Analytics, News, and Forecasts for CFD Markets: currency news — 27-01-2021.

According to ActionForex, analysts at Wells Fargo Securities note that today's U.S. durable goods report signals that while the post-shutdown surge has faded, underlying strength continues to propel orders and shipment to record levels. Meanwhile, the headline miss is mostly attributable to a drop in aircraft orders.

"Durable goods orders finished the year with lost momentum as the sequential increase slowed in each of the final three months of the year. December’s monthly gain of just 0.2% was well short of consensus expectations, although the monthly figures for November were revised slightly higher. Despite some soft spots, the details were broadly encouraging."

"Civilian aircraft orders dropped 51.8% in December. Historically December is the biggest month for aircraft orders, so the plunge here may say more about the seasonal adjustment process during a generally difficult year for the aviation sector than some specific new deterioration for aircraft makers."

"Stripping away the volatile transportation orders, we see orders actually besting expectations slightly, rising 0.7% versus an expected gain of only half a percentage point."

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories plunged by 9.910 million barrels in the week ended January 22. Economists had forecast a build of 0.430 million barrels.

At the same time, gasoline stocks rose by 2.469 million barrels, while analysts had expected an advance of 1.764 million barrels. Distillate stocks dropped by 0.815 million barrels, while analysts had forecast a decrease of 0.361 million barrels.

Meanwhile, oil production in the U.S. reduced by 100,000 barrels a day to 10.900 million barrels a day.

U.S. crude oil imports averaged 5.1 million barrels per day last week, decreased by 1.0 million barrels per day from the previous week.

According to the ECB's officials, the ECB policymakers are uncomfortable with investors largely ruling out more interest-rate cuts and have agreed to stress that a rate cut is still a viable option.

FXStreet reports that Paul Dales, Chief UK Economist at Capital Economics, forecasts that UK 10-year gilt yields will end 2022 at 0.50%.

“We suspect that diminishing expectations of negative interest rates in the UK will push up 10-year gilt yields from 0.28% now to around 0.50% by the end of the year. But our relatively subdued forecast for RPI inflation over the next two years suggests that the markets’ inflation expectations won’t push up 10-year gilt yields much further. Our forecast that 10-year yields will end 2022 at 0.50% is lower than the consensus forecast of 0.80%.”

• Now is not the time to talk in public about easing restrictions
• We must stick with restrictions in coming weeks to suppress the virus
• With coronavirus lockdown coming to end in Germany, many sectors will grow quickly

• Says picture should be clearer in mid-February
• Says schools won’t reopen immediately after February half-term
• Hopes to reopen schools March 8
• We remain in perilous situation
• We will publish plan on exiting lockdown in the week of February 22
• Our aim will be to gradually phase out measures

The U.S. Commerce Department reported on Wednesday that the durable goods orders rose 0.2 percent m-o-m in December, following a revised 1.2 percent m-o-m climb in November (originally a 0.9 percent m-o-m advance).

Economists had forecast a 0.9 percent m-o-m gain.

According to the report, orders for durable goods excluding transportation increased 0.7 percent m-o-m in December, following a revised 0.8 percent m-o-m advance in November (originally a 0.4 percent m-o-m gain), also missing economists’ forecast of 0.5 percent m-o-m rise.

Meanwhile, orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, increased 0.6 percent m-o-m in December after a revised 1.0 percent jump m-o-m in November (originally a 0.5 percent m-o-m gain). Economists had called for a 0.6 percent m-o-m advance in core capital goods orders in December.

Shipments of these core capital goods went up 0.5 percent m-o-m in December after a revised 0.5 percent m-o-m jump in the prior month (originally a 0.4 percent m-o-m advance).

USD rose against its major rivals in the European session on Wednesday as investors’ attention turned to the outcomes of the U.S. Federal Reserve's policy meeting.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, rose 0.42% to 90.55.

