CFD Markets News and Forecasts — 05-03-2020

FXStreet reports that analysts at Wells Fargo look for the pace of nonfarm hiring to remain strong in February, with employers adding 200K jobs. The report will be released on Friday. 

“We do not anticipate a virus-related impact on hiring in February. Concerns over the coronavirus outbreak were not as pronounced during the BLS survey week (the week of Febraury 12th). There has also been nothing to suggest any virus-related hit to hiring has yet materialized.”

“2020 Census hiring is beginning to pick up. In the past two Census years, there was an average of 21K average Census workers added in February.”

“Looking ahead, we expect job gains to slow markedly in 2020, though hiring for the 2020 Census will likely disrupt the quarterly estimates. We estimate it currently takes around 130K jobs per month to reduce the unemployment rate.”

The sources in the Italian government told ASNA that the government is to ask for the green light for a deviation of EUR 6.3 billion from its budget deficit target (around 0.35% of GDP) from the European Commission (EC) as it tries to cope with the coronavirus.

The government is planning to put aside EUR 7.5 billion worth of new measures, the sources said after a cabinet meeting.

The U.S. Commerce Department reported on Thursday that the value of new factory orders fell 0.5 percent m-o-m in January 2020, following a revised 1.9 percent m-o-m gain in December 2019 (originally a 1.8 percent m-o-m advance).

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

According to the report, orders for transportation equipment fell 2.1 percent m-o-m in January after an 8.8 percent m-o-m surge in January. Meanwhile, machinery orders increased 2.1 percent m-o-m after declining 1.7 percent m-o-m in December. Orders for electrical equipment, appliances and components decreased 1.1 percent m-o-m in January.

Total factory orders excluding transportation, a volatile part of the overall reading, edged down 0.1 percent m-o-m in January (compared to an unrevised 0.6 percent m-o-m growth in December), while orders for nondefense capital goods excluding aircraft, a measure of business spending plans, rose 1.1 percent m-o-m as reported last month. The report also showed that shipments of core capital goods increased 1.0 percent m-o-m in January, rather than climbing 1.1 percent m-o-m as previously reported.

FXStreet reports that FX Strategists at UOB Group still see USD/JPY facing downside risks in the next weeks.

24-hour view: “We highlighted yesterday that ‘risk for USD is on the downside but 106.60 could be strong enough to check any weakness’. While USD did not take out 106.60, the robust recovery from 106.84 was not expected. Downward pressure has dissipated and the current movement is viewed as part of an on-going consolidation phase. In other words, USD is expected to trade sideways for today, likely between 107.10 and 108.05.”

Next 1-3 weeks: “USD eked out a fresh 5-month low of 106.84 yesterday (04 Mar) before rebounding strongly. The price action is not out of line with our view from Monday (02 Mar, spot at 107.75) that ‘while further USD weakness is not ruled out, the odds for a sustained drop below 106.30 are not high’. That said, the downside risk remains intact unless USD can take out the ‘strong resistance’ at 108.70 (level was previously at 110.00).”

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

Johnson & Johnson (JNJ) initiated with a Buy at Citigroup; target $163

The revised data from the U.S. Labour Department showed on Thursday that nonfarm business sector labor productivity in the United States increased 1.2 percent q-o-q in the fourth quarter of 2019, as output advanced 2.4 percent q-o-q and hours worked rose 1.2 percent q-o-q (seasonally adjusted). That was below initial estimate of a gain of 1.4 percent q-o-q and economists' forecast for an advance of 1.4 percent q-o-q. In the third quarter, labor productivity fell 0.3 percent q-o-q (revised from the originally estimated -0.2 percent q-o-q).

In y-o-y terms, the labor productivity rose 1.8 percent in the fourth quarter, reflecting a 2.6-percent jump in output and a 0.8-percent advance in hours worked.

Meanwhile, unit labor costs in the nonfarm business sector in the fourth quarter rose 0.9 percent q-o-q compared to an initial estimate of a 1.4 percent q-o-q advance and a 0.2 percent q-o-q gain in the prior quarter (revised sharply from the originally reported 2.5 percent).

