Analytics, News, and Forecasts for CFD Markets: currency news — 22-05-2020.

FXStreet reports that analysts at Nordea note that today’s monetary policy account signals the ECB stands ready to do more but amidst all the uncertainty, it is difficult to see ahead. More easing measures will likely be introduced in June. The EUR/USD pair largely ignored this statement.

“While it was clear that the short-term inflation outlook had deteriorated, the medium to longer-term outlook was more ambiguous and some Governing Council members even pointed to upside risks.”

“The flexibility of the pandemic emergency purchase programme (PEPP) was emphasized but not everybody was enthusiastic about the flexibility. Such voices most likely remain in minority for now.”

“We continue to expect that the PEPP will be expanded and extended. Further modifications to the TLTRO terms could also be in store. We do not expect the ECB to lower its benchmark rates anymore. It is clearly focusing on other means to ease policy.”

• Strategic challenges are especially acute under conditions of low inflation and low interest rates, since deviations from medium-term inflation aim are likely to be more persistent under such conditions
• Our monetary policy strategy review – even if it is unavoidably delayed by the COVID-19 pandemic – remains  high priority for ECB

FXStreet reports that  Credit Suisse’s analysts note that the EUR/USD pair has just broken below the  1.0901/1.0897 support after reversing sharply from important resistance at the early May high and 200-day average at 1.1009/19.

“Below the 1.0897 broken support, EUR/USD provides the first sign of rejection from the 200-day average to see a fall back to the 13-day average at 1.0889, below which would suggest a deeper turn back lower in the range to re-expose the confirmed uptrend from the March low at 1.0804.”

“A close above 1.1019 would mark a more significant base and important turn higher, with resistance next at 1.1065, then 1.1145/66 – the late March high and 61.8% retracement of the March collapse.”

FXStreet reports that David Chambers from Charles Schwab notes that crude oil futures are up for a fourth consecutive week. Higher prices tempt producers but demand uncertainty lingers.

“Reopening economies around the world will likely prove very difficult, so the volatility in oil prices may be far from over. Fears of a second wave linger.”

“If oil prices continue to stabilize, producers in the U.S. and OPEC+ may find it difficult to avoid the temptation of re-opening the spigots. Global oil shipping rates have been ticking down which may hint at a moderation in the supply glut.”

“Thursday’s RSI above 70 may have hinted at overbought conditions, confirmed by Friday morning’s selloff which brought the RSI reading down to near 50.”

• Reiterates that all options are on table for China

Carsten Brzeski, Chief Economist, Eurozone and Global Head of Macro for ING Research, notes that ECB will meet again on 4 June, not as initially scheduled in Amsterdam, but once again via a video conference. 

"With the ECB being back to its normal rhythm and hopefully without policy changes between meetings, the June meeting will be crucial. Not only will there be a new set of macro-economic projections, the ruling of the German Constitutional Court and the possible exhaustion of the 750bn envelope of the PEPP programme will ask for an intense discussion on a possible increase of the programme."

"The latest Franco-German proposal on a Recovery Fund will do little to ease such a discussion, at least not as long as this proposal has made it successfully through all Brussels’ committees. Until then, the ECB looks likely to have a discussion against the background of an economic recovery, in which according to ECB chief economist Philip Lane the economy will not return to pre-crisis levels until at least 2021, and disinflationary pressures due to higher unemployment, higher output gaps and low oil prices."

"The longer we think about it, the stronger the arguments are for the ECB to decide on a significant increase in its PEPP programme already at the June meeting. Sure, they could wait until September, when hopefully the real shape of the recovery will have materialised. However, the fact that – at least at its current pace – the PEPP would be pretty empty by October could quickly lead to unwarranted speculations in financial markets."

