CFD Markets News and Forecasts — 02-06-2021

eFXdata reports that analysts at MUFG Research see the recent GBP underperformance as temporary on the back of Scotland delaying lockdown end.

"The pound was the worst-performing G10 currency yesterday, reversing some of the gains recorded in May when the pound was the best-performing currency. The turnaround is being driven by the increased uncertainty over the near-term outlook for economic activity given the less than clear path of ending lockdowns for full on schedule on 21st June... This has now become more likely after Nicola Sturgeon announced a one-month delay in Scotland."

"While say a one-month delay is damaging for a number of sectors like international travel and office-related mobility, we doubt it would have any lasting impact on GBP performance and the scale of rebound already underway in the UK after extremely strict lockdowns will still be very evident even if the full reversal from lockdown is delayed for a period." 

FXStreet reports that Bart Melek, Head of Commodity Strategy at TD Securities, notes that OPEC+ stuck to their plan to cautiously raise output as expected but stopped short of discussing what comes next after July. Considering demand is projected to grow at a fast clip, the market is set to face a considerable deficit during the next six months under these assumptions. The group's cautious return to the market, Iranian production notwithstanding, has created the set-up for $70+/bbl crude.

“OPEC+ kept to its widely expected plan to increase production in July, as the Saudi-led cartel sounded a bullish note on the global oil demand recovery.”

“Given demand is projected to grow by over 5 million b/d in H2-2021, there will likely be a considerable deficit during the next six months. Since the OPEC+ planned supply will not keep up with demand growth, it could be argued that the producer group will likely increase production once these risks are mitigated, as we believe they want to regain their market share and do not want a price spike which would incentivize US shale producers to grow output or destroy demand. But any supply increases won't be announced until the Iran production issue has clarity.”

“We expect that the global oil market will remain in a sizable deficit over the near term, which is price supportive. As such it is reasonable to say that WTI will likely push through the low $70s/bbl, but won't surge much higher on a sustained basis, as currently sequestered OPEC+ capacity gets redeployed and Iran increases output.”

FXStreet notes that copper (LME) remains in a well-supported uptrend and strategists at Credit Suisse stay bullish for $11000 and higher.

“Copper extends its temporary breather/pullback near the crucial $10000 level and we maintain our core bullish outlook, with resistance seen next at the psychological $11000 mark, which we would expect to cap the market, at least temporarily.” 

“A direct break above $11000 can see next projection resistance at $11210.”

“Support at $9719/9617 should continue to provide good support in case of a further pullback.”

FXStreet reports that gold has charted a key day reversal as the yellow metal is seeing some profit-taking. Subsequently, XAU/USD is expected to correct lower short-term, in the opinion of Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank.

“Gold’s high of $1916.91 has not been confirmed by the daily RSI and in fact, yesterday’s price action constituted a key day reversal.” 

“We look for a correction lower to take hold and would allow for some slippage back to $1844, the short-term uptrend and the 200-day ma at $1842.” 

“The 55-day ma at $1794 is expected to be the maximum downside we see and we then look for resumption of the long-term uptrend.”

“Longer-term, we target the $1959/65 November 2020 high and the 2021 high. These guard the 1989/78.6% retracement and the 2072 2020 peak. Longer-term, we believe that this will also be overcome.” 

U.S. stock-index futures rose slightly on Wednesday, as investors continued to assess the latest U.S. economic data, while awaiting the key job market readings that could show whether the worker shortages will slow the economy's post-pandemic recovery and add to inflation pressures.

Global Stocks:

FXStreet notes that S&P 500 has retested and rejected the 4238 record high for the completion of a small bearish “reversal day.” Nevertheless, with daily MACD momentum having turned higher, the bias of the Credit Suisse analyst team is still to give the upside the immediate benefit of the doubt whilst above 4171/69.

“S&P 500 strength has extended to test and reject the 4238 record high for the completion of a small bearish ‘reversal day’ and although daily MACD momentum has turned higher this suggests it still may be too soon to look for a direct resumption of the uptrend."

