Analytics, News, and Forecasts for CFD Markets: currency news — 25-05-2021.

• ECB can accept inflation above 2% for some time
• ECB is at least as accommodative and will be at least as patient as U.S. Fed
• Any hypothesis of reduction of purchases partly for the third quarter or following quarters is purely speculative
• Our monetary policy can be patient, as the euro area inflation is well below other jurisdictions
• Based on our experience with the PEPP, we could move towards some additional flexibilities, in terms of allocation and/or volume
• I believe we should keep TLTROs in place in some form for more time

The U.S. Commerce Department announced on Tuesday that the sales of new single-family homes fell 5.9 percent m-o-m to a seasonally adjusted annual rate of 863,000 units in April. 

Economists had forecast the sales pace of 970,000 last month.

March’s sales pace was revised down to 917,000 units from the originally reported 1,021,000 units.

According to the report, new home sales in the South, the largest area, plunged 8.2 percent m-o-m in April, while sales in the Northeast tumbled 13.7 percent m-o-m and those in the Midwest dropped 8.3 percent m-o-m. In the meantime, new home sales in the West rose 7.9 percent m-o-m in April.

The report also showed that the median sales price increased to $372,400 from $310,100 a year earlier.

The Conference Board announced on Tuesday its U.S. consumer confidence dropped 0.3 points to 117.2 in May from 117.5 in April.

Economists had expected consumer confidence to come in at 119.20.

April’s consumer confidence reading was revised down from the originally estimated 121.7.

The survey showed that the present situation index surged from 131.9 in April to 144.3 this month. Meanwhile, the expectations index decreased from 107.9 last month to 99.1 in May.

“After rebounding sharply in recent months, U.S. consumer confidence was essentially unchanged in May,” noted Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers’ assessment of present-day conditions improved, suggesting economic growth remains robust in Q2. However, consumers’ short-term optimism retreated, prompted by expectations of decelerating growth and softening labor market conditions in the months ahead. Consumers were also less upbeat this month about their income prospects - a reflection, perhaps, of both rising inflation expectations and a waning of further government support until expanded Child Tax Credit payments begin reaching parents in July. Overall, consumers remain optimistic, and confidence should remain resilient in the short term, as vaccination rates climb, COVID-19 cases decline further, and the economy fully reopens.”

• Says that recent rise in inflation expectations is welcome
• Recent increase in inflation not a precursor of undesirable high inflation
• Reiterats that Fed's accommodative policy has his full support
• Inflation expectations are not signaling inflation is spiralling out of control
• It won't be easy to cut through effects of temporary supply constraints to see underlying inflation dynamics

S&P Dow Jones Indices (S&P DJI) reported on Tuesday its Case-Shiller Home Price Index, which tracks home prices in 20 U.S. metropolitan areas, surged 13.3 percent y-o-y in March, following a revised 12.0 percent y-o-y climb in February (originally an 11.9 percent y-o-y jump). This was the biggest annual gain in house prices since December 2013.

Economists had expected a climb of 12.3 percent y-o-y.

Phoenix (+20.2 percent y-o-y), San Diego (+19.1 percent y-o-y) and Seattle (+18.3 percent y-o-y) recorded the highest y-o-y advances among the 20 cities in March. Overall, all 20 cities reported greater price gains in the year ending March 2021 versus the year ending February 2021.

Meanwhile, the S&P/Case-Shiller U.S. National Home Price Index, which measures all nine U.S. census divisions, climbed 13.2 percent y-o-y in March, following a 12.0 percent y-o-y jump in the previous month. 

“These data are consistent with the hypothesis that COVID has encouraged potential buyers to move from urban apartments to suburban homes,” noted Craig Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P DJI. “This demand may represent buyers who accelerated purchases that would have happened anyway over the next several years. Alternatively, there may have been a secular change in preferences, leading to a permanent shift in the demand curve for housing. More time and data will be required to analyze this question.”

• Upward wage pressure is very much a lower-wage thing; not seeing it in jobs with wages $15 and up
• There's still a lot of room to grow in labour market
• The issue right now is no longer demand-side; it's supply-side
• Challenges in workforce supply likely to last to summer
• Market-based inflation expectations have not escalated beyond target; survey-based expectations are stable as well

FXStreet reports that Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, notes that copper (LME) faltered slightly below 161.8% Fibonacci extension at 10890.80 and may revisit 9617.00.

