CFD Markets News and Forecasts — 02-03-2021

FXStreet reports that Ned Rumpeltin, European Head of FX Strategy at TD Securities, notes the EUR/USD is underperforming after trading below near-term support around 1.2025. This opens the door for the pair to revisit last month’s lows near 1.1950. 

“EUR/USD declined through notable near-term support around 1.2025 this morning. This opens the door for the pair to revisit last month’s lows near 1.1950 after the February Flash inflation data printed squarely in line with the market's expectations.” 

“With the region's economy still deep in the doldrums, we think the EUR will lag its peers as the euro area continues to underperform on its vaccine rollout program.”

According to ActionForex, analysts at RBC Financial Group note that pace of growth of Canada’s economy slowed to 0.1% in December as the second wave containment measures weighed on hospitality/retail sectors.

"The economy continued to grow during the second wave of virus spread and restrictions. The level of GDP was still down 3.2% from a year ago in Q4, but that’s much improved from the 13% year-over-year drop in Q2. While the pace of improvement slowed in December with GDP up 0.1%, growth accelerated sharply in January as GDP jumped 0.5% despite escalating containment measures. With containment measures already easing gradually again in most parts of the country in February, it is now highly likely that growth remained positive, and significantly so, through the second wave."

"Consumer spending on hospitality/travel services remained exceptionally weak, but other parts of the economy have continued to improve. Consumer spending on goods edged lower in Q4 as virus containment measures limited in-store shopping, but was still up 4.6% from a year ago. The manufacturing sector also pulled back in December, though likely bounced back significantly in January alongside improving business sentiment."

"There are substantial policy tailwinds in place to support a rebound in spending as the threat of the virus eases. Canadian households accumulated $212 billion in savings last year – about $184 billion above pre-shock trends – as government income support programs helped to blunt the income hit from job losses and spending options were sharply limited by virus containment measures. Provided vaccines remain (as is most likely) effective against new and emerging variants, spending could recover quickly as vaccine distribution ramps up and the threat of the virus fades."

• Outlook for oil market continues to be positive
• Headwinds of uncertainty that shocked the market last year continue to abate; this is a major turnaround from a year ago

FXStreet reports that economists at CIBC Capital Markets expect to see further loonie gains in the coming months, but the Bank of Canada is set to out-dove the Federal Reserve and the Canadian dollar will shed some strength in the second half.

“We now see scope for an appreciation in the C$ over the next few months, with USD/CAD expected to sit near 1.24 at mid-year, and likely testing even lower levels in the interim.” 

“We still see the loonie giving up ground late this year and into 2022. Having seen a larger contraction in 2020, Canada has a tighter set of public health constraints in Q1, and a lag in vaccinations will widen the economic gap to the US in the first half of this year.”

“In part to quell C$ gains that it views as a drag on trade, the BoC will likely try to reinforce its dovish messaging at future announcements, noting that its framework is flexible in terms of allowing inflation to run above the 2% target on a temporary basis. In contrast, the Fed is set to change its tune later this year, and will ultimately bring forward its tightening by a full year. That should help cool the loonie’s fires, as will a bit of retracement in energy prices as OPEC+ supply rebounds.”

FXStreet reports that Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, notes that copper (LME) topped out at 9617.00 in February and is expected to tumble back towards the 8500.00-region. 

“A gradual slide back towards the 8500.00-region is to ensue over the coming weeks, provided that 9617.00 isn’t overcome. Further potential support comes in between the December and January high, 55-day moving average and the six month support line at 8238.00/8028.00. This we would expect to hold.” 

“Only a currently unexpected rise above the 9617.00 recent high would engage the February and August 2011 highs at 9905.00/10190.00.”

U.S. stock-index futures fell slightly on Tuesday, following the strongest rally on Wall Street in more than seven months on Monday, as investors continued to closely monitor the situation in the bond market and progress on the next round of U.S. fiscal stimulus.

Global Stocks:

• We must establish the credibility of our strategy by demonstrating that unwarranted tightening will not be tolerated
• We should not hesitate to increase the volume of purchases and to spending the entire PEPP envelope or more if needed
• Inflation increase only temporary
• The near-term growth outlook is also skewed downward
• Policy support will have to remain in place well beyond the end of the pandemic
• We will need to keep going until we see inflation sustainably reaching 2%, in an environment of robust growth and rising employment
• By keeping nominal yields low for longer, we can provide a strong anchor to preserve accommodative financing conditions
• Steepening in the nominal GDP-weighted yield curve we have been seeing is unwelcome and must be resisted
• Lower real yields would provide welcome additional stimulus, given how far we are from full capacity and subdued level of current and expected inflation

(company / ticker / price / change ($/%) / volume)

Statistics Canada announced on Tuesday that the country’s gross domestic product (GDP) edged up 0.1 percent m-o-m in December after a revised 0.8 m-o-m increase in November (originally a gain of 0.7 percent m-o-m).