“Support remains 4198 initially, then 4183, with the recent price gap at 4176/69 to keep the immediate risk higher for now. Above 4210 is needed to clear the way for a back to 4234/38. Beyond here though is needed to neutralize the bearish ‘reversal day’ for 4260 next.” 

“Big picture, we continue to look for a move to 4350.” 

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

Alphabet (GOOG, GOOGL) initiated with an Outperform at KGI Securities

Facebook (FB) initiated with an Outperform at KGI Securities; target $420

Microsoft (MSFT) initiated with an Outperform at KGI Securities; target $300

Salesforce (CRM) initiated with a Neutral at KGI Securities; target $280

Statistics Canada announced on Wednesday that the value of building permits issued by the Canadian municipalities fell 0.5 percent m-o-m in April, following a revised 7.6 percent m-o-m climb in March (originally a surge of 5.7 percent m-o-m). The was the first decline in four months.

Economists had forecast a 4.8 percent decrease in April from the previous month.

According to the report, the value of residential permits tumbled 6.7 percent m-o-m in April, as single-family permits declined 7.0 percent m-o-m and permits for multi-family dwellings dropped 6.5 percent m-o-m.

At the same time, the value of non-residential building permits jumped 17.4 percent m-o-m in April, due to gains in commercial (+28.7 percent m-o-m) and institutional (+23.1 percent m-o-m) permits, which, however, were partially offset by a decrease in industrial permits (+13.2 percent m-o-m).

In y-o-y terms, building permits climbed 76.1 percent in April.

AUD fell against most of its major rivals in the European session on Wednesday, as stronger than expected Q1 GDP data from Australia were overshadowed by reports that the Australian state of Victoria extended its 7-day lockdown. 

The government of the state of Victoria, Australia's second-most-populous state, announced on Wednesday it decided to extend a COVID-19 lockdown in state capital Melbourne for another week in a bid to contain the latest virus outbreak. Meanwhile, the restrictions in regional Victoria will ease from midnight on Thursday. "I know this is not the news that everybody wants to hear but given the cases we have... the government had no choice," noted the Victorian acting premier James Merlino. "If we don't do this [lockdown], this thing will get away. This variant of concern will become uncontrollable and people will die." There were six new coronavirus cases reported on Wednesday, taking the cluster to 60.

The announcement of the extension of the lockdown by the Victorian government offset Australia's upbeat Q1 GDP data. The Australian Bureau of Statistics (ABS) reported that Australia's GDP grew 1.8 percent q-o-q in the first three months of 2021, following an upwardly revised 3.2 percent q-o-q growth in the previous three-month period. This marked the third straight quarter of expansion. Economists had forecast a 1.5 percent q-o-q advance. On a yearly basis, GDP rose 1.1 percent, above pre-pandemic levels, after a downwardly revised 1 percent decline in the fourth quarter of 2020. Economists had expected a 0.6 percent gain.

FXStreet reports that Lee Sue Ann, an economist at UOB Group, assesses the latest RBA event (June 1).

“In its June meeting, the Reserve Bank of Australia (RBA), as expected, decided to maintain the current policy settings, including the targets of 10 basis points for both the cash rate and the yield on the 3-year Australian Government bond, as well as the parameters of the Term Funding Facility and the government bond purchase program.”

“Today’s accompanying statement was similar to the one in May, where the Board is committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target. It will not increase the cash rate until actual inflation is sustainably within the 2 to 3 percent target range. For this to occur, the labour market will need to be tight enough to generate wages growth that is materially higher than it is currently. This is unlikely to be until 2024 at the earliest.”

“Once again, the RBA stated that at its July meeting the Board will consider whether to retain the April 2024 bond as the target bond for the 3-year yield target or to shift to the next maturity, the November 2024 bond. The Board is not considering a change to the target of 10 basis points.”

FXStreet reports that strategists at Credit Suisse note that Brent crude looks to be close to breaking above the 2020 and YTD 2021 high at $71.38/75 for the completion of a “triangle” continuation pattern and a resumption of its core bull trend.