Economists had forecast a 1.4 percent q-o-q boost in fourth-quarter unit labor costs.

Unit labor costs quarterly increase reflected a 2.1-percent q-o-q growth in compensation per hour and a 1.2-percent q-o-q advance in productivity.

Compared to the corresponding period of 2018, unit labor costs rose 1.7 percent.

In 2019, U.S. nonfarm business sector productivity grew 1.9 percent (the largest annual increase since 2010), while unit labor costs increased 1.7 percent.

The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits decreased slightly last week, suggesting the labor market remained strong despite the coronavirus outbreak.

According to the report, the initial claims for unemployment benefits fell by 3,000 to a seasonally adjusted 216,000 for the week ended February 29.

Economists had expected 215,000 new claims last week.

Claims for the prior week remained unchanged at 219,000.

Meanwhile, the four-week moving average of claims rose by 3,250 to 213,000 last week.

FXStreet reports that FX Strategists at UOB Group note that in light of the recent performance, NZD/USD is now seeing within a rangebound theme.

24-hour view: “Not surprisingly, NZD traded within the broad 0.6238/0.6325 range registered on Tuesday (NZD traded between 0.6264 and 0.6306 yesterday). The price action offers no fresh clues and NZD is likely to continue to trade sideways for now. Expected range for today, 0.6270/0.6320.”

Next 1-3 weeks: “The strong rebound in NZD over the past two days came a surprise. Out ‘strong resistance’ level at 0.6300 was breached as NZD popped to an overnight high of 0.6325. Downward pressure has eased and NZD has likely moved into a consolidation phase. From here, NZD is expected to trade sideways for a period, likely within a relatively broad range of 0.6200 and 0.6390.”

• Difficulties of end of transition period are being underestimated
• UK has said it doesn't seek a foreign policy deal
• Agreement with the UK is possible even if it is difficult
• We can get a good agreement for both sides despite "very, very difficult" differences
• UK doesn't want a level-playing field in deal
• UK position on fisheries deal is not practical
• UK sees a series of agreements on a case-by-case basis
• But we want an overarching deal
• Differences with UK are not a surprise

USD depreciated against most other major currencies in the European session on Thursday amid expectations of the U.S. Federal Reserve might lower interest rates again this month, after cutting them by half-point in urgent move on Tuesday to limit the economic and financial fallout from the coronavirus. The Fed's Chair Jerome Powell said the U.S. economy remained strong but noted it was difficult to predict the "magnitude and persistence" of the effects of the fast-spreading virus.

Analysts counted the Fed policymakers had mentioned the coronavirus 48 times in its latest Beige Book report, released on Wednesday, compared with no mentions before. This suggests the policymakers were highly concerned about the economic hit of a coronavirus outbreak.

According to the CME FedWatch Tool, money markets are pricing in another 25 bps cut from the current 1-1.25% range at the Fed meeting on March 18-19 and a 50 bps cut by April.

The U.S. dollar index (DXY) dropped by 0.4% to 96.97. 

FXStreet notes that the incoming Governor of the Bank of England (BoE) Bailey would like to see what the Chancellor of the Exchequer has to offer at the March 11 budget before making a decision as to any monetary policy change. Another factor for the GBP outlook is the talks between the EU and the UK on their post-Brexit relationship, according to analysts at Rabobank.

“The incoming Governor of the Bank of England Bailey suggested that an immediate policy move from the BoE may not be on the cards. The possibility of a brief delay in a BoE rate cut has allowed GBP to edge back to firmer levels.”

“The UK budget was expected to be focussed on ‘levelling up’ and ‘unleashing’ the UK economy. There are now reports that it will instead focus on measures aimed at protecting and supporting parts of the economy most likely to be affected by a coronavirus epidemic.” 

“Given the risks that the BoE will cut rates this month, the pound’s respite could be temporary.”

“The threat made by PM Johnson that he would be prepared to walk away from the talks and open the UK to WTO rules on trade at the start of next year, is likely to keep GBP investors worried.” 