The Fed will announce its decision on monetary policy - the first one this year -  today at 19:00 GMT. Markets expect no changes in the central bank's policy stance, with both interest rates and QE to be kept unchanged. But investors wait for an update on the economic outlook from the Bank's governor Jerome Powell, looking for any shifts in tone on the back of vaccine rollout and larger fiscal stimulus. Economists suggest that more upbeat rhetoric on the economic perspectives may cause speculation about some earlier-than-forecast tapering of the Fed’s asset purchases. Powell is scheduled to begin his press conference at 19:30 GMT.

Market sentiment also continued to be weighed down by uncertainty surrounding President Joe Biden's $1.9 trillion stimulus package and reports that global Covid-19 cases surpassed 100 million.

FXStreet reports that strategist at TD Securities (TDS) offered a brief preview of Wednesday's key event risk, the FOMC monetary policy decision, due later during the U.S. session.

“January's FOMC meeting will be the main event on the US economic calendar on Wednesday. We expect changes to the FOMC statement to be fairly minor, consistent with no plans for policy changes anytime soon. The chairman will likely remain dovish on the policy outlook in his press conference even as he expresses some optimism about growth in the year ahead—with vaccines and fiscal stimulus ultimately contributing to strength.”

• Perpetual lockdown is not the answer to the pandemic; there are no easy answers
• I take full responsibility for all the action during the pandemic
  
• We have one of toughest border regimes in the world
• In the next few weeks, we hope to detail how to exit pandemic

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. declined 4.1 percent in the week ended January 22, following a 1.9 percent decrease in the previous week.

According to the report, refinance applications fell 5.0 percent, while applications to purchase a home dropped 4.0 percent.

Meanwhile, the average fixed 30-year mortgage rate rose from 2.92 percent to 2.95 percent, the highest since the week ended November 15.

“Since hitting a recent low in April 2020, the average purchase loan amount has steadily risen — in line with the accelerating home-price appreciation occurring in most of the country because of strong demand and extremely low inventory levels,” noted Joel Kan, an MBA economist. “In a sign that borrowers are increasingly more sensitive to higher rates, large declines in government purchase applications and refinance applications pulled overall activity lower,” Kan added. “The refinance index has now declined for two-straight weeks.”

USD: From the reflation trade in 2020 to the inflation trade in 2021 - Credit Agricole

eFXdata reports that Credit Agricole CIB Research discusses the USD outlook and adopts a neutral bias over the coming weeks.

"The ‘reflation trade’ was the main drag on the USD in 2020, especially after the Fed launched its average inflation targeting framework. The FOMC’s appetite for high inflation may soon be put to the test, however, with Credit Agricole CIB’s inflation strategist expecting US headline inflation to hit 3% YoY in Q2".

"To the extent that this reinvigorates the debate about the Fed taper, it could fuel the relative yield advantage of the USD and help it consolidate especially vs the JPY and CHF in the coming months". 

FX strategists at ING note that the Fed announces monetary policy today and they expect, in line with consensus, no changes in the policy stance, with both rates and QE set to be left unchanged. 

"Also, it is highly unlikely that the FOMC will tweak its lower-for-longer narrative."

"The market reaction will therefore be mostly driven by any signs that the Bank is shifting towards a more upbeat tone on the economic outlook on the back of vaccine developments and larger fiscal stimulus under the new administration (the IMF just upgraded its forecast for 2021 US growth to 5.1% from 3.1% in October). That may be enough to fuel some speculation of earlier-than-expected tapering, despite that we expect Chair Powell to keep the policy message firmly on the dovish side."

"Still, US yields may find some support and help the dollar (which is already pricing in Fed dovishness) recover from yesterday's grim session."

Reuters reports that steel association said that China's steel demand will increase slightly in 2021, supported by stable macroeconomic policies, even as the government has urged companies to produce less steel this year.

Economic policies that China adopted to cope with the COVID-19 pandemic will shore up China's steel demand, Qu Xiuli, vice chairwoman of the China Iron and Steel Association (CISA) said at a news conference.

Citing a desire to reduce carbon emissions, the industry ministry had asked China's mammoth steel sector to produce less crude steel in 2021 than the record 1.05 billion tonnes it logged last year.

But CISA's vice chairman, Luo Tiejun, told the briefing that higher demand this year could be met by other means.