“Copper continues to consolidate below its recent all-time high at 10747.50, made marginally below the 161.8% Fibonacci extension of the October-to-January advance and projected higher from the January low at 10890.80.”

“Minor support is seen at the 9617.00 February high. While it underpins we will retain our medium-term bullish stance.”

“We will retain our long-term bullish forecast while the contract remains above the 8570.00 March low.”

“Resistance is seen at the 10525.00 May 18 high and also at 10747.50. Were it to be exceeded the 261.8% Fibonacci extension of the 2016-to-2018 rise, projected higher from the 2020 low at 12303.50, would be next in line.”

USD fell against most of its major rivals in the European session on Tuesday as fears over accelerating inflation and a potential policy tightening by the Federal Reserve in response to it eased, as the Fed’s policymakers continued to repeat their views that any surge in inflation would be temporary.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, dropped 0.25% to 89.62.

Fed's governor Lael Brainard stated on Monday that she expects price pressures from bottlenecks and supply shortages in the coming months, but much of those price gains should subside over time. However, she noted that the Fed has "the tools and the experience to gently guide inflation back to target" if price pressures move "persistently and materially above our goals".

St. Louis President James Bullard said later on Monday that he expects price pressures from the economic rebound to be temporary. He also noted that it isn't the time for the Fed to change its monetary policy. “I think there will come a time when we can talk more about changing the parameters of monetary policy, I don’t think we should do it when we’re still in the pandemic,” he said.

Investors are now awaiting the release of the core personal consumption expenditures price index (PCE), the Fed’s preferred inflation measure, due on Thursday, which could impact the expectations for the monetary policy.

NFXStreet reports that UOB Group’s FX Strategists suggest that USD/JPY seems to have moved into the 108.50-109.55 consolidative range for the time being.

24-hour view: “The price actions offer no fresh clues and USD could continue to trade sideways. That said, the underlying tone has softened somewhat and USD is likely to trade within a lower range of 108.60/109.05.”

Next 1-3 weeks: “We continue to hold the same view as from last Thursday (20 May, spot at 109.15). As highlighted, USD is expected to trade within a 108.50/109.55 range for now. Looking further ahead, the risk of USD breaking the bottom of the range at 108.50 first appears to be higher but shorter-term price actions do not suggest a breach of this level is imminent.”

FXStreet reports that the recent disruption to global auto production stemming from ongoing semiconductor microchip shortages poses a downside risk to Capital Economics’ price forecasts for platinum and palladium. The bank maps out the potential impact on demand for the metals from three different scenarios.

“Our central scenario assumes the chip shortage limits vehicle production to around 80% of Q4 2020 levels in Q2 before easing, with the shortage fully relieved by mid-2022. In our upside scenario, vehicle production remains close to current levels this quarter, and the shortage is alleviated by end-2021. In our downside scenario, the shortage worsens, only improves from Q4, and is not fully resolved until end-2022.”

“The scale of the surplus we think is possible in the platinum market this year supports our forecast for the price to fall to $900 per ounce by end-2021, from about $1,200 now.”

“While the range of outcomes in the palladium market is much larger (owing to the larger share of demand derived from the auto industry), the fact that we think that the market deficit will remain close to its current level underpins our forecast for the palladium price to end this year at $3,000 per ounce, up slightly from ~$2,800 now.”

FXStreet notes that the Reserve Bank of New Zealand (RBNZ) is on the market’s radar with another policy meeting coming up on Wednesday, May 26. There is a strong likelihood that macro forecasts would be getting favourable updates. Taper talk is watched given the RBNZ has been slowing down on its LSAP bond purchases of late, but it could well be a supply adjustment. Technically, NZD remains in consolidation with momentum gauges staying muted. This keeps an inverse-head-and-shoulders pattern still in play, where declines would find support unless the 200-DMA at 0.6993 and the prior 0.6946 craters, Benjamin Wong, Strategist at DBS Bank, suggests.

