CFD Markets News and Forecasts — 04-11-2020

FXStreet reports that strategists at Deutsche Bank are no longer seeing a compelling narrative of dollar weakness into year-end for three reasons. With the US election outcome extremely uncertain, they have changed their view and turned neutral.

“Whoever wins the White House, the odds of a structural shift towards easier fiscal policy in the US have dramatically declined. Should the Democrats lose the Senate (the risk of this now appears high) and unified government becomes impossible, this would make agreement on sizeable fiscal expansion more difficult.”

“The risks of a protracted contested election outcome are significant. The market is likely to be most concerned by genuine uncertainty on the vote margin rather than political uncertainty relating to a refusal to concede. The margins on numerous key states are very narrow (Georgia, Nevada, Wisconsin) or uncertain (Pennsylvania, Michigan) leading to a risk of protracted recount and litigation battles. This could last well into December.”

“There is a significant risk that protracted election uncertainty leads to a politicization of coronavirus containment measures accompanied by an inability to provide fiscal support.”

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories dropped by 7.998 million barrels in the week ended October 30. Economists had forecast a build of 0.890 million barrels.

At the same time, gasoline stocks increased by 1.541 million barrels, while analysts had expected a decline of 0.871 million barrels. Distillate stocks fell by 1.585 million barrels, while analysts had forecast a decrease of 2.023 million barrels.

Meanwhile, oil production in the U.S. plunged by 600,000 barrels a day to 10.500 million barrels a day.

U.S. crude oil imports averaged 5.0 million barrels per day last week, decreased by 0.6 million barrels per day from the previous week.

The Institute for Supply Management (ISM) reported on Wednesday that its non-manufacturing index (NMI) came in at 56.6 in October, which was 1.2 percentage points lower than the September reading of 57.8 percent. The reading represented growth in the services sector for the fifth straight month but the slowest since May.

Economists forecast the index to decrease to 57.5 last month. A reading above 50 signals expansion, while a reading below 50 indicates contraction.

According to the report, the ISM’s non-manufacturing Business Activity measure fell 1.8 percentage points to 61.2 percent from September’s figure, the New Orders gauge declined 2.7 percentage points to 58.8 percent from September’s reading and the Employment Index decreased 1.7 percentage points to 50.1 percent from the September reading. Meanwhile, the Prices Index climbed 4.9 percentage points to 63.9 from September’s reading, the Supplier Deliveries Index rose 1.3 percentage points to 56.2 percent from September’s.

The latest report by IHS Markit revealed on Wednesday the seasonally adjusted final IHS Markit U.S. Services Business Activity Index (PMI) stood at 56.9 in October, up from 54.6 in September and higher than the earlier released “flash” estimate of 56.0. The latest reading pointed to the sharpest expansion in the services sector since April 2015.

According to the report, the quicker rate of growth was largely linked to more robust demand conditions, despite a slower upturn in new export business.

Statistics Canada announced on Wednesday that Canada’s merchandise trade deficit stood at CAD3.25 billion in September, widening from a revised CAD3.21-billion gap in August (originally a CAD2.45-billion shortfall). This was the highest trade gap since April.

Economists had forecast a deficit of CAD2.60 billion.

According to the report, Canada’s exports rose 1.5 percent m-o-m to CAD45.54 billion in September, led by higher exports of lumber (+23.0 percent m-o-m) and aircraft (+43.4 percent m-o-m).

Meanwhile, imports also increased by 1.5 percent m-o-m to CAD48.79 billion in September, with higher crude oil imports (+87.1 percent m-o-m) contributing the most to the overall gain.

U.S. stock-index futures surged on Wednesday, led by tech shares, even as the outcome of the U.S. presidential election remained uncertain.

Global Stocks:

FXStreet reports that analysts at Credit Suisse note that the strong rally into the election has brought the S&P 500 exactly to the key price/gap and moving average resistance at 3390/95, which needs to be cleared on a closing basis to ease the risk of seeing a broader topping process.

“Despite the strength of the past three days though, we remain of the view we need to see a close above 3395 to reassert the broader converging range, as well as the likelihood price action from September is still consolidation within the broader bull trend and a potential bull ‘triangle’, with resistance then seen next at 3410/15, then 3441.” 

“Failure to close above 3395 though followed by a move back below the price gap from yesterday morning at 3310 would instead increase the risk an important topping process may be underway for a fall back to 3280 initially and eventually pivotal support, starting at 3234 and stretching down to 3209/3199.” 

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

The U.S. Commerce Department reported on Wednesday that U.S. the goods and services trade deficit narrowed to $63.9 billion in September from a revised $67.0 billion in the previous month (originally a gap of $67.1 billion).