"Pre-emptively denting any such speculations would argue for a June decision. Also, the ruling of the German Constitutional Court gives the ECB freedom in any tailor-made or event-related action but not so much in a more general “the economy still needs monetary stimulus” sense. Consequently, the court’s ruling could actually motivate the ECB to increase the size of the PEPP while the Eurozone is still in the middle of coping with the pandemic and not once the worst might already be behind."

FXStreet reports that S&P 500 remains capped ahead of key 200-day average and price/gap resistance at 2986/99 and with a daily DeMark “sell” signal in place, analysts at Credit Suisse continue to look for a top here. 

“We look for a fall back to the top of the price gap from the beginning of this week at 2914, below which should see a test of the 13-day average at 2901/2899. A close below here is needed to add weight to our view to expose the lower end of the price gap at 2865.” 

“Near-term resistance is seen at 2960, then 2979/80, with 2998/3000 ideally continuing to cap. Above 3024 though remains needed to suggest our toping scenario is wrong.”

Statistics Canada reported on Friday that the Canadian retail sales tumbled 10.0 percent m-o-m at CAD47.07 billion in March, following a revised 0.4 percent m-o-m advance in February (originally a 0.3 percent m-o-m gain). That was the largest monthly drop on record.

Economists had forecast a 10.0 percent m-o-m plunge for March.

According to the report, the March decrease was led by record declines at motor vehicle and parts dealers (-35.6 percent m-o-m), clothing and clothing accessories stores (-51.3 percent m-o-m) and gasoline stations (-19.8 percent m-o-m). At the same time, sales at food and beverage (+22.8 percent m-o-m) and general merchandise (+6.4 percent m-o-m) stores rose to the highest level on record and posted their largest monthly gain since the beginning of the series.

Overall, sales were down in 6 of 11 subsectors, representing 39.2 percent of retail trade, as many Canadian retailers shut down operations mid-month, curtailed hours and customer flow in the stores that remained open due to coronavirus pandemic.

In y-o-y terms, Canadian retail sales fell 8.4 percent in March, following a revised 3.1 percent surge in February (originally, a 3.0 percent advance). That was the largest drop in retail trade on record.

USD and JPY rose against other major currencies in the European session on Friday as fears of an escalation of tensions between Washington and Beijing heightened after China announced plans to strengthen control over Hong Kong with new security laws. The National People's Congress is expected to vote on the Hong Kong National Security Law on Thursday. The U.S. President Donald Trump stated the details of China's plan are not yet known but "if it happens we’ll address that issue very strongly.”

China’s move to tighten its grip on Hong Kong became another area of concern for the relationship between the world's two largest economies following the Trump administration’s criticism of Beijing's handling of the Covid-19 outbreak earlier this year. 

The ECB released account of its April 29-30 monetary policy meeting. It noted that:

• There was evidence that the PEPP had established itself as an important anchor of stability for euro area bond markets beyond the initial effects of the announcement
• Monetary policy measures taken in March had provided forceful monetary accommodation in rapidly evolving environment and succeeded in safeguarding the ECB’s monetary policy stance and effective monetary policy transmission across the euro area
• Fiscal policy also needed to play essential role to address problems
• ECB members concerned that economic scenarios may become outdated in the light of evolving conditions
• The “mild” scenario is probably too optimistic; however, it is too early to conclude that the “severe” scenario presented by ECB staff is the most likely
• Looking beyond the immediate disruption stemming from the coronavirus pandemic, euro area growth was expected to resume as the containment measures were gradually lifted, supported by favourable financing conditions, the euro area fiscal stance and a resumption of global activity
  

FXStreet reports that according to the Credit Suisse analyst team, USD/CHF reverted back sharply higher from key uptrend from the late March low, reinforcing the view of an extension of the rangebound environment. Commerzbank’s Karen Jones also noted that the USD/CHF bounced from the short-term uptrend, located at 0.9645.

“Resistance is seen initially at 0.9729/30, then 0.9750/61, removal of which would negate the recent bearish ‘outside day’ and open the door to a move back to the 200-day average and recent highs at 0.9784/9803.