“The official cash rate would be left at 0.25%, and the large-scale asset purchases (LSAP) programme would be the one to watch. The NZ Institute of Economic Research (NZIER) has pointed out the slowing down in bond purchases under the LSAP since its introduction in late March 202... Together with likely stronger macro forecasts (especially on the employment front and Consumer Price Index forecasts), the market would be on alert for taper talk.”

“NZD is caught up in a range bind, given the market has yet to either validate a still-in-brew inverse-head-and-shoulders pattern or for that matter, invalidate the pattern. Neither has the market gone the other way and taken out the support of the 200-day moving average (DMA) of 0.6992, thus providing a range consolidation.”

“NZD is likely to see interim resistance unfold in the 0.7270-0.7305 price threshold. That makes the secondary high (lower vs the prior 0.7465 high), with 0.7352 the 76.4% Fibonacci retracement of 0.7465-0.6946 range (late February peak vs early April lows) just behind.”

FXStreet reports that in the opinion of FX Strategists at UOB Group, Cable faces extra gains on a clear of the 1.4235 level in the near term.

24-hour view: “Downward pressure has more or less dissipated and the current movement is viewed as part of a consolidation. In other words, GBP is expected to trade sideways for today, likely within a 1.4125/1.4195 range.”

Next 1-3 weeks: “Our narrative from last Friday (21 May, spot at 1.4185) still stands. As highlighted, it is too early to expect GBP to move into a new positive phase. GBP has to close above 1.4235 before a move to 1.4290 can be expected. The prospect for GBP to move clearly above 1.4235 is not high but it would remain intact as long as the ‘strong support’ at 1.4100 (no change in level) is not breached.”

The Confederation of British Industry (CBI) reported on Tuesday its latest survey of retailers showed retail sales volume balance declined to +18 in the year to May from +20 in April, being broadly average for the time of year.

Economist had forecast the reading to improve to +30.

The report also revealed that the retail orders balance (+22 from -1) grew in the year to May, albeit in comparison to May 2020, when the first national lockdown depressed activity in the sector. Average selling prices rose at their fastest rate since November 2019 (+53 from +28), with similar growth expected in the year to June (+53).

In other survey results, stock levels in relation to expected sales were seen as too low (-15 from 0, which was the lowest balance in survey history) and were forecast to remain so next month (-4).

In other survey results, employment in the retail sector continued to drop sharply in the year to May (-37 from -44) and was anticipated to continue to do so next month (-37). Investment intentions for the year ahead in May grew at the quickest pace since February 1994 (+35 from -8 in February).

“The fact that sales were in line with seasonal norms is a definite improvement from earlier in the year, but this month’s survey was perhaps a touch disappointing after April’s stronger results,” noted Ben Jones, Principal Economist at the CBI. “Some retailers have suggested the increase in demand after the initial reopening of non-essential retail in early April was either short-lived or less strong than expected. And non-store sales remain well above seasonal norms, suggesting that some consumers who migrated to online shopping during the pandemic have not fully shifted back to old habits.”

eFXdata reports that Bank of America Global Research discusses USD/CAD technical outlook.

"In line with our 2021 year ahead technical views, USD/CAD has reached the low 1.20s. Now the question is whether it will breakdown to confirm a big double top with potential for multi-year downside just like the secular potential building in commodities. In the short term, USD/CAD is digesting oversold RSI conditions and bouncing from the bottom of its downward sloping channel. The bottom of this channel, the 2017 lows and 50% Fibonacci retracement all point to strong support at/just above 1.20. In the medium term, risk of a bounce to 1.2250/1.24 is getting high," BofA adds. 

Reuters reports that the National Development and Reform Commission (NDRC) said that China will strengthen price controls on iron ore, copper, corn and other commodities in its 14th five-year plan for 2021 to 2025 to address abnormal fluctuations in prices.

China will improve monitoring and forecasting systems for major commodities and strengthen price controls for important goods such as grain, meat, eggs and vegetables, the NDRC said.

It will also stick to the minimum purchase price policy framework for rice and wheat, it said. The government buys these grains from farmers at a minimum price when the market drops below that level.

The move comes as Beijing prioritises guaranteeing food security for its population of 1.4 billion.

The NDRC said it will build a solid grain supply and stabilise prices.

