revised 856,500 in the previous week.

Continuing claims decreased to 4,545,000 from an upwardly revised 4,690,000 in the previous week.

FXStreet reports that the Credit Suisse analyst team note that the S&P 500 Index remains at the 3900/3930 resistance cluster and the “ideal” roadmap remains for a cap here at first and for a consolidation/correction phase to unfold.

“S&P 500 is showing tentative signs of stalling at our 3900/3900 ‘measured triangle objective’ and resistance zone and although we continue to see the broader trend higher, our ‘ideal’ base case remains for a cap here at first and for a temporary consolidation/correction phase to unfold.” 

“Support moves to 3897 initially, then 3885/82 below which would now add weight to our view as this would see a minor top complete for a retreat back to 3871 initially, then the rising 13-day exponential average, currently at 3854. A close below here is needed to suggest a lengthier consolidation can emerge, with support seen next at 3840/30.” 

FX/commodities strategists at ING note that AUD is facing a duality between domestic and external drivers. 

"The recent dovish turn by the RBA has further reduced the appeal of the Aussie dollar's positive carry, but the generalised upbeat market mood about the global recovery and the strong iron ore performance has continued to offer support to the currency."

"We think iron ore may show fresh signs of weakness, which suggests AUD’s balance of risks may be tilted to the downside in the short-term. In the longer-run, we expect the global reflation narrative and AUD’s undervaluation to be the prevailing factors and we see AUD/USD move above 0.80 even if iron ore prices decline."  

"After the policy shift by the RBA and given the risk of a further iron ore correction from current unsustainable levels, AUD appears more vulnerable than the other $-bloc currencies amid any possible setbacks in the global reflation story."

"In the longer run, we still expect AUD to benefit from a risk-positive environment globally and from generalised USD weakness as the global recovery gathers pace. We remain confident about AUD/USD moving above 0.80 in the second half of 2021."

"In relative terms, the AUD may struggle to recover more ground to its closest peer NZD as the monetary policy differential looks likely to remain a factor, barring a surprising dovish shift and/or talk of FX intervention by the RBNZ. We think the balance of risks for AUD/NZD is tilted to the downside in the first half of this year, and we could see a move into the 1.05 region."

FXStreet reports that analysts at Westpac note that the EUR/USD pair has rebounded soundly off spikes below 1.20 but is likely to encounter official jawboning should it rapidly retest January’s highs above 1.23.

“5yr break evens have moved sharply over the past year in both US Tsy and Bund markets, but the rise in US has been notably larger and so the spread between the 5yr BE’s has been sharp and coincident with the rebound of EUR/USD since the pandemic spike higher in USD last March. The spread does reflect perceived changes in real returns rather than nominal returns and so should provide EUR support.”

“The current backdrop suggests that EUR/USD is unlikely to slip back below 1.20 and is now more likely to threaten a retest of 1.23 even if EU officials may voice discomfort into their mid-February Eurogroup and EcoFin summits.”

FXStreet reports that the analysts at Bank of America Global Research (BofA) believe that the EUR/USD pair is likely to drop to 1.1500 amid a likely rebound in the U.S. dollar, as they revise down their 2021 price forecasts from 1.2500.

“Key catalysts for the US dollar strength include: 1) Fed and ECB policy divergence, 2) The potential for substantial US fiscal stimulus, 3) Analysts are looking for twice as fast US recovery than for the eurozone, 4) A still-short USD market position, particularly against the EUR and 5) Challenging outlook for risk assets given stretched valuations and substantial uncertainty.”

“EUR/USD seen lower at 1.1800 in June vs. the previous forecast of 1.2200.”

“The spot could drop to 1.1600 by September vs. the previous forecast of 1.2400.”

Petr Krpata, an FX strategist at ING, notes that both the U.S. January CPI and the Fed Chair Jerome Powell’s speech yesterday underlined the positive outlook for cyclical FX for upcoming months, particularly in early Q2.

"While US CPI pressures are present in the US and inflation is set to rise, they don’t show signs of being out of control, in turn allowing the Fed to stay cautious and fully stick to the AIT framework."

"This was reiterated in Chair Powell’s speech which, rather than focusing on prospects of a fast recovery and the risks of overheating, focused on the struggling labour market, the associated downside risk and the need to keep monetary policy ‘’patiently accommodative.’’ This means that any shift in the policy stance (to a hawkish, less accommodative side) is not imminent, US front end rates are to remain anchored, the US curve is set to steepen further and real rates are to remain deeply negative."

"As the global economy starts its post-winter recovery in Q2, this suggests more upside to cyclical currencies, while negative US real rates should also offer to help hands to the low yielding ones, such as EUR vs the dollar."

FXStreet reports that economists at Credit Suisse discuss GBP/USD prospects.