“Brent Crude is retesting resistance from the $71.38/75 highs of 2020 and 2021. A break above here should mark the completion of a fresh bullish ‘triangle’ continuation pattern for a resumption of the core bull trend for a move to the 2019 high at $75.60, then the ‘measured flag objective’ at $79.10.” 

“Support is seen at the 63-day average at $66.64, which ideally holds.”

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. dropped 4.0 percent in the week ended May 28, following a 4.2 percent decline in the previous week.

According to the report, refinance applications fell 4.6 percent, while applications to purchase a home decreased 3.1 percent.

Meanwhile, the average fixed 30-year mortgage rate edged down from 3.18 percent to 3.17 percent.

“Tight housing inventory, obstacles to a faster rate of new construction, and rapidly rising home prices, continues to hold back purchase activity,” noted Joel Kan, an MBA economist. “The government purchase index declined to its lowest level in over a year and has now decreased year over year for five straight weeks.”

FXStreet notes that during May, the US dollar weakened notably against the euro, moving from 1.2029 to 1.2195. The U.S. Dollar Index also dropped by 1.6%. Economists at MUFG Bank suggest that the increased evidence of US yields being in equilibrium will help keep the U.S. dollar under downward pressure over the near term. 

“Crucial for the markets will be events going forward that will determine the Fed’s reaction function. But to arrive at a point of ‘substantial progress’ toward its goals, some notable gains in employment will be required. Secondly, a period of time is required in order to assess the sustainability of inflation expectations (10yr breakeven) which have reached around desired levels.”

“The USD will be influenced by the outlook for fiscal policy. The GOP has rejected the White House toned down $1.7trn infrastructure spending program making it likely President Biden will have to go it alone. We expect infrastructure and social spending plans to get approved although the overall size may be smaller.”

“Our lower US yield profile means we have brought forward our USD depreciation more into Q3 and Q4. However, 2022 brings risks of the short end of the US yield curve starting to turn higher in anticipation of rate hikes in 2023. That could see the USD show some degree of modest recovery by the end of Q1 2022.”

Zoom Video (ZM) reported Q1 FY 2022 earnings of $1.32 per share (versus $0.20 per share in Q1 FY 2021), beating analysts’ consensus estimate of $0.98 per share.

The company’s quarterly revenues amounted to $0.956 bln (+191.4% y/y), beating analysts’ consensus estimate of $0.908 bln.

The company also issued upside guidance for Q2 FY 2022, projecting EPS of $1.14-1.15 versus analysts’ consensus estimate of $0.94 and revenues of $0.985-0.990 bln versus analysts’ consensus estimate of $0.933 bln.

For the full FY 2022, it forecast EPS of $4.56-4.61 versus analysts’ consensus estimate of $3.74 and revenues of $3.975-3.990 bln versus analysts’ consensus estimate of $3.80 bln.

ZM rose to $335.50 (+2.37%) in pre-market trading.

FXStreet reports that the Credit Suisse analyst team notes that GBP/USD has again rejected the 1.4238/46 highs with a bearish “reversal day” having been established, raising the prospect of further weakness in the sideways range of the past three months.

“GBP/USD has retested and again seen a rejection of the 1.4238/46 highs with a bearish “reversal day” having been established. This sees a more decisive topside rejection and raises the prospect of further weakness in the sideways range of the past three months.”

“Support is seen at 1.4137 initially, then more importantly at the 1.4091 recent low. Beneath here would see a small top complete to clear the way for a deeper setback to the March/May base at 1.4017/06.” 

“Resistance is seen at 1.4192 initially, above which can clear the way for a move back to 1.4213, then a retest of 1.4238/49.”

Hewlett Packard Enterprise (HPE) reported Q2 FY 2021 earnings of $0.46 per share (versus $0.22 per share in Q2 FY 2020), beating analysts’ consensus estimate of $0.42 per share.

The company’s quarterly revenues amounted to $6.700 bln (+11.5% y/y), beating analysts’ consensus estimate of $6.614 bln.

The company also issued in-line guidance for Q3 FY 2021, projecting EPS of $0.38-0.44 versus analysts’ consensus estimate of $0.43.