“Support is initially seen at 0.9695, then at the start of a more important zone at 0.9646/38, which contains the recent lows and March uptrend.”

FXStreet reports that analysts at Credit Suisse note that USD/CAD has seen a rebound higher from the pivotal support zone at the current range lows, 50% retracement of the 2020 surge and ‘neckline’ to the large base at 1.3856/3793, completing a small base above 1.3971/70. Canada Retail Sales in focus.

“The range bottom has held once more and suggests an extension of the upswing within the range, with resistance initially at 1.4062. Above here would see resistance at 1.4136/41, ahead of 1.4173, removal of which would negate the previous bearish ‘outside day’ and reinforce the upswing, with resistance then seen at the upper end of the range at the April highs at 1.4262/65, where we would expect to see fresh sellers at first.” 

“Short-term support at 1.3971/70 now ideally holds to maintain the base. In contrast, a clear and conclusive break below 1.3856/1.3793 would turn the trend back lower and see weakness extend further, with support seen at 1.3734 next.”

• Says that final operation is scheduled to take place on May 28
• Pledges to continue to offer 1-month CTRF operations on weekly basis at least through June 2020
• Says CTRF operations can be rapidly reintroduced at any stage if justified by market conditions; BoE stands ready to do so if necessary, and will continue to monitor market conditions closely

• It won't be enough for Japan to contain the virus, other nations must do so too
• Otherwise, exports and inbound tourism may struggle to recover
• Japan stocks, dollar/yen have been stable, which is a sign that the government and BoJ efforts are having some effect in stabilizing markets
• Our plan to compile huge extra budget underscores our concern that Japan’s economy is in very severe state
• By holding a meeting with BoJ and government, we aimed to convey to the world govt, BOJ working as one to combat virus fallout

• Government, BoJ have closely coordinated to support economic activity, acted aggressively to ensure market stability
• Will work together to bring Japan’s economy back on solid growth track
• There are various uncertainties on how long it takes for the pandemic to be contained, global developments
• Will work closely together to support the economy

FXStreet reports that government drops explicit GDP growth target, but budget implies nominal growth of around 5%, economists at Standard Chartered Bank apprise. The yuan might depreciate if US-China tensions persist, according to TD Securities.

“Addressing the representatives, Premier Li Keqiang said no specific growth target would be set for 2020 due to substantial uncertainty about the global pandemic and other contingencies. However, the budget numbers indicate nominal growth of c.5% in 2020.” 

“Protecting employment and livelihood has been put forward as a top priority, with a commitment to create 9mn new urban jobs and to keep the survey-based unemployment rate from rising above 6%.”

“The government set the CPI target at 3.5%, versus 3% last year. The current trajectory suggests annual average CPI inflation may fall below 3% this year; we do not expect the inflation target to constrain the implementation of more expansionary macro policy.”

“We estimate the broad budget deficit to be as wide as 11% of GDP.”

CNBC reports that the extended period of lockdown in India due to the coronavirus outbreak is set to take a toll on the country’s growth outlook, according to investment bank Goldman Sachs. 

The bank revised its growth prediction this week for the full fiscal year in India that began in April and will end in March 2021. Gross domestic product is expected to contract by 5% for the year, worsening from the bank’s earlier prediction of a negative 0.4% growth. 

“This is a really gigantic downgrade,” Prachi Mishra, chief India economist at Goldman Sachs, told CNBC. “A forecast of minus 5% for the year as a whole would be as deep as compared to the deepest recession India has witnessed since 1979.” 

India’s first-quarter GDP data is expected next week and the outlook remains bleak among economists.

The South Asian country was already facing an economic slowdown before the virus outbreak pushed the government to impose a nationwide lockdown that began in late March and has subsequently been extended multiple times at least until the end of May. Economic activity grounded to a halt as a result, affecting millions of small businesses as well as large corporations, while millions of people lost their jobs. 