“We see resistance at 1.3890/95 ahead of 1.3997/1.4000, where we see scope for an initial pause. Above here in due course though can see resistance at 1.4091 next with 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. Big picture, we continue to look for an eventual move to 1.49/1.51.”

CNBC reports that the European Commission has turned more negative on its prospects for the euro zone’s economy, projecting a lower growth rate for the region in 2021 as governments grapple with new variants of coronavirus.

European Commission expects the 19-member region to grow by 3.8% this year. In November, it had forecast a 4.2% GDP (gross domestic product) rate for 2021.

The latest forecasts come at a tricky time for the European Union as its Covid vaccine rollout faces issues around production, supply and red tape. 

Going forward, the European Commission expects 2022 GDP in the euro area to reach 3.8%, having projected a 3% GDP rate for next year in November.

Looking at individual countries, Germany is seen growing by 3.2% in 2021, having contracted 5% in 2020. France on the other hand is expected to see a GDP rate of 5.5% this year, after dropping more than 8% in 2020.

RTTNews reports that the Royal Institution of Chartered Surveyors said that UK house prices continued to increase while there was a general weaker trend in sales market at the start of the year.

A net balance of +50 percent of survey participants reported an increase in house prices during January, thereby signaling a significant degree of upward pressure on prices. However, this was down from +63 percent posted in December.

At the national level, net balance of +30 percent of respondents anticipate prices to increase over the year to come.

A net balance of -28 percent reported a decline in new buyer enquiries in January, ending a seven consecutive positive monthly readings.

FXStreet reports that Credit Suisse analysts discuss USD/JPY prospects.

“USD/JPY continues its retreat following the completion of a minor top below 105.33 and this leaves the market approaching what we look to be better support at the near-term uptrend from early January and early January high at 104.40/26. Our bias remains to look for a fresh floor here for an attempt to turn higher again.” 

“Resistance is seen at 104.85 initially, above which should see a move back to 105.33 and then the 200-day average at 105.56. A close above here and then 105.77 is needed to reassert the recovery for the “measured wedge objective” at 106.95/107.05.”

Bloomberg reports that Chancellor Angela Merkel warned that aggressive coronavirus mutations will gain the upper hand in Germany sooner or later, threatening to destroy progress made in containing the pandemic.

Europe’s largest economy needs to maintain tight controls even as contagion rates steadily decline and immunizations slowly ramp up, Merkel said Thursday. The fast-spreading British variant is already in the country, she added.

“Experts tell us that it will be only a matter of time until these mutations will become dominant,” Merkel said in a speech to parliament in Berlin. “We know that the danger of mutations can again wreck our successes.”

Reuters reports that the International Energy Agency (IEA) said that global oil supply still outstrips demand due to persistent COVID-19 lockdowns and the spread of variants, but vaccines should help demand recover and soon enable producers to pump more.

"With demand forecast to rise strongly and still modest growth in non-OPEC supply expected, a rapid stock draw is anticipated during the second half of the year."

IEA kept its outlook for oil demand growth in 2021 largely steady, saying a decline in the first quarter of this year from already low levels in the last quarter of 2020 would soon reverse.

FXStreet reports that according to economists at MUFG Bank, Federal Reserve Chair Jerome Powell downplayed inflation concerns, implying the greenback is unlikely to post a sustained rebound.

“Powell continued to strike a dovish policy tone in line with expectations which has resulted in a limited market reaction. In the speech he highlighted the importance to the Fed of restoring a strong labour market while downplaying concerns over upside risks to inflation from loose monetary and fiscal policy.” 

“Chair Powell provided further reassurance as well that the Fed will make sure that they do not move to modify or even talk about modifying policy until they have seen that the US is through the pandemic. The dovish comments from Chair Powell support our view that it’s too soon for the US dollar to stage a sustainable rebound on the back of expectations for tighter Fed policy.”

Reuters reports that global equity funds led inflows in the week ended February 10, bolstered by upbeat corporate earnings and the prospects of a U.S. stimulus package.

Investors purchased $43.1 billion in equity funds in the past week to Wednesday, the most since at least mid-March 2019, Refinitiv Lipper data showed.

Bond funds also saw a higher inflow of $18.03 billion, the data showed, thanks to rising U.S. Treasury yields.

Funds focused on the information technology sector attracted about $7.2 billion in inflows, the biggest since at least mid-March 2019.

Emerging market funds also attracted heavy inflows in the week. Refinitiv data covering 14,352 emerging-market equity funds and 9,210 emerging-market bond funds showed inflows worth $3.02 billion and $2.9 billion, respectively.

FXStreet reports that strategists at TD Securities discussing the prospects of WTI and Brent Oil.

“We expect range-bound trading until there is new information, likely in the form of OPEC+ signals, which will give the market an idea where supply is going for the balance of 2021.”

