CFD Markets News and Forecasts — 02-09-2021

FXStreet reports that economists at ING think that EUR/USD will be largely rangebound into year-end. The question remains whether the German elections will provide a spark.

“1.17-1.20 may be the EUR/USD range into year-end, with the pair ending towards the top of the range given seasonal dollar weakness.”

“We would expect a broader dollar rally to emerge through 1H2022 as the market grows increasingly confident of the first Fed tightening later in the year.”

“The FX options market prices 30% more volatility than normal around the German election on 26 September. But the French presidential election next April is seen as a much bigger deal for FX markets.”

FXStreet reports that the Credit Suisse analyst team suggests that gold may be forming a larger bullish continuation pattern.

“Key now is the July and August highs at $1832/34, a break above which is needed to suggest a base has been in place to keep the immediate risk higher for $1871, then $1917. Above this latter level would suggest a more important and large bullish continuation pattern has been completed to expose the $2075 high.”

“Only below $1671 though would mark a major top to mark an important change of trend lower.”

The U.S. Commerce Department reported on Tuesday that the value of new factory orders rose 0.4 percent m-o-m in July, following an unrevised 1.5 percent m-o-m increase in June.

Economists had forecast a 0.3 percent m-o-m advance.

According to the report, orders for primary metals (3 percent m-o-m) and machinery (+2.9 percent m-o-m) recorded the biggest increases in July. At the same time, orders for transport equipment (-2.1 percent m-o-m) and electrical equipment, appliances and components (-1.7 percent m-o-m) decreased the most.

Total factory orders excluding transportation, a volatile part of the overall reading, went up 0.8 percent m-o-m (compared to an upwardly revised 1.5 percent m-o-m jump in June), while orders for nondefense capital goods excluding aircraft, a measure of business spending plans, edged 0.1 percent m-o-m instead of being unchanged as reported last month. The report also showed that shipments of core capital goods rose 0.9 percent m-o-m in July, rather than gaining 1.0 percent m-o-m as previously reported.

Statistics Canada announced on Thursday that the value of building permits issued by the Canadian municipalities fell 3.9 percent m-o-m in July, following a revised 7.2 percent m-o-m surge in June (originally a climb of 6.9 percent m-o-m). 

Economists had forecast a 0.3 percent increase in July from the previous month.

According to the report, the value of residential permits dropped 3.1 percent m-o-m in July, as single-family permits plunged 9.6 percent m-o-m, while permits for multi-family dwellings rose 2.7 percent m-o-m.

At the same time, the value of non-residential building permits went up 2.2 percent m-o-m in June, reflecting decreases in institutional (+17.1 percent m-o-m) and commercial (-6.9 percent m-o-m) permits, which were partially offset by a jump in industrial permits (+17.6 percent m-o-m).

In y-o-y terms, building permits surged 21.8 percent in July.

U.S. stock-index futures rose on Thursday after data showed that the U.S. jobless claims declined to a fresh pandemic low last week, despite the recent surge of COVID-19 Delta variant spreading. 

Global Stocks:

Statistics Canada announced on Thursday that Canada recorded a trade surplus of CAD0.78 billion in July, compared with a revised CAD2.56-billion surplus in June (originally a CAD3.23-billion surplus). 

Economists had forecast a surplus of CAD1.40 billion.

According to the report, Canada’s exports rose 0.6 percent m-o-m to a record CAD53.75 billion in July, as gains in most product sections were partially offset by a steep fall in exports of lumber and other sawmill products (-23.6 percent m-o-m) drove the decline. Excluding this product section, total exports were up 2.0 percent m-o-m. Meanwhile, imports jumped 4.2 percent m-o-m to CAD 52.97 billion in July, as 9 of the 11 product sections recorded increases, with motor vehicles and parts (+21.1% percent m-o-m) accounting for more than two-thirds of the advance in total imports. 

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The U.S. Commerce Department reported on Thursday that the U.S. goods and services trade deficit narrowed to $70.0 billion in July from a revised $73.2 billion in the previous month (originally a gap of $75.7 billion). This was the smallest trade deficit in the last three months.