“We expect GBP/USD to trade mainly below 1.30 on both a 1 and 3-month view.”

FXStreet reports that according to FX Strategists at UOB Group cable’s probability of a visit to the 1.2700 level appears to have lost some momentum as of late.

24-hour view: “Our view for GBP yesterday was that it “could edge higher towards 1.2860 but 1.2900 is not expected to come into the picture”. The pace of the subsequent advance was faster than expected as GBP rose quickly to an overnight high of 1.2873 (before ending the day right at the high in NY). Upward pressure has improved further and GBP could edge above the strong resistance at 1.2900. For today, the prospect for a rise beyond 1.2930 is not high. The current upward pressure is deemed as intact as long as the support at 1.2820 is not taken out (minor support is at 1.2845).”

Next 1-3 weeks: “After GBP dropped sharply to a low of 1.2726 last Friday, we indicated on Monday (02 Mar, spot at 1.2805) that ‘the downside in GBP is exposed even though 1.2700 is a strong support and may not come into the picture so soon’. Since then, GBP has not been able to make much headway on the downside. Downward momentum has eased and the odds for a move to 1.2700 have diminished. From here, unless GBP can move and stay below 1.2820 within these few days, a break of 1.2900 would indicate that 1.2726 is an interim bottom.”

FXStreet reports that in the opinion of analysts at ANZ Research the safe-haven status of the yellow metal is reinforced by fears of economic impact due to coronavirus and the surprise interest rate cut by the Fed. 

“Deepening fears of the economic impact of COVID-19 continue to support gold safe-haven appeal.” 

“The surprise Fed interest rate cut has given a fresh boost to the market with the US dollar grinding lower.” 

“We see easing monetary policy should keep investor appetite for the gold strong and push the prices further higher.”

FXStreet reports that FX Strategists at UOB Group noted EUR/USD needs to surpass 1.1190 in the very near-term in order to allow for a move to 1.1200 and beyond.

24-hour view: “Expectation for EUR to ‘move above the overnight high of 1.1212’ was incorrect EUR dropped to 1.1093 before recovering. Tuesday’s (03 Mar) peak of 1.1212 is viewed as a short-term top and the current movement is likely the early stages of a consolidation phase. In other words, EUR is expected to trade sideways for today, expected to be within a 1.1080/1.1170 range.”

Next 1-3 weeks: “We have held a positive view in EUR since early last week and our latest narrative from Tuesday (03 Mar, spot at 1.1145) was that EUR ‘is likely to take a breather and consolidate for a couple of days before making a move to the late Dec high of 1.1239’. For now, there is no change to our view even though shorter-term momentum is beginning to wane and unless EUR can move and stay above 1.1190 within these 1 to 2 days, the odds for a move to 1.1239 would diminish quickly. Conversely, a break of 1.1050 (no change in ‘strong support’ level) would suggest that the powerful rally has run its course.”

FXStreet reports that economists at TD Securities note the Governor of the Bank of Canada (BoC) Poloz will deliver an economic progress report at 17:45 GMT to give added context to deliberations that lead to a 50bp rate cut. USD/CAD failed to attract upside momentum despite the rate cut.

“The market is nearly 100% priced for two additional 25bps cuts by September.”

“We think USD/CAD is unlikely to mark new ground as spot remains heavy and continues to hover well below the recent highs of 1.3465.”

“Our expectations for another Fed cut at the March meeting should work to keep USD/CAD anchored. Plus, CAD screens cheap to HFFV while positioning sits at a modest short. This may also limit the upside potential of USD/CAD.”

FXStreet reports that the economic impact from COVID-19 continues to grow, with crude oil prices falling amid fear of demand declining. Economists at ANZ Research expect less demand and further cut productions by the OPEC while they have downgraded oil price forecasts.

"We now expect global oil consumption to fall by 1.6mb/d in H1 2020. Growth will return in H2, however not enough to offset these losses. We see global demand falling by around 300kb/d in 2020."