For the full FY 2021, it guided EPS of $1.82-1.94 versus analysts’ consensus estimate of $1.84 and prior guidance of $1.70-1.88.

HPE closed Thursday's trading session at $16.09 (+0.81%).

FXStreet reports that FX Strategists note that USD/CNH is expected to test 6.3300 while below the 6.4000 level in the near term.

24-hour view: “The subsequent recovery exceeded our expectation as USD rose to 6.3854. Despite the advance, upward momentum has barely improved and USD is unlikely to strengthen much further. For today, USD is more likely to trade sideways between 6.3680 and 6.3880.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (01 Jun, spot at 6.3670). As highlighted, ‘while the focus is at 6.3300 now, oversold conditions suggest that this level may not come into the picture so soon’. All in, only a breach of the 6.4000 (no change in ‘strong resistance’ level) would indicate that the weakness in USD that started earlier last week has run its course.”

CNBC reports that Trade Minister Dan Tehan told that Australia is considering whether it should get the World Trade Organization involved in an ongoing dispute with China.

China’s commerce ministry in March announced anti-dumping tariffs between 116.2% and 218.4% on Australian wine imports — measures that are set to last for five years. Last year, it launched an anti-dumping probe into wine imports from Down Under and introduced preliminary duties.

Separately, China levied additional temporary tariffs of around 6.3% to 6.4% in December, following a different probe into Australian wine subsidy schemes.

“We have worked very closely with the Australian wine industry to understand the injury that has been caused by the actions that China’s taken,” Tehan, who is also the minister for tourism and investment, said.

“We’ll be making an announcement on whether we will go to the WTO with regards to wine in the coming weeks,” he said.

Australia is one of the few developed countries in the world that exports more than it imports to China. Relations between Canberra and Beijing soured last year after Australia supported a call for an international inquiry into China’s handling of the coronavirus pandemic.

FXStreet reports that strategists at Credit Suisse discuss gold (XAU/USD) prospects.

“Gold looks to have established itself above its 200-day average, now at $1843 and in an ideal world we see a fresh test and hold of this average to reinforce this as a floor for a move to resistance seen next at the high for the year and November 2020 high at $1959/66.” 

“Whilst we would expect a fresh phase of consolidation beneath the $1959/66 region, an eventual break should open the door to a move back to the $2075 record high.”

Reuters reports that Bavaria's finance minister, Albert Fueracker said that higher inflation is compounding the plight of savers and the European Central Bank should respond by raising its interest rates from 0%.

Germany's annual consumer price inflation accelerated in May, advancing further above the ECB's target of close to but below 2%, the Federal Statistics Office said on Monday.

"Germany is a country of savers. The ECB's longstanding zero interest rate policy is poison for typical savings plans," Fueracker, a member of Bavaria's conservative Christian Social Union (CSU), told.

"In combination with the now rising inflation, the expropriation for savers is becoming more and more noticeable. Bavaria has been warning for years that the zero interest rate policy must be ended - now it is high time," he added.

Conservative Germans have long complained that the ECB's 0% interest rates hurt savers as they are left with little if any gain - a problem compounded by rising inflation eroding the value of their nest eggs.

On Tuesday, the German federal government's economy minister, Peter Altmaier, said he was "watching this development with inflation very closely" but could not pass judgment on it yet.

FXStreet reports that economists at Capital Economics discusses USD/CNY prospects.

“The renminbi’s rally appears to have made policymakers uncomfortable. The PBoC’s decision to increase the reserve requirements for banks’ foreign exchange deposits looks intended to rein in the renminbi’s appreciation, by forcing banks to hold more foreign currency. Perhaps more importantly, it signals both the central bank’s preference for a somewhat weaker (or at least not significantly stronger) currency, and its willingness to step in to manage the foreign exchange market.”

“But for all the talk of a ‘market-determined’ exchange rate, we doubt that the Chinese authorities will allow the renminbi to become genuinely free-floating any time soon. We expect the renminbi to weaken, at least vis-a-vis the US dollar, as China’s economy slows and the yield differential between US Treasuries and Chinese government bonds shifts in favour of the greenback. We forecast the USD/CNY pair to end the year at 6.7, compared to ~6.4 currently.”