India now has over 118,000 cases of infections and more than 3,500 people have died, according to the health ministry. 

Reuters reports that George Soros, the billionaire financier, cautioned that the European Union’s survival was threatened by the novel coronavirus unless it can issue perpetual bonds or “consuls” to help weak members such as Italy.

“If the EU is unable to consider it now, it may not be able to survive the challenges it currently confronts,” Soros said in a transcript of a question-and-answer session emailed to reporters. “This is not a theoretical possibility; it may be the tragic reality.”

Soros said the EU would have to maintain its AAA credit rating to issue such debt – and thus have to have tax raising powers to cover the cost of the bonds – so suggested it could simply authorize the taxes rather than imposing them.

FXStreet reports that economists at Standard Chartered Bank expect Korea to recover faster than most economies, but optimism may be overdone. Earlier in the week, a South Korean state-run think-tank, said the BoK needs to cut its benchmark interest rates to near-zero to stimulate the economy. The USD/KRW pair is sitting at 1,239.79, near to monthly highs.

“We think market optimism on Korea’s recovery is premature as macroeconomic data lags the shock to the real economy. We maintain our view that GDP will contract 0.6% in 2020.” 

“We lower our Q2 growth forecast to -1.8 q/q from -1.5% to reflect much weaker-than-expected export growth and facility investment. In y/y terms, we now forecast Q2 growth at -1.6% versus -1.8% previously; we lower our growth forecasts for Q3 and Q4-2020. Korea Development Institute (KDI), a government think tank, expects positive growth of 0.2% for 2020.”

“We think rate cuts are needed to support the economy. We expect the BoK to cut its base rate on 28 May; we also expect it to lower its 2020 GDP growth forecast from 2.1% to 0.2%. However, we see a rising risk that the cut may be delayed until July.”

eFXdata reports that TD Research flags 107.30 level in USD/JPY as a near-term attractor level, while maintains a structural bullish bias on USD/CAD. 

"We are still somewhat surprised to see USDJPY heavy while stocks remain bid. Looking forward, we think 107.30 (+/-) could become a near-term attractor as this represents (minor) trendline support off the early May lows," TD notes. 

"USDCAD rejected another probe below 1.39. Technically, the charts point to a descending triangle. While a break of support around 1.3850 could be significant we have yet to hear an argument as to why you would want to own CAD. With stocks at their post-crash highs and USDCAD trading where it is, a lot of good news is in the price whatever good news that may be. With that in mind, we remain focused on upside risks overall. We think 1.3970/00 will be the first notable topside threshold for the pair, that will put 1.4050/80 daily downtrend resistance into focus," TD adds.

FXStreet reports that NZD/USD has taken a breather, and remains a slave to equities and risk appetite in general. The kiwi trades at 0.6105, after shrugging off Retail Sales data, and the 0.6170 resistance should cap the pair, according to analysts at ANZ Bank.

“There are as many reasons to be bullish (we have beaten COVID-19, commodity prices are holding up, risk appetite has bounded back quickly) as there are to be bearish (tourism was a big piece of the economy and it’s now gone, our yields are lower than the US and Australia’s, negative rates may be coming, risk sentiment could sour at any time), which makes the outlook tricky.” 

“Support 0.5850 Resistance 0.6170”

FXStreet reports that despite the positive outlook for USD/CNH, the 7.1652 level is seen out of reach for the time being, noted FX Strategists at UOB Group.

24-hour view: “The sudden surge in USD that resulted in a relatively strong gain of +0.41% yesterday (7.1352) came as a surprise. The rapid advance appears to be running ahead of itself and while USD could move above the overnight high of 7.1361, a sustained advance above this level is unlikely (there is another strong resistance at 7.1450). Support is at 1.1200 but only a breach of 7.1140 would indicate the current upward pressure has eased.”