Commodities prices in the world's second biggest economy have seen big swings this year driven by post-pandemic demand recovery, global liquidity easing and speculative trading.

Beijing's recent moves come after soaring metals prices contributed to a spike in factory gate prices and slower growth in industrial output in April.

FXStreet reports that in opinion of FX Strategists at UOB Group, USD/CNH risks further retracements in the next weeks.

Next 1-3 weeks: “Yesterday, we highlighted that downward momentum has more or less dissipated and USD is likely to trade sideways within a 6.4100/6.4600 range. We did not anticipate the sharp drop that sent USD tumbling to 6.4090. Downward momentum has picked up again and the risk from here is for USD to break the major support at 6.4015. Looking ahead, a daily closing below 6.4015 would indicate that USD could decline towards the next support at 6.3800. The current downward pressure is deemed intact as long as USD does not move above the ‘strong resistance’ level at 6.4300.”

Reuters reports that ECB policymaker Yannis Stournaras said that the European Central Bank must keep its money taps fully open, as the euro zone economy is still in the throes of the coronavirus pandemic despite progress in vaccination campaigns.

ECB rate-setters will review the pace of emergency bond purchases at their June 10 meeting against an improved economic backdrop. Growth and inoculation rates are rising in the bloc as COVID-19 cases fall.

However, Stournaras said the recovery remained fragile and, with no evidence to point to an era of high inflation in the foreseeable future, it was too early for the ECB to slow down emergency bond purchases.

With inflation forecast to stay below the ECB's 2% target for years to come, Stournaras supported continuing the ECB's 1.85 trillion euro Pandemic Emergency Purchase Programme (PEPP) at its current clip.

"I don't see any reason to make any change (to the pace of PEPP) at the moment," he said.

Stournaras said the time for giving up PEPP, which is set to run at least until March 2022, hadn't come yet.

"I don't think the time is right to do this shift yet," he said. "Of course, at some point in the future this will occur, there's no doubt about that. We have to think about a smooth transition from PEPP to APP."

Bloomberg reports that confidence in Germany’s economic outlook improved in May after the nation’s vaccination campaign progressed and authorities started to loosen coronavirus restrictions.

The Ifo institute’s gauge of business expectations for the next six months rose to 102.9. Current conditions were also assessed more positively, after the economy shrank 1.8% in the first quarter.

German authorities have started to loosen curbs on economic activity, gradually allowing shops and restaurants to reopen after the nation’s vaccination campaign picked up speed and infection rates fell. About 40% of the population has now received at least one shot.

Fueled by large amounts of household savings and pent-up demand, the economy is set to rebound strongly in the coming quarters. The IMF said it expects output to return to pre-crisis size early next year. The Bundesbank is more optimistic and predicts it could already happen at the end of 2021.

FXStreet reports that economists at HSBC still see potential upside in the aussie this year due to strong domestic fundamentals and a relatively supportive global backdrop.

“Looking ahead, strong domestic fundamentals and a relatively supportive global backdrop should support the AUD. Australia’s current account position has continued to improve, and the surplus has moved even higher in recent quarters. Much of this strength could be attributed to increasing commodities prices. As the global recovery gathers further steam, demand for commodities is likely to remain firm, supporting Australia’s terms of trade and current account balance. This is likely to remain a bullish feature for the AUD. A global recovery also bodes well for risk appetite, which will be AUD positive.”

“As long as data beats expectations, the AUD should trade relatively well as markets increasingly price in a less dovish RBA. Yet, even if the domestic economy performs poorly, with markets already expecting a dovish RBA, the AUD may find itself maintaining the status quo.”

During today's Asian trading, the US dollar declined against major currencies, and reached its lowest level since January 7.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona),was down by 0.21% to 89,65.

Risk appetite in global markets is growing, and the yield of US government bonds are falling, which puts pressure on the dollar.

The focus of traders this week is on US GDP data for the first quarter of 2021. The PCE Core Index, a key measure of inflation tracked by the Federal Reserve System, is traditionally published as part of the GDP report. The consensus forecast of experts provides for the growth of the PCE Core index in the first quarter by 2.3%. In the fourth quarter of last year, the index increased by 1.3%.