According to the report from the Bank of England, net mortgage borrowing was £3.3 billion in April, down from a record £11.5 billion in March. Mortgage approvals for house purchase were 86,900 in April, up a touch from March (83,400), but lower than the recent peak of 103,400 in November 2020. Economists had expected an increase to 84,975.

Individuals continued making net repayments of consumer credit in April (£0.4 billion). The effective rate on new personal loans remained low at 5.65%, compared to 7.03% in January 2020.

Households’ deposit flows fell in April, to £10.7 billion. Deposit interest rates remained at historically low levels.

Large businesses made net repayments of £4.8 billion in April, whilst net bank borrowing by small and medium sized businesses was £0.3 billion. Private non-financial companies repaid £0.6 billion of finance to capital markets in April, compared to a monthly average net issuance of £3.6 billion since March 2020.

Reuters reports that Japan’s economy minister said that member nations of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) officially agreed to allow the United Kingdom to start the process of joining the pact.

Japanese Economy Minister Yasutoshi Nishimura said he welcomed the start of Britain’s joining process after hosting an online meeting of ministers from the 11 countries that make up the trans-Pacific trade pact.

The United Kingdom’s admission into CPTPP would bring the nominal gross domestic product of the zone covered by the pact almost on par with that of the European Union, he added.

“The commencement of an accession process with the United Kingdom and the potential expansion of the CPTPP will send a strong signal to our trading partners around the world,” the 11 member countries said in a statement.

Britain made a formal request to join the trade deal in February as it sought to open new avenues for post-Brexit trade and influence.

CNBC reports that former New York Fed President William Dudley said that the recent spike in U.S. inflation is likely transitory for now — but it could become more persistent in the coming years.

“I think that the scare right now is probably going to abate a bit as we go through the next year, but I think in the long run, are we going to see inflation ... above 2%? I think the Fed is going to succeed in doing that,” Dudley said.

Inflation has been a major focus in recent weeks. Investors are worried that a quicker rise in consumer prices would prompt the Fed to hike interest rates earlier than expected. The U.S. consumer price index rose 4.2% in April from a year ago — the sharpest increase since September 2008.

Dudley said the latest spike in inflation was driven by factors that will resolve over time, such as disruptions in supply chains and a comparison against lower numbers last year as the economy was badly hit by the pandemic.

In addition, more people must gain employment before the U.S. faces a labor constraint that feeds through to inflation more persistently in the coming years, he added.

Still, Dudley said he thinks the Fed will discuss tapering its asset purchases — and start winding down its buying — by year end. 

FXStreet reports that Bart Melek, Head of Commodity Strategy at TD Securities, discusses WTI oil prospects.

“OPEC+ kept to its widely expected plan to increase production in July, as the Saudi led cartel sounded a bullish note on the global oil demand recovery. Given demand is projected to grow by over 5 million b/d in H2-2021, there will likely be a considerable deficit during the next six months. Since the OPEC+ planned supply will not keep up with demand growth, it could be argued that the producer group will likely increase production once these risks are mitigated. But any supply increases won't be announced until the Iran production issue has clarity.”

“We expect that the global oil market will remain in a sizable deficit over the near term, which is price supportive. As such it is reasonable to say that WTI will likely push through the low $70s/bbl, but won't surge much higher on a sustained basis, as currently sequestered OPEC+ capacity gets redeployed and Iran increases output.”

During today's Asian trading, the US dollar consolidated against the euro, but rose against the yen, the Australian dollar and the New Zealand dollar.

Federal Reserve Board Governor Lael Brainard said yesterday that the US is approaching the regulator's concept of full employment and the target level of inflation, but the depth of the existing problems still requires the central bank to adhere to a soft monetary policy.

This week, traders expect the publication of data on the US unemployment rate in May. This information is likely to be crucial for the Fed as it develops a plan to scale back the stimulus measures that have supported the economy and markets for more than a year.