Next 1-3 weeks: “USD popped above the top of our expected 7.0800/7.1350 range yesterday (high of 7.1361) before ending the day on a firm note at 7.1352. While upward momentum has picked up, USD does not appear to be ready to move higher in a sustained manner just yet. The overall outlook appears to be mildly positive and there is chance that USD could edge higher but the year-to-date high is a formidable resistance and may not break so easily. To look at it another way, only a daily closing above 7.1652 would ‘confirm’ a break-out. At this stage, the prospect for such a move is not high but it would continue to increase as long as the strong support at 7.0800 is not taken out.”

CNBC reports that U.S. government debt prices were higher Friday morning on concerns over new instability in Hong Kong and increasing tensions between Washington and Beijing.

The yield on the benchmark 10-year Treasury note was trading lower at 0.633% and the yield on the 30-year Treasury bond was also moving lower at 1.343%. Yields move inversely to prices.

Investors are reacting to the latest news that China is set to impose a new national security law on Hong Kong, which could spark further anti-government protests. Beijing’s control over the city will likely evoke the ire of the U.S. and other Western powers which supported pro-democracy protesters.

In addition, China has said that it will not set a growth target for 2020, given the uncertainty sparked by the Covid-19 pandemic.

There are no economic data releases, Fed speeches or Treasury auctions Friday as the U.S. heads for an extended weekend to commemorate Memorial Day on Monday.

FXStreet reports that EUR/USD has rallied towards and failed just ahead of the 200-day moving average and the current May high at 1.1014/19, per Commerzbank’s Karen Jones. The world’s most popular currency pair is currently trading at 1.0930.

“Ideally dips will hold circa 1.0890 for another leg higher. A close above here (favoured) is needed to regenerate upside interest to the 1.1240 December peak and beyond.” 

“Dips should find that the short-term uptrend at 1.0797 offers support and while above here will assume a neutral to positive bias.”

During today's Asian trading, the US dollar rose against the euro and fell against the yen on the back of growing demand for safe haven assets in connection with the strengthening of contradictions between the US and China.

The focus of traders ' attention is on the escalation of tensions between the US and China after the Chinese announcement of its intention to consider the Hong Kong national security bill.

The bill, which was included in the agenda of the National People's Congress, provides for a ban on separatist activities, as well as aimed at countering terrorism and interference from outside.

In turn, US senators have prepared a bill that involves sanctions against Chinese officials and organizations that monitor compliance with national security laws in Hong Kong, as well as introducing fines for banks that do business with these organizations.

China will not set a target for GDP growth in 2020 because of the impact of the coronavirus epidemic on the country's economy, Premier Li Keqiang said. This is the first time since 1994, when Beijing began setting a GDP growth target.

The ICE Dollar index, which shows the value of the us dollar against six major world currencies, rose by 0.21% compared to the previous trading day.

FXStreet reports that in opinion of FX Strategists at UOB Group, AUD/USD does not rule out further gains, although a move above 0.6646 is losing momentum.

24-hour view: “We held the view yesterday that AUD ‘is likely to take a breather’ after its recent strong advance and expected AUD to ‘trade between 0.6540 and 0.6600’. Our expectation was not incorrect as AUD subsequently traded between 0.6549 and 0.6601, narrower than our expected range. The current movement is still viewed as an on-going consolidation phase. In other words, AUD is expected to continue to trade sideways for today, likely between 0.6530 and 0.6590.”

Next 1-3 weeks: “We highlighted two days ago (19 May, spot at 0.6535) that the outlook for AUD is mildly positive and that it has to close above 0.6600 before a sustained advance can be expected. AUD briefly moved to a high of 0.6617 yesterday before retreating quickly to close just below 0.6600 (0.6595, +0.93%). While the daily closing is not as strong as preferred, further AUD strength would not be surprising. That said, the prospect for a sustained rise above 0.6645 is not high (next resistance is at 0.6670). Meanwhile, overbought short-term conditions could lead to a couple of days of consolidation first but the outlook for AUD is deemed as positive as long as 0.6500 is not taken out (‘strong support’ level was at 0.6465 yesterday).”