"Assuming the OPEC production cuts remain in place, the call on OPEC is approximately 27mb/d in H1 2020. That would require an additional cut of at least 1mb/d from the OPEC+ alliance to stop inventories building any further. This sets up an interesting OPEC meeting."

"We expect the production cut to be extended to the end of 2020 and an additional cut to output of between 7501,000kb/d. Anything less and the market will be unimpressed."

"We have downgraded our price forecasts consequently, with Brent likely to push below USD50/bbl before a mild recovery into year-end."

FXStreet reports that the BoJ has little ammunition left, possibly taking rates further negative as the last option. Much of the response in Japan, as in Europe, will have to come from fiscal policy, according to strategists at ANZ Research.

"We now expect Japan to contract by 0.4% in 2020. The onus is on fiscal policy to support growth."

"It will be difficult for the BoJ to add more stimulus. It may cut rates further negative if the yen strengthens significantly."

"The BoJ has issued a statement that it will do what it can to support liquidity and overall financial stability."

CNBC reports that OPEC ministers are expected to approve a large oil production cut on Thursday, but they still face an uphill battle to receive approval from non-OPEC leader Russia.

The meeting of the 14-member group OPEC and 10 non-member allies, known collectively as OPEC+, is taking place in Vienna, Austria.

OPEC ministers hold their formal meeting on Thursday which will be followed by a meeting of the broader OPEC+ alliance, including Russia, on Friday.

The majority of analysts appear to be expecting an output cut of around 1 million bpd (barrels per day), with OPEC kingpin Saudi Arabia thought to be pushing for an even greater reduction in order to support the market.

However, Russia's appetite for further production cuts remains far from certain, despite oil prices falling more than 25% since late January.

The gathering comes as oil prices are under pressure from weaker demand amid the coronavirus outbreak; demand last year had already been shaken by the trade war between the U.S. and China.

FXStreet reports that UK growth rebounded in early 2020, but global weakness is overshadowing that. Outgoing Governor Carney says negative rates and additional QE are possible, and extreme, policy tools. The Bank of England should cut rates in the opinion of economists at ANZ Research.

"COVID-19 will depress productivity growth further in the short run. The UK's 11 March budget will be expansionary. Recent developments may increase the degree of fiscal stimulus."

"The BoE has signalled its willingness to cut rates, substantially if needed. Bailey takes charge of the BoE this month, but shouldn't obstruct policy easing."

"GBP weakened into the start of the EU trade talks, gilt yields are at record lows."

FXStreet reports that the coronavirus outbreak is hurting Chinese growth this year and jeopardizing an important growth target. Amy Yuan Zhuang, Chief Asia Analyst at Nordea, expects activity resumption and government stimuli to stage a strong rebound later this year, but some policy actions are likely to exacerbate the systemic risks in the medium term. USD/CNY trades at 6.9386.

"We estimate that the economy will grow by barely 3% y/y in Q1, versus our previous forecast of 6%. Due to an expected rebound in Q2 and Q3, we expect full-year GDP growth at 5%, an all-time low for China. The risk is on the downside, in our view, as the rapid spread of the virus among China's trading partners could have a spill-back effect on Chinese growth."

"To maintain economic and social stability, Beijing has once again turned to infrastructure investment to support growth. Half of China's provinces have plans to spend a total of CNY 6.6tn (about 6% of GDP) this year on transportation, energy, high-tech sectors and healthcare. Other provinces will likely follow suit."

"The CNY has appreciated nearly 2% in less than two weeks in anticipation of a rate cut from the Fed. Now it has happened and the ball is back in the PBoC's court. We expect the PBoC to cut the benchmark lending rates to support growth while curbing further upside to the CNY."

According to data published today by the Society of Motor Manufacturers and Traders (SMMT), the UK new car market declined -2.9% in February. 79,594 models were registered in the month, traditionally one of the year's quietest ahead of the crucial March number plate change, with the decline driven primarily by weak consumer confidence and uncertainty over what fuel technology to buy. Registrations by private buyers were responsible for the bulk of the overall loss, down some -7.4% as 2,741 fewer people took delivery of new cars. Fleet demand, however, remained stable, up by 31 registrations.