That was below economists’ forecast for an advance of 0.3 percent m-o-m.

In the forth quarter of 2020, the Canadian GDP grew 2.3 percent q-o-q, following an unrevised 8.9 percent q-o-q surge in the third quarter.

According to the report, the q-o-q increase in GDP was strengthened by a large change in business inventories, as well as increases in government final consumption expenditure, business investment in machinery and equipment (+7.0 percent q-o-q), and housing investment (+4.3 percent q-o-q).

Expressed at an annualized rate, Canada’s GDP climbed 9.6 percent in the fourth quarter after a revised 40.6 percent jump in the previous quarter (originally a 40.5 percent surge).

In 2020, real GDP shrank 5.4 percent, the steepest annual decline since quarterly data were first recorded in 1961.

EUR fell against most of its major counterparts in the European session on Tuesday, as investors digested the flash estimate of Eurozone's CPI for February and Germany's retail sales for January, while the overall market sentiment remained dented by the comments from China’s top banking regulator, which expressed concern about bubbles in global financial markets.

The flash figures from Eurostat revealed that Eurozone's consumer price inflation was steady at 0.9 percent y-o-y in February, unchanged from the previous month's 11-month high. This was in line with economists' forecast as well. Meanwhile, core inflation, which excludes prices of energy, food, alcohol & tobacco, decelerated to 1.1 percent y-o-y from 1.4 percent y-o-y in January. This also matched economists' estimates.

Destatis reported that Germany's retail sales decreased 4.5 percent m-o-m in January, following a downwardly revised 9.1 percent m-o-m plunge in December. Economists had expected only a 0.3 percent m-o-m decline.  In y-o-y terms, retail sales fell 8.7 percent after an upwardly revised 2.8 percent climb in the previous month.  This was the first annual drop since April 2020 and much worse than economists' forecasts of a 1.3 percent raise. According to Destatis, the poor January readings can be explained by the second coronavirus lockdown, which led to a partial retail closure starting on December 16, 2020. Germany's lockdown will reportedly be extended until March 28.

FXStreet reports that analysts at Credit Suisse appraise that the USD/CHF pair saw a close above the crucial 200-day average, to suggest further strength with resistance seen next at 0.9192/9208.

“We shift our immediate bias towards further upside, with scope for 0.9192/9208 – the cluster composed of the key November highs and the 38.2% retracement of the 2020 fall – where we would expect to see another attempt to cap.” 

“Above 0.9208 in due course though would suggest a much deeper correction higher, with resistance initially seen thereafter at 0.9229, then more importantly at 0.9296/9302.”

• Risk of different speed of recovery from COVID-19 crisis among eurozone countries is not behind us

Kohl's (KSS) reported Q4 FY 2021 earnings of $2.22 per share (versus $1.99 per share in Q4 FY 2020), beating analysts’ consensus estimate of $1.03 per share.

The company’s quarterly revenues amounted to $6.141 bln (-10.1% y/y), beating analysts’ consensus estimate of $5.850 bln.

The company also issued guidance for FY 2022, projecting EPS of $2.45-2.95 versus analysts’ consensus estimate of $2.67 and revenues of increase in the mid-teens percentage range versus analysts’ consensus estimate of +11% or $17.69 bln.

KSS rose to $57.50 (+0.88%) in pre-market trading.

Small caps look vulnerable to higher interest rate - Morgan Stanley

FXStreet reports that Mike Wilson, Chief Investment Officer and Chief U.S. Equity Strategist for Morgan Stanley, shares the outlook for investors about which sectors could benefit from an era of rising inflation and higher interest rates.

“Now interest rates are finally catching up, and that is pushing down valuations faster than earnings revisions are moving up. This is very much in line with our call for this year: higher rates, lower valuations and strong earnings. What it means for investors is that 2021 is likely to be a year of modest returns for the major indices, but with massive dispersion between winners and losers.”

“Unsurprisingly, the best opportunities still reside in sectors that have been the most shut down over the past year. Areas like consumer and business services, travel and leisure, to name a few. It's also in sectors that are likely to benefit from higher interest rates or inflation, like banks, materials and energy. Small caps look a bit extended to us at the moment, and they could be vulnerable to higher interest rates, so we'd be a bit more inclined to add here on a further pullback.”