• China's resolution refines national security legal framework

• Safeguarding national security is constitutional responsibility

eFXdata reports that Bank of America Global Research maintains a structural bearish bias on EUR/USD targeting the pair at 1.02 by end of Q3. 

"We remain skeptical of the global risk asset rally in light of economic and solvency risks. The global economy is contracting, and the hopes for a strong US recovery appear more limited. Our US Economics team cautions that while markets may feel it has moved past dismal data, the dataflow still has a long way to go, even as shutdowns begin to end," BofA notes. 

"Although EURUSD is undervalued, by about 10% according to our estimates, we see it weakening further in the rest of the year...There are a number of reasons to expect EUR to weaken in the months ahead. We would focus on six in particular: a weaker global outlook; a severe Eurozone recession; a weaker Eurozone macro policy response, with fiscal stimulus smaller than in most other G10 economies and ECB monetary policy constraints; periphery sovereign risks from a sharp increase in government debt from already high levels; low oil prices, which historically has been correlated with a weaker EUR; and a long EUR market position," BofA adds.

According to the report from Office for National Statistics, the volume of retail sales in April 2020 fell by a record 18.1%, following the strong monthly fall of 5.2% in March 2020. Economists had expected a 16.0% decrease.

All sectors saw a monthly decline in volume sales except for a record increase in sales for non-store retailing at 18.0% and a continued increase in sales for alcohol stores at 2.3%.

The volume of clothing sales in April 2020 plummeted by 50.2% when compared with March 2020, which had already fallen by 34.9% on the previous month.

The proportion spent online soared to the highest on record in April 2020 at 30.7%, which compares with the 19.1% reported in April 2019.

All store types, except non-store, reached record proportions of online spending in April 2020 as some stores shifted to online only trading.

The three-month on three-month growth rate in the volume of retail sales decreased by 8.6%, with declines across all sectors except food and non-store retailing.

• CNBC reports that confirmed coronavirus cases around the world passed 5 million early Thursday as infections continue to accelerate in the Americas. The U.S. alone accounts for 1.5 million cases of the virus and more than 90,000 deaths of the global death toll.  

• In China, where the virus outbreak was first detected late last year, government officials said there will be no official growth targets set for this year as the country will “face some factors that are difficult to predict in its development,” due to the uncertainties of the pandemic.

• Japan’s central bank outlined details for a new scheme aimed at boosting lending to small and medium-sized businesses who are struggling with the economic fallout. 

• Global cases: More than 5.1 million

• Global deaths: At least 332,900

• U.S. cases: More than 1.57 million

• U.S. deaths: At least 94,702

EUR/USD

Resistance levels (open interest**, contracts)

$1.1016 (1236)

$1.0996 (1511)

$1.0973 (614)

Price at time of writing this review: $1.0925

Support levels (open interest**, contracts):

$1.0894 (786)

$1.0864 (1390)

$1.0828 (2335)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 5 is 92557 contracts (according to data from May, 21) with the maximum number of contracts with strike price $1,0700 (5210);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2310 (320)

$1.2279 (263)

$1.2261 (405)

Price at time of writing this review: $1.2216

Support levels (open interest**, contracts):

$1.2178 (1214)

$1.2126 (1062)

$1.2057 (658)

Comments:

- Overall open interest on the CALL options with the expiration date June, 5 is 23726 contracts, with the maximum number of contracts with strike price $1,3500 (3420);

- Overall open interest on the PUT options with the expiration date June, 5 is 29342 contracts, with the maximum number of contracts with strike price $1,3500 (3095);

- The ratio of PUT/CALL was 1.24 versus 1.23 from the previous trading day according to data from May, 21

* - 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.