"We can strengthen imports of primary steel products, especially billets... so that rising demand can be met without increasing output," said Luo.

Luo also said the government is planning to roll out favourable policies to encourage such imports.

Bloomberg reports that U.K. housebuilders are facing a shortage of construction materials and mounting costs as disruptions caused by the coronavirus and Brexit start weighing on the industry.

Escalating prices for shipping and delays at some British ports are having a major impact amid high demand, according to trade body Builders Merchants Federation, which says its members manufacture 76% of building products in the U.K. The price of timber has soared by an average 20% and there’s evidence of limited availability of roofing materials, it said.

“The longer the issue goes on, then the more the larger house builders will be impacted,” said BMF Chief Executive Officer John Newcomb. Smaller builders have felt the brunt so far, but “we are doing everything we can to try and improve the situation and increase supplies to meet current demand.”

Persimmon Plc, the U.K.’s largest housebuilder, warned earlier this month of uncertainties relating to disruptions from the pandemic and the broader impact of the free trade agreement between the European Union and the U.K., despite the “resilient demand” for new homes.

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, discusses the prospects of gold.

“Gold traded through the 10-month uptrend but did not CLOSE below here and we have re-drawn it. We favor recovery off the 1810 recent low but suspect that we will just see further consolidation for this week. Near term rallies will find initial resistance at 1906, the 21st December high ahead of the November and September highs at 1965.84/1973.8. This remains the barrier to the 78.6% retracement at 2006. Below the 1810 level lies key support, which remains 1760/1765.61 May high and 50% retracement".

RTTNews reports that final data from the Cabinet Office showed that Japan's leading index rose less than estimated in November.

The leading index was 96.4 in November, up from 94.3 in the previous month.The initial reading was 96.6.

The coincident index declined to 89.0 in November from 89.4 in the previous month. The flash reading was 89.1.

The lagging index fell to 91.0 in November from 91.2 in the previous month. The initial reading was 89.8.

eFXdata reports that MUFG Research discusses its expectations for the Fed January policy meeting .

"We expect the Fed to reiterate a dovish policy signal at this week’s FOMC meeting. The Fed are likely to re-emphasize that it is still too early to talk about slowing the pace of QE at the current juncture. We expect the Fed to more seriously consider a signal that it is planning to slow the pace of QE later this year if effective vaccines have supported a stronger economic recovery. While a QE taper announcement could be delivered later this year, the Fed may not begin to slow the pace of QE purchases until next year," MUFG adds.

FXStreet reports that analysts at Danske Bank note that the FOMC monetary policy decision is the main mover this Wednesday.

“The focus is on the FOMC meeting. However, we do not expect any major policy changes tonight after the Fed changed its QE forward guidance at the December meeting. We expect Fed Chair Powell will be asked about the tapering process on the back of the previous weeks' discussions".

• ECB is monitoring strengthening in the euro

• ECB taking a holistic view on financing conditions

After these comments, the EUR/USD pair fell sharply, setting a new session low.

Reuters reports that National Bureau of Statistics (NBS) data showed that profits at China’s industrial firms grew for the eighth straight month in December, suggesting a sustained recovery as the manufacturing sector rapidly emerged from its COVID-19 slump.

Profits surged 20.1% year-on-year in December to 707.11 billion yuan ($109.40 billion), after rising 15.5% in November.

China is the only major economy in the world to avoid a contraction in 2020, with gross domestic product up 2.3% for the full year, while many countries remain crippled by the pandemic.

For the full year of 2020, annual profits for China’s industrial firms grew 4.1% year-on-year to 6.45 trillion yuan, recovering from a 3.3% on-year decline seen in 2019. It was also quicker than a 2.4% gain seen in January-November.

The profit gains last year were notably driven by the manufacturing sector, which saw margins increase by 7.6%, said Zhu Hong, a senior statistician at the statistics bureau, in a statement published alongside the data.

During today's Asian trading, the US dollar consolidated against the euro and the yen, as market participants await the outcome of the Federal Reserve meeting.

Economists do not predict that the US Federal Reserve will make any important decisions at the January meeting, which ends on Wednesday. The base interest rate is likely to remain at 0-0. 25% per annum in the coming years, and the only point where changes are possible in the foreseeable future concerns the timing of the asset repurchase program.