The strengthening of inflation in the United States, together with the improvement in the labor market and the economy as a whole, may force the Fed to raise the rate earlier than markets expected, analysts say.

The euro rose against the US dollar and the yen. The strengthening of the european currency is due to the continued recovery of the euro zone economy, while the growth of risk appetite puts pressure on the yen as a "safe haven"asset.

FXStreet reports that economists at ING expect the USD/CAD pair to test the 1.20 psychological level.

“Inflation rose to 3.4% in April, which is a quite high figure considering the restrictions in place in many parts of the country. Retail sales for March soared past expectations and came in at 3.6% MoM. The data flow has clearly gone in the direction of mitigating the grim jobs numbers for April, and this is ultimately supporting hawkish expectations on the Bank of Canada. External factors should therefore drive the large majority of CAD moves, and leave the loonie more vulnerable to potential unwelcome swings in commodity prices.” 

Reuters reports that official figures from the the Office for National Statistics showed that british public borrowing totalled 31.696 billion pounds ($44.93 billion) in April, the first month of the new financial year, down from 47.315 billion pounds a year earlier when the public finances first felt the full impact of the COVID pandemic. Economists had on average expected 30.9 billion pounds.

The fall in borrowing in April compared with a year earlier is the first annual decline in borrowing since the start of the coronavirus pandemic, but last month's borrowing is still huge by normal standards.

In the financial year to the end of March, Britain borrowed 300.3 billion pounds, equivalent to 14.3% of gross domestic product and the highest peacetime deficit on record, the ONS said. This represents an downward revision from last month's estimate of 2020/21 borrowing equivalent to 14.5% of GDP.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2319 (2730)

$1.2283 (1737)

$1.2257 (3587)

Price at time of writing this review: $1.2231

Support levels (open interest**, contracts):

$1.2185 (207)

$1.2161 (412)

$1.2129 (533)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 4 is 63535 contracts (according to data from May, 24) with the maximum number of contracts with strike price $1,2100 (3614);

GBP/USD

$1.4282 (556)

$1.4250 (1364)

$1.4223 (978)

Price at time of writing this review: $1.4194

Support levels (open interest**, contracts):

$1.4108 (116)

$1.4085 (133)

$1.4055 (485)

Comments:

- Overall open interest on the CALL options with the expiration date June, 4 is 21269 contracts, with the maximum number of contracts with strike price $1,4350 (2979);

- Overall open interest on the PUT options with the expiration date June, 4 is 32275 contracts, with the maximum number of contracts with strike price $1,3100 (3957);

- The ratio of PUT/CALL was 1.52 versus 1.51 from the previous trading day according to data from May, 24

* - 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.

According to the report from the Federal Statistical Office (Destatis), the gross domestic product (GDP) fell by 1.8% in the first quarter of 2021 on the fourth quarter of 2020 after adjustment for price, seasonal and calendar variations. Economists had expected a 1.7% decrease. After the German economy had somewhat recovered in the second half of 2020 (+8.7% in the third quarter and +0.5% in the fourth quarter), the coronavirus crisis caused another decline in economic performance at the beginning of 2021. Destatis reports that the decrease was slightly larger than reported in the first release of 30 April 2021. Compared with the fourth quarter of 2019, the quarter before the corona crisis began, GDP was 5.0% lower.

The continuing, and in part intensified, restrictions imposed to contain the coronavirus pandemic had a particularly marked impact on household final consumption expenditure at the beginning of the year. In the first quarter of 2021, household final consumption expenditure fell by 5.4% on the fourth quarter of 2020 after adjustment for price, seasonal and calendar variations. Government final consumption expenditure was slightly higher than in the previous quarter (+0.2%). Positive contributions came especially from gross fixed capital formation in construction in the first quarter of 2021 as it rose 1.1% on the fourth quarter of 2020 after price, seasonal and calendar adjustment.

In the first quarter of 2021, the price-, seasonally and calendar-adjusted gross value added decreased by 0.8% on the fourth quarter of 2020. 

GDP in the first quarter of 2021 was down a price-adjusted 3.4% compared with the first quarter of 2020. After price and calendar adjustment, the decrease was slightly smaller (-3.1%) as there was one working day less than a year earlier. Economists had expected a 3.0% decrease.