Demand for both diesel and petrol cars fell in the month, with registrations down -27.1% and -7.3% respectively, and diesel now accounting for just over a fifth of sales (21.9%). Hybrids (HEVs) recorded an uplift of 71.9% to 4,154 units, while registrations of zero emission capable cars also continued to enjoy growth, with battery electric vehicles (BEVs) rising more than three-fold to 2,508 units and plug-in hybrids (PHEVs) up 49.9% to 2,058. However, these vehicles still make up just 5.8% of the market; and BEVs only 3.2%, showing the scale of the challenge ahead.

Mike Hawes, SMMT Chief Executive, said: "Another month of decline for the new car market is especially concerning at a time when fleet renewal is so important in the fight against climate change. Next week's Budget is the Chancellor's opportunity to reverse this trend by restoring confidence to the market and showing that government is serious about delivering on its environmental ambitions. Industry has invested in the technology, with a huge influx of new zero- and ultra-low emission models coming to market in 2020, and we now need government to match this with a comprehensive package of incentives and infrastructure spending to accelerate demand".

FXStreet reports that the Fed has cut the fed funds target 50bps to 1.00-1.25% as COVID-19 has sparked a dramatic tightening in US financial conditions. Analysts at ANZ Research expect further easing, as US economic activity is expected to slow sharply.

"GDP is set to slow sharply in the next six months, with growth set to contract in Q2. We expect growth of 1.4% in 2020."

"CPI inflation is forecast to rise by 1.7%, with COVID-19 weakening inflation pressure, as spending slows."

"The FOMC to cut by funds rate by additional 75bps."

"Financial conditions have tightened as fear drives heightened volatility. In this environment, the Fed needs to do what it can to support financial conditions."

February PMI data from IHS Markit pointed to the fastest expansion in eurozone construction activity for a year, supported by increased worker numbers and elevated input purchases. Moreover, firms were their most optimistic towards the business outlook since last June. However, positive results came amid a softer expansion in new orders.

Up from 51.9 in January, to 52.5 in February the Eurozone Construction PMI pointed to a faster expansion in construction activity across the currency area. In fact, the latest rise was the quickest for a year, underpinned by accelerated growth in Germany and a slight rebound in Italy. On the other hand, France recorded a slower increase for the second month in a row, with the latest expansion only fractional overall.

At the sub-sector level, overall growth was supported by home building and commercial construction projects which both increased at quicker rates compared to January. Meanwhile, although civil engineering work continued to decline, the pace of reduction was the slowest in the current seven-month sequence of contraction.

Amid a further rise in activity, eurozone construction firms continued to increase their staff numbers in February. Moreover, the rate of job creation accelerated to the quickest for almost a year.

Similar to the trend in employment, purchases of raw materials and other building inputs grew at a quicker pace, extending the current run of acceleration to three months. At the national level, the result was predominantly driven by a sharp expansion in Germany. Faster activity growth across the eurozone construction sector came despite a softer rise in new business during February. The latest rise was only marginal overall and the slowest since a decline last September.

Finally, eurozone building companies remained optimistic towards the one-year business outlook. Moreover, the degree of positivity strengthened to the highest level for eight months, supported by improved confidence in Germany and Italy

FXStreet reports that EUR/GBP has tested and failed for the past 3 days at its 200-day ma at .8745. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, analyzes the next possible moves on the pair.

"We would allow for a slide back into the .8610/.8580 zone. There is scope for .8535, however, we look for the near term uptrend at .8429 to hold."

"The market has recently completed a base with a .8979 upside measured target. Above .8745 will target the .8786 20th September low and the .8891 25th July low en route to the .8979 measured target."

"Nearby support is the 55-day ma at .8485 ahead of the near term uptrend at .8429. This guards .8332, the 24th February low."

• The virus could have a "very significant" impact on the economy, he said, although past episodes suggested this could be a temporary hit that should not affect the long-term future of businesses as a whole.