Economists had expected a deficit of $71.0 billion.

According to the report, the July decrease in the goods and services deficit reflected a decline in the goods deficit of $5.5 billion to $87.7 billion and a drop in the services surplus of $2.4 billion to $17.7 billion.

In July, exports of goods and services from the U.S. jumped 1.3 percent m-o-m to $212.8 billion, while imports edged down 0.2 percent m-o-m to $282.9 billion, as the global COVID-19 pandemic and the economic recovery continued to impact international trade.

Year-to-date, the goods and services deficit surged 37.1 percent from the same period in 2020. Exports soared 16.8 percent, while imports climbed 21.3 percent.

The data from the Labor Department showed on Thursday the number of applications for unemployment decreased more than forecast last week, hitting a new pandemic-era low.

According to the report, the initial claims for unemployment benefits fell by 14,000 to 340,000 for the week ended August 28. This was the lowest reading since mid-March of 2020, when the COVID-19 pandemic struck.

Economists had expected 345,000 new claims last week.

Claims for the prior week were revised upwardly to 354,000 from the initial estimate of 353,000.

Meanwhile, the four-week moving average of jobless claims dropped to 355,000 from an upwardly revised 366,750 in the previous week.

As for continuing claims, they declined to 2,748,000 from an upwardly revised 2,908,000 in the previous week. This was the lowest print since March 2020.

FXStreet reports UOB Group’s Heng Koon How, CAIA, Head of Markets Strategy, Senior FX Strategist Peter Chia, Rates Strategist Victor Yong and Market Strategist Quek Ser Leang provided their views on the dollar.

“For the USD, we keep our prevailing view that the USD will continue to strengthen against both the Majors and Asian currencies as the FED embarks on tapering of asset purchases.”

“In mid-August, the US Dollar Index (DXY) traded up to about 93.70, its highest since last November after the minutes of the July FOMC meeting showed most officials agreeing that tapering could begin “in coming months”, setting the stage for an announcement by December.”

“While the DXY gave up some of its month-to-date gains after recently concluded Jackson Hole Symposium (27 Aug), its recovery since June remains intact.”

FXStreet notes that the S&P 500 Index continues its rally to new highs but analysts at Credit Suisse don’t see the stock market at an ‘extreme’ though until 15% above the 200-day average.

“We stay bullish with resistance seen next at 4565 ahead of 4600/15, which we would look to cap at first for some consolidation.” 

“We don’t see the market at an ‘extreme’ though until 15% above the 200-day average, still some distance higher at 4663.”

“Below 4469 is needed to mark a near-term minor top and some consolidation but only a close below the 63-day average and August low at 4362/54 would warn of a more concerted phase of corrective weakness.”

FXStreet reports strategists at OCBC Bank expect the gold (XAU/USD) to continue with its sideways movement ahead of Friday’s Nonfarm Payrolls. A robust report could send the yellow metal below the $1800 level.

“The last three days saw little intraday volatility in gold price movements and the precious metal has traded cleanly above the $1800 level in the same period. We expect this trend to continue until tomorrow’s jobs report.”

“A strong US nonfarm payroll may send gold back below the $1800 handle.”

FXStreet reports that UOB Group’s FX Strategists suggest the outlook for USD/CNH could shift to negative on a close below 6.4500.

24-hour view: “We highlighted yesterday that ‘while downward momentum has eased somewhat after the rebound, there is room for USD to retest the 6.4470 level before a more sustained recovery can be expected’. USD subsequently dropped to 6.4476 before rebounding slightly. Downward pressure is beginning to ease but it appears too soon to expect a recovery. For today, USD is likely to consolidate and trade between 6.4450 and 6.4650.”

Next 1-3 weeks: “... [Yesterda,] USD subsequently dropped to 6.4476 before rebounding to close at 6.4513. Downward momentum still appears to be a bit ‘hesitant’ and we continue to wait for a daily closing below 6.4500. Looking ahead, the next support is at 6.4300. On the upside, a break of 6.4750 (‘strong resistance’ level previously at 6.4820) would indicate that the downside risk has dissipated.”