Economists had expected a deficit of $63.8 billion.

According to the report, the September decline in the goods and services deficit reflected a drop in the goods deficit of $3.1 billion to $80.7 billion and an increase in the services surplus of less than $0.1 billion to $16.8 billion.

In September, exports of goods and services from the U.S. rose 2.6 percent m-o-m to $176.4 billion, while imports increased 0.5 percent m-o-m to $240.2 billion, in part, due to the impact of COVID-19, as many businesses continued recovery from the sharp declines earlier this year.

Year-to-date, the goods and services deficit jumped 8.6 percent from the same period in 2019. Exports plunged 17.4 percent, while imports tumbled 12.4 percent.

The employment report prepared by Automatic Data Processing Inc. (ADP) and Moody's Analytics showed on Wednesday the U.S. private employers added 365,000 jobs in October. This was the second-lowest reading in six months.

Economists had expected an increase of 650,000.

The September number saw an upward revision to 753,000 from the originally reported 749,000.

“The labor market continues to add jobs, yet at a slower pace,” noted Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Although the pace is slower, we’ve seen employment gains across all industries and sizes.” 

USD traded mixed against other major currencies in the European session on Wednesday as investors digested the latest developments in an exceedingly tight U.S. presidential race.  The U.S. currency rose against GBP, AUD, CAD and NZD, but fell against JPY, CHF and EUR. The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, dropped 0.21% to 93.36.

The outcome of one of the most controversial U.S. presidential races in U.S. history remains uncertain as the results in several key battleground states are still unknown. According to The New York Times, Democratic challenger Joe Biden leads in the electoral college 227-213. Of the states that have yet to be decided, President Trump is leading in Michigan, North Carolina, Pennsylvania, Alaska and Georgia. Meanwhile, Joe Biden is leading in Nevada, Arizona, and Wisconsin. It could take "several days" to count all the ballots in certain states. 

However, despite the fact that millions of votes had yet to be counted, the incumbent U.S. president Donald Trump falsely asserted election fraud, pledged to mount a legal challenge to official state results and declared victory early Wednesday. "We were getting ready to win this election. Frankly, we did win this election," he said. "This is a major fraud on our nation. We want the law to be used in a proper manner. So we'll be going to the U.S. Supreme Court. We want all voting to stop."

Regarding the Senate races, both parties have won 47 Senate seats so far. Early vote counts also suggest that Democrats are to keep control of the House of Representatives.

Uncertain election results heightened the risk of a disputed outcome, which could include lengthy legal battles, bolstering investors to buy safer assets.

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. surged 3.8 percent in the week ended October 30, following a 1.7 percent advance in the previous week.

According to the report, refinance applications jumped 6.4 percent, while applications to purchase a home decreased 1.3 percent.

Meanwhile, the average fixed 30-year mortgage rate edged up to 3.01 percent from 3.00 percent.

“After a solid stretch of purchase applications growth, activity decreased for the fifth time in six weeks, but has increased year-over-year for six straight months,” noted Joel Kan, an MBA economist. “2020 continues to overall be a strong year for the housing market.”

FXStreet notes that the Swiss franc strengthened modestly in October from 1.0770 to 1.0674 as global uncertainties limited appetite for risk, benefitting risk haven currencies like the franc. SNB intervention eased recently signalling less upward pressure on the CHF but the franc is set to sustain strength into next year, per MUFG Bank.

“On a year-to-date basis CHF is the second best performing currency in the G10 space. This is despite substantial intervention to limit currency appreciation."

“There are certain near-term events that could increase CHF volatility. The US semiannual currency report has been delayed but is likely to be released before the end of the year and Switzerland could well be cited as a ‘currency manipulator’. This could fuel speculation of Switzerland pulling back from intervention that may help strengthen the franc. However, we doubt the SNB will alter its stance.”

“A Biden victory could see expectations of global trade tensions ease, which would help weaken CHF while progress on a COVID-19 vaccine and the EU Recovery Fund set to be approved and become active in 2021 should also help limit CHF buying. Finally, avoiding a no-deal outcome in UK-EU trade talks is likely also to help limit CHF strength. However, we doubt these factors will be enough to keep CHF on a weakening trend.”

“Aggressive Fed easing and more easing by many other G10 central banks will reinforce focus on currency debasement fears next year. The Gold/CHF correlation underlines this as a driver and we see higher gold prices and CHF strength unfolding in 2021.”