• Precisely for that reason, there may therefore be a role for economic policy to support activity and the provision of credit in the meantime, in order to ensure that short-term disruption doesn't result in longer-term damage

The number of confirmed coronavirus cases in Britain rose to 85 on Wednesday in the biggest daily jump since it was first detected in the country, health ministry figures showed.

During today's Asian trading, the us dollar declined against the Japanese yen and was almost unchanged against the euro.

The yield on 10-year US government bonds is just above 1%, while futures point to a 50% chance that the fed will cut the interest rate by another 50 basis points by July.

The yen strengthened amid significant concerns about the increasing effects on the economy at the outbreak of the coronavirus.

China's National Health Commission said there were 139 additional new cases and 31 deaths as of Wednesday - all of the fatalities occurred in Hubei province, the epicenter of the outbreak.

South Korea reports 438 new cases and 3 additional deaths, bringing the nationwide total number of infections to 5,766.

California declared a state of emergency after a coronavirus-related death in the state, where there are at least 53 confirmed cases.

The ICE Dollar index, which shows the value of the dollar against six major world currencies, rose by 0.01% compared to the previous day.

FXStreet reports that in opinion of Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, EUR/USD could attempt a corrective downside to the 1.1050 area and probably 1.1000 in the short-term horizon.

"The EUR/USD is showing signs of initial failure at the top of the 14 month down channel at 1.1182 and the 1.1240 December high. We would allow for a correction back to 1.1050 and possibly 1.1000 near term. Below here dips will find some support at 1.0926, the 3 rd September low and the 1.0879 the October low, but key support remains the 20 year uptrend at 1.0763."

"Above 1.1240 lies the 1.1300 55 month ma and the 200 week ma at 1.1346. This is critical from a longer term perspective, a weekly close above here would target the 12 year downtrend at 1.1950."

eFXdata reports that Credit Suisse discusses GBP outlook and flags a scope for the next leg lower on a break below 1.2700.

"In the UK, we note the debate around fiscal easing at the Mar 11 budget has transformed from a positive narrative of productive forms of fiscal easing to a focus on pushing resource allocation towards transitory measures to fight Cov-19. This is disappointing for GBP bulls who for months have clung to hopes that fiscal stimulus holds the key to a material rally...Especially as the BoE, which GBP bulls had hoped to see hiking in 2020 due to fiscal easing and a post-election recovery in private investment, is now likely to cut by 25bp (as CS economists expect) at its MPC meeting on Mar 26," CS notes.

"GBPUSD meanwhile is pushing on the lower end of our 1.28-1.33 predicted range. While a stronger EURUSD may help that level intact, we suspect a close below the 200-day moving average around 1.2700 would open the path for a deeper sell-off towards 1.2400. This move may need to wait though until after the Mar 11 budget is out of the way and the Mar 26 BoE meeting delivers a dovish rate cut, with scares around EU trade talks going badly the likely added catalyst for the next leg lower," CS adds.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1254 (3726)

$1.1210 (5502)

$1.1175 (3431)

Price at time of writing this review: $1.1137

Support levels (open interest**, contracts):

$1.1090 (3669)

$1.1046 (2512)

$1.0998 (3077)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 6 is 126005 contracts (according to data from March, 4) with the maximum number of contracts with strike price $1,1200 (5502);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3003 (2029)

$1.2957 (952)

$1.2919 (486)

Price at time of writing this review: $1.2886

Support levels (open interest**, contracts):

$1.2851 (3212)

$1.2826 (2379)

$1.2789 (3094)

Comments:

- Overall open interest on the CALL options with the expiration date March, 6 is 26939 contracts, with the maximum number of contracts with strike price $1,3050 (3536);

- Overall open interest on the PUT options with the expiration date March, 6 is 27468 contracts, with the maximum number of contracts with strike price $1,2900 (3212);

- The ratio of PUT/CALL was 1.02 versus 1.04 from the previous trading day according to data from March, 4

* - 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.