“The areas that appear most vulnerable to higher interest rates remain expensive growth stocks that have limited profitability at the moment. We're also wary of companies that may have experienced excess demand last year.”

Target (TGT) reported Q4 FY 2020 earnings of $2.67 per share (versus $1.69 per share in Q4 FY 2019), beating analysts’ consensus estimate of $2.54 per share.

The company’s quarterly revenues amounted to $27.997 bln (+21.0% y/y), beating analysts’ consensus estimate of $27.418 bln.

TGT rose to $187.50 (+0.76%) in pre-market trading.

GBP/USD: The risk for a test of the 55-DMA at 1.3710 grows - Credit Suisse

FXStreet reports that the Credit Suisse analyst team notes that the GBP/USD pair stays on course for a test of support at 1.3840/30, with the risk now seen for a move to the 55-day average at 1.3710.

“We continue to see scope for a deeper corrective setback yet to price and trend support from early January at 1.3840/30. We continue to look for an attempt to find a floor here, at least at first. The risk for a break through in due course is seen growing steadily which would then warn of a more serious correction lower and a test of 1.3741/31, potentially the 55 -day average at 1.3710, but with fresh buyers expected here.” 

“Resistance is seen at 1.3932 initially, above which can see a move back to 1.3978.”

Zoom Video (ZM) reported Q4 FY 2021 earnings of $1.22 per share (versus $0.15 per share in Q4 FY 2020), beating analysts’ consensus estimate of $0.79 per share.

The company’s quarterly revenues amounted to $0.882 bln (+368.8% y/y), beating analysts’ consensus estimate of $0.811 bln.

The company also issued upside guidance for Q1 FY 2022, projecting EPS of $0.95-0.97 versus analysts’ consensus estimate of $0.70 and revenues of $0.900-0.905 bln versus analysts’ consensus estimate of $0.835 bln.

For the full FY 2022, the company guided EPS of $3.59-3.65 versus analysts’ consensus estimate of $2.96 and revenues of $3.76-3.78 bln versus analysts’ consensus estimate of $3.5 bln.

ZM rose to $445.02 (+8.63%) in pre-market trading.

AUD/USD to march forward to 0.82 by the end of the second quarter - CIBC

FXStreet reports that economists at CIBC Capital Markets expect the aussie to extend already strong gains and forecast the AUD/USD pair at 0.8150 by the second quarter of the year.

“We now anticipate further gains and forecast AUD/USD at 0.8150 by end-2Q”

“We saw a combination of rebounding domestic activity and much improved trade and current account positions underlining gains in the AUD. Those factors have been sustained and now strengthened, particularly under the influence of global reflation enthusiasm and on a broad rally in commodity prices.”

“Policy support has been confirmed to remain for some time yet, and absent a downturn, the positive trend for the AUD should remain intact.”

FXStreet reports that FX Strategists at UOB Group suggest that USD/CNH could now extend the move to the 6.5150 level in the next weeks.

24-hour view: “The quiet price actions offer no fresh clues and USD could continue to trade sideways. Expected range for today, 6.4580/6.4800.”

Next 1-3 weeks: “There is not much to add to our update from last Friday (26 Feb, spot at 6.4800). As highlighted, ‘upward momentum has been boosted’ and ‘there is room for USD to move towards 6.5150’. For now, there is no change to the ‘strong support’ level at 6.4400. A break of the ‘strong support’ would indicate the positive phase in USD that started more than a week ago has run its course.”

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

“Below the 1.2023 mid-February low, EUR/USD should further reinforce the negative tone for a retest of 1.1952/45 – the February low and 23.6% retracement of the entire 2020/2021 bull trend. Whilst a fresh hold will be looked for at first, our bias would be for a break in due course and a fall now to the 200-day average and late November low at 1.1800. Our bias remains for a better floor to be found here.”

“Near-term resistance moves to 1.2062. Above 1.2102/09 can now ease the immediate downside bias.”

Bloomberg reports that China’s top banking regulator said he’s “very worried” about risks emerging from bubbles in global financial markets and the nation’s property sector, sparking fresh concerns about further tightening in the world’s second-biggest economy.

Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission said that bubbles in U.S. and European markets could burst because their rallies are heading in the opposite direction of their underlying economies and will have to face corrections “sooner or later”.

China’s financial regulators are walking a fine line of trying to curb risks at home while limiting disruptions from abroad as the economy opens wider to foreign capital. The CBIRC vowed in January to stay “ahead of systemic risks,” after capping bank lending to the property market, slashing shadow banking activities and claiming victory in unwinding a wild expansion in peer-to-peer lending.