FXStreet notes that it looks like the US election is heading into the protracted uncertainty scenario. The FX market has remained fairly well-behaved overnight with the G10 complex holding to familiar ranges against the USD. The tightening of the race saw EUR/USD mark a fresh marginal three-month low just above 1.1600, but spot has retraced higher since, economists at TD Securities brief.

“Both Joe Biden and Donald Trump have now provided statements. Both suggested they are winning but Donald Trump's remarks made clear that he intends to challenge the ongoing vote counts, which are showing narrowing margins in favor of Trump as more of the absentee and more urban centers are counted. So far, this has been the trigger for risk to start to sell off and the more contentious the challenges and closer the election appears, the more this is likely to weigh on risk.”

“The presidential race remains extremely close. Assuming NC remains a win for Trump and Nevada and the single ME-2 district remain for Biden, it comes down to GA, PA, MI, WI. All currently show a Republican lead, but all are tightening as more ballots are counted. Biden needs to win two of four of those to win. MI and GA seem like they are on track to narrow to a +/- 1pp race, making them difficult to call now. PA and WI are suggesting slightly more bias towards Trump, however, WI does not report mail-in counts separate from in-person so it is difficult to handicap, while PA has counted only 32% of early ballots, leaving a wide margin of error of how big that margin is for Biden.”

“Biden is currently leading the electoral vote count 238 to 216 for Trump. Remaining to be counted are NC (15 votes leaning Trump), NV and ME2 (7 votes leaning Biden), and GA, MI, PA, and WI still counting (62 votes in total).”

“We think currency investors will remain in watch-and-wait mode overall until more clarity emerges. Accordingly, we think market conditions will stay choppy as lingering uncertainty makes it difficult to make a strong directional commitment. Ahead of that, we expect the USD to track investor sentiment from here. We note that while the S&P 500 e-mini futures remain elevated, the European equivalents have turned lower ahead of the cash open. If continued, this could see the USD remain firm during the early hours of the London trading session.”

Outlook on USD/CNH remains unclear - UOB

FXStreet reports that according to FX Strategists at UOB Group, USD/CNH is likely to trade within the 6.6275-6.7900 range in the next weeks.

24-hour view: “Within a few hours after opening this morning, USD has traversed a huge range between 6.6488 and 6.7208. The sharp and short-lived swings have resulted in an unclear outlook. Further volatile price actions would not be surprising, likely between 6.6400 and 6.7400.”

Next 1-3 weeks: “The near-term outlook is unclear but for now, USD is likely to stay within October’s range of 6.6275/6.7900.”

FXStreet reports that the presidency result is likely delayed, but a blue wave is off the table while the Senate has probably failed to flip Democrat, economists at ABN Amro inform. 

“Incumbent president Trump is ahead of Joe Biden so far in the presidential election count in the key battleground states, but a much higher proportion of postal voting in this election due to the pandemic appears to be skewing the early count. These mail-in ballots are counted later in many states, and in some crucial states – particularly Pennsylvania and Michigan – it may take days before we have a final result.”

“Democrats needed to gain a net four seats to take control of the Senate, but so far they look to have gained just one seat, and two out of the three remaining close races currently favour Republicans. This means Republicans are highly likely to retain their narrow majority in the Senate.”

“We expect the trend of lower yields to continue going forward with the US curve bull flattening on the back of the theme of less fiscal stimulus, aggressive Fed purchases and the prospect that the fed funds rate will remain on hold for many years. A contested election outcome could add to this trend in the near term as well.”

FXStreet reports that Credit Suisse analyst team expects that EUR/USD break of the 1.1612 September low to expose support at 1.1495/85

“Despite the volatility the risk stays seen lower for a clear break below  the 1.1612 September low with support then seen next at the 50% retracement of the rally from late June at 1.1590 and eventually what should be more important support at 1.1495/85 – the March high and 38.2% retracement of the entire 2020 rally. Should weakness extend, which is not our base case, this would warn of a more damaging reversal lower with support seen next at 1.1425/23.”

According to the report from Eurostat, in September 2020, industrial producer prices rose by 0.3% in both the euro area and the EU, compared with August 2020. In August 2020, prices increased by 0.1% in the euro area and by 0.2% in the EU.

In September 2020, compared with September 2019, industrial producer prices decreased by 2.4% in the euro area and by 2.2% in the EU.

Industrial producer prices in the euro area in September 2020, compared with August 2020, increased by 0.8% in the energy sector and by 0.1% for intermediate goods, while prices remained stable for capital goods, durable consumer goods and non-durable consumer goods. Prices in total industry excluding energy remained stable.

In the EU, industrial producer prices increased by 0.7% in the energy sector and by 0.1% for intermediate goods, while prices remained stable for capital goods, durable consumer goods and non-durable consumer goods. Prices in total industry excluding energy remained stable.