FXStreet reports that OPEC+ members agreed to continue the gradual increase in output, and Bart Melek, Head of Commodity Strategy at TD Securities, suggested that WTI is set to trade below the $70 level, given global demand concerns.

“The crude market will very likely continue to face headwinds from the Delta variant as it will take time for full Pfizer Vaccine approval to increase vaccination rates, while the planned 400k b/d OPEC+ supply increase also removes some supply-side support.”

“With demand lower than expected just weeks ago, it certainly looks like the global crude market will not be as tight as originally thought.”

“Crude should have a hard time rallying much above the recent trading range. Any sustained move above the $70/bbl mark, will require more certainty on the demand side and no sudden production increases from Iran.”

FXStreet notes that a more challenging narrative for the USD has been developing lately. However, economists at Westpac suggest that the US Dollar Index (DXY) downside is likely limited to 91.5-92.0. 

“Chair Powell delivered a cautious Jackson Hole tapering message, confidence surveys show the Delta strain is sapping US rebound momentum, while the hawkish ECB wing has been talking up tapering prospects ahead of their 9 Sep meeting. DXY is unlikely to sustain any significant damage beyond 91.50-92.0 support though.”

“Fed Governor Waller and Presidents Bullard, Rosengren and Kaplan have openly called for a September taper announcement but the ‘inner circle’ of Brainard, Clarida and Powell are not likely on board yet.” 

“Another strong payrolls in the 750K-1M range for August would restore faith in rebound momentum and breathe fresh life into September FOMC taper announcement bets. That would likely stabilise DXY.”

FXStreet reports that Kit Juckes, Chief Global FX Strategist at Société Générale, believes that EUR/USD is well-positioned to take advantage of dollar depression and may hit the 1.20 level in the coming weeks.

“A clearer dollar uptrend is only likely when Fed rate hikes are more clearly visible on the horizon and that still seems more of a 2022 than a 2021 story.”

In the meantime, it wouldn’t be surprising if in the next few weeks EUR/USD re-tests 1.20.” 

CHF traded mixed and little changed against other major currencies in the European session on Thursday, as investors assessed predominantly disappointing Swiss economic data.

The report from the State Secretariat for Economic Affairs (SECO) revealed a weaker-than-expected rebound in the Swiss economy in Q2. According to the report, Switzerland's GDP grew 1.8% q/q in the second quarter of 2021, recovering from a revised 0.4% q/q contraction in the previous quarter (originally a 0.5% q/q decrease), as many coronavirus restrictions were eased. Economists had forecast the Swiss economy would expand by 2.0% q/q. On a y/y basis, Swiss GDP grew 7.7% in the second quarter, following a revised 0.7% decline in the first quarter (originally a drop of 0.5%). This represented the strongest growth on record but was below economists’ forecasts for a 9.0% advance. 

Meanwhile, the data, which were provided by the Federal Statistical Office (FSO), showed that retail sales in Switzerland decreased 2.6% y/y in July, following an unrevised 0.1% y/y gain in the previous month. This marked the first annual decrease in retail sales since February. On m/m terms, retail sales fell 2.8%, recording their 4th consecutive monthly decline.

In addition, another report from the FSO unveiled a slightly faster than expected acceleration in consumer inflation in August. According to the report, the Swiss CPI rose 0.2% m/m in August, following a 0.1% m/m drop in July. Economists had forecast a 0.1% m/m uptick. In y/y terms, Swiss CPI climbed 0.9% in August after a 0.7% jump in July. This was the highest inflation rate since November 2018. Economists had expected an increase of 0.8%. Meanwhile, core CPI rose 0.2% m/m and 0.4% y/y. 

Eurostat, the statistical office of the European Union (EU), reported on Thursday industrial producer prices climbed 2.3 percent m-o-m in euro area in July, following an unrevised 1.4 percent m-o-m gain in June. This marked the largest monthly increase since January 1995 and was well above economists’ forecast of a 1.1 percent m-o-m gain.