Regulators are watching capital inflows into China, where the economy is still growing and interest rates are higher, although the size and speed of such inflows remain controllable at the moment, Guo said.

Guo also said bubbles in China’s property market remain relatively big, with many people buying homes for investment or speculative purposes, which is “very dangerous.”

According to the report from Eurostat, euro area annual inflation is expected to be 0.9% in February 2021, stable compared to January,. The core figures rose by 1.1%% Y/Y in February when compared to 1.1% expectations and 1.4% registered in January.

Looking at the main components of euro area inflation, food, alcohol & tobacco is expected to have the highest annual rate in February (1.4%, compared with 1.5% in January), followed by services (1.2%, compared with 1.4% in January), non-energy industrial goods (1.0%, compared with 1.5% in January) and energy (-1.7%, compared with -4.2% in January).

FXStreet reports that economists at CIBC Capital Markets discuss USD/CNY prospects in 2021.

“Recent PBoC liquidity management, and ongoing strong inward portfolio and FDI flows that are contributing to currency gains, reinforce our positive view.”

“We raise the liquidity picture as the management of it to-date has been as we might expect. Though any anxiety that policy tightening may continue would be a headwind to our bullish view.” 

“The yuan has been stable to strong since mid-2020 and we forecast further gains this year and next. To any degree that the Year of the Ox encourages consumers and investors, we see markets taking it in stride and maintaining CNH gains.”

Reuters reports that according to the data from the Federal Employment Agency, German unemployment rose in February for the first time since last June, dashing expectations for a fall as lockdown measures to suppress the coronavirus case load held back Europe's largest economy.

The number of people out of work rose by 9,000 in seasonally adjusted terms to 2.752 million. AEconomists had expected a fall of 13,000.

Germany has been in lockdown since November, and measures were tightened in mid-December, as it battles a second wave of the virus. Chancellor Angela Merkel has said new variants of COVID-19 risk a third wave of infections.

The unemployment rate remained unchanged compared with the previous month at 6.0%.

FXStreet reports that economists at HSBC expect EUR/USD to increase this year, but if old relationships are rekindled, it may weigh on the shared currency.

“Over the past couple of years, EUR/USD movements have been much more closely associated with ‘other investment’ flows, instead of portfolio investment flows. FX hedging flows have become more important and could remain so for the foreseeable future, possibly due to lower hedging costs, given that the Federal Reserve has cut its policy rate and remains persistently dovish under its new average inflation targeting framework.”

“The EUR is likely to grind higher against a weaker USD in 2021, given that US monetary conditions will remain loose and risk appetite will remain more supported. Yet, if US short-term interest rates start to move more, or longer-term yield differentials become much more sizable, we might see a more persistent rebound in the USD.”

During today's Asian trading, the US dollar rose against the euro and the yen, while the australian dollar fell on the back of the decision of the Reserve Bank of Australia.

The ICE Dollar index, which shows the value of the US dollar against six major world currencies, rose by 0.26%.

Investors continue to monitor the fate of the new package of measures to support the US economy, which was approved by the House of Representatives of the US Congress over the weekend. The Senate faces the need to pass legislation on new support measures before the mid-March deadline for the payment of the unemployment benefits allowance.

Meanwhile, unemployment in Japan in January remained at the lowest level since July - 2.9%. Analysts had expected an increase of up to 3%.

Today, investors are also waiting for the publication of data on the German labor market. In addition, preliminary data on the change in consumer prices in the euro area in February will be released.

The Australian dollar fell 0.35% against the US dollar. The Reserve Bank of Australia at the end of the March meeting kept the benchmark interest rate at a record low of 0.1%. This decision coincided with analysts ' expectations. The regulator confirmed that it does not plan to raise the rate until inflation is consistently at the target level of 2-3%, which is not expected until 2024.

CNBC reports that while the Federal Reserve may not raise its benchmark interest rate for years, there are growing expectations it may tweak policy soon to address some of the recent tumult in the bond market.

The moves could happen as soon as the upcoming March 16-17 Federal Open Market Committee meeting, according to investors and economists.

One possible move would the third iteration of Operation Twist, a move the Fed last made nearly a decade ago during market tumult around the time of the European debt crisis. Another could see an increase in the rate paid on reserves to address issues in the money markets, while the Fed also might adjust the rate on overnight repo operations in the bond market.