According to the report from IHS Markit/CIPS, October data pointed to a much weaker rise in business activity across the UK service sector, with the rate of expansion the slowest for four months. There were also signs of a sharp reversal in demand conditions, with new work falling for the first time since June. Survey respondents in the hospitality, transport and leisure sectors widely commented on an adverse impact from tightening restrictions on trade due to the coronavirus disease 2019 (COVID-19) pandemic.

Adjusted for seasonal influences, the UK Services PMI Business Activity Index registered 51.4 in October, down sharply from 56.1 in September but slightly above the crucial 50.0 no-change mark. The latest reading was lower than the earlier 'flash' reading for October (52.3) and signalled the weakest service sector performance since June.

Growth was often linked to a continued recovery in business operations after the national lockdown period during the second quarter of 2020 and the restart of work on delayed projects. Some firms cited a boost from higher housing market transactions and a rebound in demand from clients in the construction sector.

In contrast to the upward trend for business activity, latest data indicated a drop in new orders for the first time since June. The rate of decline across the service sector as a whole was modest in comparison to the second quarter of 2020. However, the overall figure masked a slump in demand for customer-facing service providers, especially those in the hotels, restaurants and catering category. 

Service providers are optimistic overall about their prospects for growth in the next 12 months, but the degree of confidence slipped to its lowest since May. Expectations were again contingent on the trajectory of the pandemic and often reflected plans to rebuild business operations when the impact abates.

According to the report from IHS Markit, the eurozone’s private sector economy stagnated during October, as signalled by Eurozone PMI Composite Output Index posting a level of 50.0. Whilst an improvement on the earlier flash reading, the index was nonetheless down from 50.4 in September and ended a three-month period of growth.

In line with recent developments, the headline index masked the continuation of a two-speed economy in October. Manufacturing output growth was sustained, and to the strongest degree in over two and-a-half years. In stark contrast, service sector activity contracted again, deteriorating to the greatest degree since May.

For the first time in four months, levels of incoming new business declined as strong gains in manufacturing new work were more than offset by weakness in services. There was some positive news on export sales, however, which rose for a second successive month. 

The challenging business environment continued, however, to weigh on company pricing power. Latest data showed that average output charges declined for an eighth successive month, albeit marginally and at the weakest rate in the current sequence of deflation.

Looking ahead to the coming 12 months, business confidence remained in positive territory during October but fell to its lowest level since May.

October’s Eurozone PMI® Services Business Activity Index fell to a level of 46.9. Down from 48.0 in the previous month, the latest index reading was the lowest recorded by the survey since May and indicated a second consecutive monthly decline in activity.

Reuters reports that Britain’s foreign minister Dominic Raab said that there is an excellent UK-U.S. trade deal to be done and good progress has been made in reaching one.

“I’m confident that the relationship will be in good shape, and I’m confident there’s an excellent free trade there to be done, there’s been a lot of progress so far,” Raab told Sky News.

“Let’s wait and see what the outcome is. There’s obviously a significant amount of uncertainty. It’s much closer than I think many had expected. But this is for the American people to decide, and we’re confident in the American institutions that will produce a result.”

FXStreet reports that investors sent EUR/USD lower, US yields lower and equity futures (in particular tech) higher, as investors have priced out the probability of a big, ambitious relief package being approved in early 2021, per Danske Bank.

“Scenario 1. In case of a clean sweep, the short-term focus will be on the handling of COVID-19 and short-term relief. In early 2021, we expect Congress to approve a big relief package (+$2,000 B). Further out (late 2021/early 2022) focus is likely to change to tax reform (higher taxes on corporates and high-income earners) and a bigger spending package (focus on infrastructure, green energy, health care, education, etc.). On FX, we expect EUR/USD to move above 1.17, towards 1.20 on renewed market momentum for reflation trades.”

“Scenario 2. Biden wins the presidency but with a divided Congress. Short-term, that means that the gridlock may continue and, at best, we may only get a small relief package. Further out, it means that taxes on corporates and high-income earners will not increase and that there will be no major increase in federal spending on infrastructure, green energy, health care etc. On FX, the EUR/USD range is set to shift lower to 1.15-1.18 from 1.15-1.20. Market focus to shift to global manufacturing, Brexit and COVID-19.”

“Scenario 3. Trump wins the presidency but with a divided/Democratic controlled Congress. In this scenario, the likelihood of a big relief package seems low. Trump will not be able to extend his 2017 tax cuts. On FX, the EUR/USD range is set to shift lower to 1.15-1.18 from 1.15-1.20. Market focus to shift to global manufacturing, Brexit and COVID-19.”