According to the report, producer prices increased in the energy sector (+5.7 percent m-o-m), for intermediate goods (+1.9 percent m-o-m), for durable consumer goods (+0.7 percent m-o-m), for capital goods (+0.5 percent m-o-m) and for non-durable consumer goods (+0.1 percent m-o-m). Excluding energy, producer prices rose 1.0 percent m-o-m in July.

In y-o-y terms, Eurozone’s producer price index (PPI) soared 12.1 percent in July, following an unrevised 10.2 percent jump in June. This was the largest annual increase on record. Economists had projected an 11.0 percent surge for July.

FXStreet reports that economists at Westpac suggest that mining dividend conversion should see the Aussie trade with the 0.74-handle. But Australia’s economy may keep contracting into Q4 with relief from covid restrictions still distant.

“The soft USD tone following Jackson Hole was a key driver, though it is doubtful that there is much more fuel from this source unless US Aug NFP is a big disappointment.”

On the domestic front, data tended to the solid side with a record trade surplus in July and an upside surprise on Q2 GDP that at least left the economy in a decent position before what will be one of the largest declines on record in Q3.”

“The RBA Board will ponder a notable deterioration in the economy vs a month ago, with VIC’s lockdown 4 weeks and counting as ‘covid zero’ slips away. Should the RBA pause its planned QE taper, it is doubtful AUD would suffer much damage. Mining dividend conversion is likely already lending support.”

“Near-term risks to the low 0.74s but as the Sep FOMC draws near, AUD/USD could well be back near 0.72.”

FXStreet notes that pricing pressure remains intense. Combined with a slightly weaker USD and amid a stabilization in the growth dynamic, strategists at ANZ Bank maintain gold short-term price target at $1,900.

“Our gold valuation model still suggests gold is undervalued. The rally in bonds and recent strength in the USD has seen investors demand for gold wane. However, the undervaluation of around $150 has been driven by expectations that the spike in inflation will be transitory.”

“If inflation expectations start to drift, the gold price could push higher. If the 30y breakeven rate were to rise 10-15 basis points from the current level of 2.25%, we would see gold’s valuation push up to nearly $2,000.”

“We still expect the gold price to inch higher. As such, we maintain our short-term price target of $1,900."

USD declined slightly against most of its major counterparts in the Asian session on Thursday, as a cautious mindset continued to prevail in the markets ahead of the release of the U.S. employment situation report on Friday, which could provide clues on the timing of the Federal Reserve’s pullback in bond buying.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, edged down 0.03% at 92.42.

Progress on employment is crucial for the U.S. central bank. The Fed's Chairman Jerome Powell suggested last week that he would like to assess incoming data on the labor market before committing to a taper timeline. That means the August NFP report could be more consequential than usual.

Yesterday’s ADP employment report, which is viewed as a preview for the official jobs report, disappointed markets, as it showed that 374,000 jobs were added to private-sector payrolls in August, which was well below economists’ forecast of 613,000. This raised hopes for extended support from the U.S. central bank, putting pressure on USD. 

FXStreet reports that FX Strategists at UOB Group note that EUR/USD could now extend the recovery to the 1.1865 level in the near term.

24-hour view: “Our view for EUR to ‘trade sideways’ yesterday was incorrect as it soared to 1.1856 during NY session. Despite the advance, upward momentum has not improved by all that much. That said, there is room for EUR to test the major support at 1.1865. For today, a sustained rise above this level is unlikely (next resistance is at 1.1910).”

Next 1-3 weeks: “ In our latest narrative from yesterday (01 Sep, spot at 1.1810), we indicated that ‘shorter-term upward momentum appears to have waned somewhat but the current positive outlook is deemed intact as long as EUR does not move below the ‘strong support’ level at 1.1760’. We added, ‘the next level to focus on is at 1.1865’. While EUR subsequently rose to 1.1856, upward momentum has not improved by much. However, a break of 1.1865 would not be surprising. The next level to focus on above 1.1865 is a rather solid resistance at 1.1910.”