Meanwhile, retail sales in Germany in April decreased by 5.5% compared to the previous month, according to data from the Federal Statistical Agency. Analysts had expected a 2% decline.

The Australian dollar fell against the US dollar, despite strong statistical data. Australia's GDP in January-March increased by 1.8% in the quarter after rising by a revised 3.2% three months earlier, the country's Bureau of Statistics said. Australia's economy grew for the third consecutive quarter thanks to fiscal and monetary stimulus. Analysts on average predicted growth of 1.5%.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose by 0.20%.

Reuters reports that Bank of Japan board member Seiji Adachi said that a post-coronavirus pandemic world could offer an opportunity for Japanese firms to raise prices and help the central bank achieve its 2% inflation target.

But there was little the BOJ can do besides "patiently" sustaining its massive stimulus, Adachi said.

"Personally, I can't think of any new tool to directly push up prices. If there were one, we would have deployed it already," Adachi told.

While restaurants and hotels may need to continue shouldering the cost of steps to prevent the spread of the virus, consumers may become more willing to pay more for value-added services, Adachi said.

"This could offer firms a chance to charge more for higher quality services," said Adachi, a former market economist.

"A post-pandemic world may offer a big chance to achieve our 2% inflation target," if retailers are able to charge more for their services unlike in Japan's past periods of deflation, he added.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2307 (3254)

$1.2271 (1871)

$1.2248 (3187)

Price at time of writing this review: $1.2208

Support levels (open interest**, contracts):

$1.2144 (1138)

$1.2098 (1943)

$1.2049 (3536)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 4 is 72607 contracts (according to data from June, 1) with the maximum number of contracts with strike price $1,2100 (3600);

GBP/USD

$1.4222 (1330)

$1.4194 (904)

$1.4176 (1464)

Price at time of writing this review: $1.4146

Support levels (open interest**, contracts):

$1.4115 (167)

$1.4083 (865)

$1.4042 (446)

Comments:

- Overall open interest on the CALL options with the expiration date June, 4 is 20224 contracts, with the maximum number of contracts with strike price $1,5000 (2696);

- Overall open interest on the PUT options with the expiration date June, 4 is 34555 contracts, with the maximum number of contracts with strike price $1,3100 (3957);

- The ratio of PUT/CALL was 1.71 versus 1.56 from the previous trading day according to data from June, 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.

eFXdata reports that Bank of America Global Research discusses its expectations for the ECB policy meeting.

"The ECB will not taper the PEPP next week, but this is still not sufficient. A number of ECB speakers, including Lagarde, have recently pushed against PEPP tapering expectations in June. They also expressed concerns about rising yields and EUR appreciation, both of which have led to tighter financing conditions, which is what the ECB was supposed to defend. Such comments have stabilized the EUR, but have not been enough to weaken it. Not slowing the current pace of purchases avoids a policy mistake, but is not enough to reverse the recent market trends," BofA adds.

According to provisional results of the Federal Statistical Office (Destatis), the real (price-adjusted) turnover of all retail enterprises in Germany was 5.5% lower and the nominal (not price-adjusted) turnover was 5.4% lower, on a calendar and seasonally adjusted basis, in April 2021 than in March 2021. The federal emergency brake in the second half of April and the Easter business in March 2021 are very likely to have been the main reasons for this development. In March 2021, a strong month-on-month increase in turnover (a calendar and seasonally adjusted real +7.7% and nominal +7.6%) had been recorded.

Compared to the pre - crisis month of February 2020, sales in April 2021 were 0.8% lower in real terms on a calendar and seasonally adjusted basis. Compared to April 2020, retail sales increased by 4.4% in real terms and 5.8% in nominal terms in April 2021.

In April 2021, the retail trade in food, beverages and tobacco decreased by 3.4% in real terms and by 1.6% in nominal terms compared to April 2020. 

There were significant increases in the retail trade with non-food products. Sales in April 2021 were 10.6% higher in real terms and 11.3% higher in nominal terms than in the same month of the previous year. 

The Internet and mail order business recorded an increase in sales of 13.1% in real terms and 13.0% in nominal terms compared to the same month of the previous year.