During today's Asian trading, the US dollar has grown steadily, the prices of US Treasuries are rising amid the ongoing counting of votes in the US presidential election.

The fight between Democratic presidential candidate Joe Biden and incumbent President Donald Trump has turned out to be more intense than expected.

According to the latest data, Biden is ahead of Trump, gaining 224 electoral College votes out of the necessary 270, with 212 votes for trump. However, Trump has gained support in a number of important states in the southern United States, and this may significantly reduce Biden's advantage in the final results, making it less obvious. Trump, in the case of a small lag behind Biden, can challenge the election results.

In these conditions, the demand for the most reliable assets, including the dollar and US Treasuries, is growing.

A clear Biden victory would mean that the authorities would adopt a large-scale program of measures to support the economy, which is in a difficult situation due to the coronavirus pandemic. Vote counts are likely to take days, as a record number of Americans have voted early or by mail this year due to the coronavirus pandemic. And if the results of early voting are taken into account immediately, then processing mail takes more time.

The ICE index, which tracks the dynamics of the US dollar against six currencies (Euro, Swiss franc, yen, canadian dollar, pound sterling and Swedish Krona), rose 0.6%.

FXStreet reports that Jane Foley Senior FX Strategist at Rabobank, sticks to her forecast of EUR/USD at 1.16 on a three-month view.

“President Trump has won Florida - a key battleground state and one which keeps him in the race while no result has been declared in several key states with pundits warning that it could be days before officials results are knows in some areas.”

“It can be argued that the language from both sides could be building towards contesting the election if the results are close. This too would likely erode risk appetite and support the greenback.” 

“Bearing in mind the continued spread of COVID-19 in the US, this is likely worry investors. Given the risk of a double dip in economic activity in Europe, a dovish ECB and a delays over dispersing the EU’s Recovery Fund we see the shine as coming off the EUR. At this stage we retain our forecast of EUR/USD at 1.16 on a three-month view.”

EUR/USD

Resistance levels (open interest**, contracts)

$1.1800 (682)

$1.1774 (577)

$1.1755 (531)

Price at time of writing this review: $1.1636

Support levels (open interest**, contracts):

$1.1575 (2198)

$1.1533 (1189)

$1.1489 (1841)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date November, 6 is 60228 contracts (according to data from November, 3) with the maximum number of contracts with strike price $1,1800 (4551);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3184 (1617)

$1.3120 (968)

$1.3075 (903)

Price at time of writing this review: $1.2983

Support levels (open interest**, contracts):

$1.2934 (649)

$1.2904 (557)

$1.2868 (524)

Comments:

- Overall open interest on the CALL options with the expiration date November, 6 is 32751 contracts, with the maximum number of contracts with strike price $1,3950 (3784);

- Overall open interest on the PUT options with the expiration date November, 6 is 26481 contracts, with the maximum number of contracts with strike price $1,2050 (2391);

- The ratio of PUT/CALL was 0.81 versus 0.80 from the previous trading day according to data from November, 3

* - 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.

CNBC reports that one investor told that gold and gold miners are set to benefit no matter who wins the U.S. election this week.

That’s because the United States will likely to adopt a sizeable fiscal stimulus program no matter which candidate wins the presidency, James Rasteh, CIO of Coast Capital, told CNBC.

“We would be printing trillions of dollars more and all of that ultimately has extraordinarily positive repercussions for gold,” he said.

“The fiscal and monetary policies would be almost identical under either leadership. I think that the differences that are being delineated are really more imaginative than real,” Rasteh added.

Fiscal stimulus typically leads to a wider deficit. That could undermine investor confidence and prompt them to put their money into safer assets such as gold, and in turn, push gold prices higher.

RTTNews reports that survey results published by IHS Markit showed that China's service sector expanded strongly in October signaling a sustained recovery from the Covid-19 related drops in activity seen earlier in the year.

Services PMI advanced to 56.8 in October from 54.8 in the previous month. A score above 50 indicates expansion in the sector.

The sector posted its second fastest growth for over a decade, driven by a substantial rise in new work. However, new work from overseas markets declined further due to the resurgence of Covid-19 cases across a number of export markets.

Increased amounts of new work and signs of firmer market conditions led companies to add to their payroll numbers for the third straight month in October.

There was a marked improvement in business confidence in October. The degree of optimism was the strongest since April 2012.

The survey showed that the composite output index that combines the performance of manufacturing and services, rose to 55.7 from 54.5 in September, signaling a sharp and accelerated rise in overall business activity across China.