The State Secretariat for Economic Affairs (SECO) revealed on Thursday that Switzerland's gross domestic product (GDP) rose 1.8 percent q-o-q in the second quarter of 2021, after a revised 0.4 percent q-o-q contraction in the previous quarter (originally a 0.5 percent q-o-q decrease).

Economists had forecast the Swiss economy would expand by 2.0 percent q-o-q.

According to the report, value-added grew markedly in the service sector as a result of eased coronavirus restrictions. Accommodation and food services surged 48.9 percent q-o-q, recovering after setbacks in the winter quarters. Arts, entertainment and recreation also registered strong growth – by 52.9 percent q-o-q - thanks to less restrictive measures. In addition, trade increased 4.8 percent q-o-q as brick-and-mortar businesses reopened. Meanwhile, the industry’s growth decelerates, normalizing after the strong rebound in the previous quarters.

With the easing of COVID measures, private consumption recovered strongly, recording a 4.1 percent q-o-q rise. Expansion in government consumption accelerated to 5.5 percent q-o-q due to extraordinary expenditure to cope with the pandemic. Investment in equipment jumped 1.6 percent q-o-q, while construction investment edged up 0.1 percent q-o-q. Overall, domestic demand rose strongly, which was accompanied by a slight increase in imports (+0.5 percent q-o-q).

In y-o-y terms, Swiss GDP grew 7.7 percent in the second quarter, following a revised 0.7 percent decline in the first quarter (originally a drop of 0.5 percent). This represented the strongest growth on record but was below economists’ forecasts for a 9.0 percent advance.

Federal Statistical Office reported on Thursday the Swiss Consumer Price Index (CPI) rose 0.2 m-o-m in August following a 0.1 percent m-o-m drop in July.

Economists had forecast a 0.1 percent m-o-m uptick. 

According to the report, the August gain in headline index reflects increased prices in such groups as clothing and footwear (+1.8 percent m-o-m), alcoholic beverages and tobacco (+1.8 percent m-o-m), education (+0.7 percent m-o-m), food and non-alcoholic beverages (+0.5 percent m-o-m), restaurants and hotels (+0.4 percent m-o-m), housing and energy (+0.2 percent m-o-m), transport (+0.2 percent m-o-m), which were partially offset by declines in prices for household goods and services (-0.1 percent m-o-m), healthcare (-0.1 percent m-o-m) and recreation and culture (-0.1 percent m-o-m).

In y-o-y terms, Swiss CPI climbed 0.9 percent in August after a 0.7 percent jump in July. Economists had expected an increase of 0.8 percent. This was the highest inflation rate since November 2018.

Meanwhile, core CPI rose 0.2 percent m-o-m and 0.4 percent y-o-y. 

• Japan's economy is heading toward recovery but not fast enough
• Japan's economy is likely to recover as a trend
• Risks to Japan's economic outlook are skewed to downside
• Downward pressure on Japan prices is easing but inflation far from accelerating toward BoJ's 2% target
• Japan's economy is lacking momentum to push up inflation toward 2% target
• BoJ will ease further without hesitation if needed
• My personal view is that BoJ should aggressively buy bonds, push down yields to prop up capex, investment in growth areas
• BoJ must strengthen forward guidance on interest-rate targets

• BoJ must ramp up bond buying for the purpose of pushing down short- and long-term rates
• Given economic developments, personally see a need to take bolder steps on monetary policy
  
• BoJ will seek to address various problems while focusing on hitting its price target
  
• Japanese government and BoJ must communicate sufficiently in guiding policy
  

The Australian Bureau of Statistics (ABS) announced on Thursday that Australia’s trade surplus in seasonally adjusted terms widened to AUD12.117 billion in July from an upwardly revised AUD11.114-billion surplus in June (initially a surplus of AUD10.496 billion).

Economists had expected a surplus of AUD10.200 billion.

According to the report, the exports of goods and services increased 5.0 m-o-m in July, after jumping 4.1 percent m-o-m in June (revised from 4.0 percent m-o-m). Meanwhile, imports of goods and services rose 3.0 percent m-o-m in July, following a 1.0 percent m-o-m gain in the prior month.