“Considering that WTI is approaching $60/ b and Brent is trading near $62/b, this producer group will no doubt want to phase in production increases, as demand recovers from the pandemic. We should see the Saudis reverse their voluntary one million b/d cut and Russia increase production as well. There is the risk that Iran will be able to export more should the Biden administration come to an agreement on the nuclear weapons issue.” 

“The deployment of the shuttered OPEC+ capacity could see WTI and Brent crude prices slide $2-6 lower at the very time demand is starting to normalized after the COVID-19 pandemic.”

During today's Asian trading, the US dollar consolidated against the euro, yen and pound.

Federal Reserve Chairman Jerome Powell, who spoke at the Economic Club of New York yesterday, said that the Fed does not intend to change its current policy and will continue to stimulate the economy through low interest rates and large-scale asset purchases.

The Fed is unlikely to "even think about scaling back stimulus" by raising rates or reducing its bond-buying program for the foreseeable future, Powell said.

He stressed the importance of fiscal stimulus, noting that monetary policy alone will not be enough to achieve a full recovery of the labor market, paralyzed by the coronavirus pandemic.

Powell also noted that he is less concerned about the prospect of increased inflation than the economic consequences of the coronavirus pandemic.

U.S. consumer prices rose 1.4 percent in January from the same month last year, the Labor Department said Wednesday. Similar inflation rates were recorded in December.

The ICE Dollar index, which measures the value of the US dollar against six major world currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell by 0.01%.

FXStreet reports that economists at Capital Economics think emerging market currencies will resume appreciating against the US dollar before long.

“We doubt that interest rate differentials between EMs and the US will widen by much. For one, we think US yields would only rise a little, if at all. What’s more, because EM central banks are generally exerting less downward pressure on government bond yields than their DM counterparts, a rise in US yields could well lead to higher EM yields too. This means the interest rate differentials would not change much, limiting any downward pressure on EM currencies.”

“We suspect investor appetite for risk is likely to remain strong, amid the backdrop of a rapid economic recovery and supportive monetary and fiscal policy. This is particularly important for EM currencies, since EM assets are generally seen as riskier investments than their developed market equivalents.”

As reported by the Federal Statistical Office (Destatis), the selling prices in wholesale trade in January 2021 remained unchanged in comparison with the corresponding month of the preceding year. In December 2020 and in November 2020 the annual rates of change had been -1.2% and -1.7%, respectively.

From December 2020 to January 2021 the index rose by 2.1%. This was the highest increase of a monthly rate of change since March 1974 (+3.0%).

There were particularly strong price increases compared to the previous year in the wholesale trade of waste materials and residual materials (+34.2 %), ores, metals and semi-finished metal products (+8.9 %) as well as cereals, raw tobacco, seeds and animal feed (+9.5 %).

On the other hand, prices at wholesale level were lower than in January 2020, particularly for live animals (-29.0%), petroleum products (-9.6%), meat and meat products (-5.9 %) and data processing equipment, peripheral equipment and software (-4.8 %).

Compared with December 2020, the price trend in the wholesale trade of petroleum products had the highest impact on the extraordinary rate of change in the overall index, with an increase of 10.8% due to the high proportion of weighing. Prices also rose sharply for waste materials and residual materials (+14.3 %) as well as for ores, metals and semi-finished metal products (+5.9 %).

EUR/USD

Resistance levels (open interest**, contracts)

$1.2243 (2904)

$1.2213 (2435)

$1.2189 (4448)

Price at time of writing this review: $1.2128

Support levels (open interest**, contracts):

$1.2094 (395)

$1.2074 (1741)

$1.2048 (2267)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 5 is 81212 contracts (according to data from February, 10) with the maximum number of contracts with strike price $1,2100 (4448);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3938 (813)

$1.3916 (1948)

$1.3898 (999)

Price at time of writing this review: $1.3842

Support levels (open interest**, contracts):

$1.3659 (1099)

$1.3620 (907)

$1.3578 (443)

Comments:

- Overall open interest on the CALL options with the expiration date March, 5 is 16151 contracts, with the maximum number of contracts with strike price $1,4200 (3189);

- Overall open interest on the PUT options with the expiration date March, 5 is 13677 contracts, with the maximum number of contracts with strike price $1,3100 (1225);

- The ratio of PUT/CALL was 0.85 versus 0.83 from the previous trading day according to data from February, 10

* - 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.

eFXdata reports that Citi discusses the prospects of the US dollar.

"Relative US growth outperformance tends to boost the USD, other things equal. But US outperformance matters less coming out of recessions and when US real yields are very low, which is the case presently and our USD bear case did not rely on US growth underperformance. We maintain our view that the USD is in a major bear market. Rising US real rates, stalling growth elsewhere and excessive US growth outperformance are risks to our view and we see scope for more short-term volatility in the USD trajectory," Citi adds.