The mechanics of Operation Twist involve selling shorter-dated government notes and buying about the same dollar amount in longer-duration securities. The objective is to nudge up shorter-term rates and drive down those at the longer end, thus flattening the yield curve.

Longer-term bond yields have surged over the past two weeks to levels not seen since before the Covid-19 pandemic. While they remain low historically speaking, markets have been concerned over the pace of the increase. The bond market was calm Monday, with rates in the middle of the curve mostly lower.

Implementing the scheme could help soothe some of the jangled nerves that accompanied a recent blast higher in interest rates from 5-year notes on up the curve. The “twist” is a nod toward adjusting the duration of its purchases to the longer end, and the buying and selling of equal weights mean the Fed’s already bloated $7.5 trillion balance sheet won’t be expanded further.

Reuters reports that ECB vice president Luis de Guindos said that the European Central Bank has the flexibility to counter any undesired rise in bond yields.

“We will have to see whether this increase in nominal yields will have a negative impact on financing conditions. If we reach the conclusion that it will, then we are totally open to recalibrating our programme, including the envelope of our Pandemic Emergency Purchase Programme if necessary. We have room for manoeuvre, and we have ammunition” de Guindos told.

According to the report from Nationwide, annual house price growth rebounded to 6.9% from 6.4% in January. Economists had expected a 5.6% increase. Prices up 0.7% month-on-month, more than erasing the small decline seen in January. Economists had expected a 0.3% decrease.

Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said: “February saw the annual rate of house price growth rebound to 6.9%, from 6.4% in January. House prices rose by 0.7% month-on-month, after taking account of seasonal effects, more than reversing the 0.2% monthly decline recorded in January. This increase is a surprise. It seemed more likely that annual price growth would soften further ahead of the end of the stamp duty holiday, which prompted many people considering a house move to bring forward their purchase. As a result, the outlook for the housing market is unusually uncertain. There is scope for shifting housing preferences to continue to boost activity, especially if there is further policy support in the Budget. Nevertheless, if labour market conditions weaken as most analysts expect, it is likely that the housing market will slow in the months ahead.”

According to provisional data of the Federal Statistical Office (Destatis), turnover in retail trade in January 2021 was in real terms 4.5% and in nominal terms 3.9% lower than in December 2020 (both adjusted for calendar and seasonal influences). These results can be explained by the second COVID-19 lockdown, which led to a partial retail closure starting on 16 December 2020. Economists had expected a 0.3% decrease in nominal terms.

In comparison to February 2020, the month before the outbreak of Covid-19 in Germany, the turnover in January 2021 was 5.8% lower.

In January 2021, the turnover in retail trade was in real terms 8.7% and in nominal terms 7.4% lower than in January 2020. The number of days open for sale was 25 in January 2021, whereas 26 days were open for sale in January 2020.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2116 (4001)

$1.2085 (1507)

$1.2066 (677)

Price at time of writing this review: $1.2021

Support levels (open interest**, contracts):

$1.1984 (6769)

$1.1943 (6787)

$1.1896 (3003)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 5 is 103106 contracts (according to data from March, 1) with the maximum number of contracts with strike price $1,1950 (6787);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3992 (495)

$1.3968 (457)

$1.3940 (1788)

Price at time of writing this review: $1.3882

Support levels (open interest**, contracts):

$1.3783 (1048)

$1.3739 (385)

$1.3654 (226)

Comments:

- Overall open interest on the CALL options with the expiration date March, 5 is 15382 contracts, with the maximum number of contracts with strike price $1,4250 (2483);

- Overall open interest on the PUT options with the expiration date March, 5 is 18528 contracts, with the maximum number of contracts with strike price $1,3500 (1331);

- The ratio of PUT/CALL was 1.20 versus 1.17 from the previous trading day according to data from March, 1

* - 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.

RTTNews reports that Australia's central bank left its cash rate and asset purchase programme unchanged and indicated that it will not raise the rate until inflation returns to the target range.

The policy board of the Reserve Bank of Australia decided to hold its cash rate at a record low of 0.10 percent.

The central bank maintained the target yield on the 3-year Australian government bond at around 0.1 percent and the parameters of the Term Funding Facility and the bond purchase program.

The RBA said that the economic recovery is expected to continue and the central scenario is for GDP to grow by 3.5 percent over both 2021 and 2022. GDP is expected to return to its end-2019 level by the middle of this year.

The economy is still operating with considerable spare capacity and the unemployment rate remains higher than it has been for some years, the central bank said.

The unemployment rate is expected to be around 6 percent at the end of this year and 5.5 percent at the end of 2022.