The attention of market participants will be focused on how the Federal Reserve will assess the latest news regarding the economy and the prospects for its recovery, as well as the strengthening of inflation.

According to the experts of Julius Baer, " now is not the time to talk about the termination of monetary support." In their opinion, instead, it is necessary to use fiscal stimulus measures more widely, if necessary.

Senate Democratic Majority Leader Chuck Schumer said that US President Joe Biden, along with Democrats in Congress, intend to advance his plan to stimulate the US economy without the support of Republicans, if necessary.

The ICE Dollar index, which shows the value of the US dollar against six major world currencies, rose by 0.06%.

According to the report from Insee, in January 2021, households’ confidence in the economic situation has fallen back, after having bounced back sharply in December. At 92, the synthetic index has lost three points and remains below its long-term average (100).

In January, the share of households considering it is a suitable time to make major purchases has clearly decreased. The corresponding balance has lost six points and falls below its long-term average.

The households’ opinion balance related to their future financial situation has also decreased. By losing five points, it falls below its average. The households’ opinion balance related to their past financial situation has decreased by two points, but remains above its long-term average.

In January, the share of households considering it is a suitable time to save has increased very sharply. The corresponding balance has gained eleven points. It hits its December 2012 level, very close to its highest level.

Households’ balance of opinions on their current saving capacity has gained two points. Conversely, households’ balance of opinions on their future saving capacity has lost one point. Both balances remain well above their long-term average.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2238 (994)

$1.2214 (285)

$1.2197 (597)

Price at time of writing this review: $1.2153

Support levels (open interest**, contracts):

$1.2114 (1448)

$1.2080 (1047)

$1.2040 (2937)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date February, 5 is 47645 contracts (according to data from January, 26) with the maximum number of contracts with strike price $1,2050 (2937);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3846 (274)

$1.3817 (1703)

$1.3793 (1580)

Price at time of writing this review: $1.3755

Support levels (open interest**, contracts):

$1.3573 (792)

$1.3532 (310)

$1.3488 (1744)

Comments:

- Overall open interest on the CALL options with the expiration date February, 5 is 11427 contracts, with the maximum number of contracts with strike price $1,3750 (1703);

- Overall open interest on the PUT options with the expiration date February, 5 is 19823 contracts, with the maximum number of contracts with strike price $1,2500 (2183);

- The ratio of PUT/CALL was 1.73 versus 1.73 from the previous trading day according to data from January, 26

* - 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.

FXStreet reports that Marcel Thieliant, economist at Capital Economics, believes that the Reserve Bank of Australia (QE) may unwind its asset purchases program in April.  

“While the Reserve Bank of Australia will present more upbeat forecasts for GDP growth, inflation and the labor market at its meeting on Tuesday 2nd February, we suspect it will still sound dovish. Even so, we think that the rapid recovery in the labor market will convince the Bank to end QE in April.

The RBA has now bought $48bn in government bonds under its Bond Purchase Program. If it keeps buying $5bn per week, it will hit the $100bn target by the middle of April. As such, the Bank will have to announce whether to extend the programme no later than the meeting on 6th April".

According to the report from Gfk, as 2021 begins, consumer confidence in Germany is suffering under the strict lockdown. Propensity to buy is in freefall, while both economic and income expectations have registered moderate declines. As a result, GfK is forecasting a decrease of 15.6 points in consumer sentiment for February 2021, down 8.1 points from January this year (revised to  7.5 points). Economists had expected a decrease to -7.9.

In addition to the moderate decrease in income expectations, the renewed slump in consumer sentiment in Germany is due largely to the collapse of propensity to buy. 

"The closure of the restaurant trade and large portions of the retail sector in mid-December 2020 has had a similarly damaging effect on consumer spending as that of the first lockdown last spring. At present, propensity to buy is at zero points. This is a decrease of 36.6 points on the previous month, which is comparable to the drop of 36 points recorded during the first lockdown in April 2020," says Rolf Bürkl, consumer expert at GfK.