CFD Markets News and Forecasts — 05-06-2020

FXStreet reports that strategists at TD Securities apprise that the fundamentals behind gold purchases have not changed and investors are expected to flock to the yellow metal again despite some headwinds in the near-term.

“Risk assets are on fire amid the unprecedented scale of central bank support and global fiscal stimulus, despite still overwhelmingly negative sentiment – those selling gold in response to risk-on behavior in markets may be improperly discounting macro implications.”

“Risk-on behavior has been a significant contributor to money manager deleveraging in gold over the past weeks, but money managers have bought gold over the past few months in response to macro variables such as rates and break-evens. While this may suggest short-term headwinds for the yellow metal, it also argues that the underlying theme driving gold purchases has not changed – central banks remain committed to maintaining their monetary support for the foreseeable future.” 

“The combination of unprecedented support and firming growth will ultimately suppress real rates amid improving inflation expectations, suggesting investor interest will ultimately return to the yellow metal.”

• Thinks there will be 'surprises' on vaccines
• Doesn't know why some governors continue to lockdown
• Economic strength helped country get through pandemic
• The virus is a gift from China and a very bad gift
• Somebody has to ask why the virus was stopped in China but got to the rest of the world
• "We're doing ok" on China trade deal, they're buying a lot
• This is far-better than a V, this is a rocket ship
• Still believes national guard should be deployed to NY like it has in other states, does not blame New York Governor Cuomo for violence in NYC
  
• Progress is being made on vaccines;  4-8 companies are developing vaccines,  administration has 2 mln doses of vaccines "ready to go" if safety issues check out
  

FXStreet notes that the Canadian labour market defied expectations and added back 289k jobs in May. Economists at TD Securities think USD/CAD is basing out mostly since it already front-loaded the data and set the initial target at 1.38.

“The Canadian labour market added back 289k jobs in May for the first signs of life since COVID-19 shut down large parts of the economy. Hours worked rose at a faster rate than total employment with a 6.3% m/m increase. The unemployment rate drifted higher to 13.7% (TD: 13.5%, market: 15.0%), but this was driven by higher participation.”

“With risk assets, like CAD, already front-running some of the shift in the data, we don't expect USD/CAD to march much lower from here. On risk and global growth dynamics, USD/CAD still looks cheap, implying a move back to 1.38. For USD/CAD, we prefer buying rather than chasing the move lower.”

“We expect extremely easy monetary policy to remain in place for the rest of the year, but if April was in fact the low tide mark for the economy, then it suggests that we're not likely to see much more stimulus from either the BoC or the government.”

The Ivey Business School Purchasing Managers Index (PMI), measuring Canada’s economic activity, increased to 39.1 in May from a record-low 22.8 in April.

A figure above 50 shows an increase while below 50 shows a decrease.

Within sub-indexes, the employment measure climbed to 41.9 in May from 22.9 in the previous month, while the inventories indicator jumped to 46.8 from 34.5, the supplier deliveries gauge surged to 37.7 from 18.2 and the prices index increased to 54.9 from 51.2. 

• Estimates government stimulus measures to add 2 percentage points to Italy's GDP
• Sees Italian Harmonised Index of Consumer Prices (HICP) to decline by 0.1% this year and be unchanged in 2021
• Sees Italian employment to fall by 3.9% in 2020 and jobless rate to average 10.6%

U.S. stock-index futures rose on Friday, as the May Employment Situation Report came in much better than expected, bolstering hopes for faster economic recovery from the coronavirus downturn. 

Global Stocks:

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

Statistics Canada reported on Friday that the number of employed people rose by 289,600 m-o-m in May (or +1.8 percent m-o-m) after an unrevised decline of 1,993,800 m-o-m in the previous month. Economists had forecast a drop of 500,000 m-o-m.

Meanwhile, Canada's unemployment rose to 13.7 percent in May from 13.0 percent in April, below economists’ forecast for 15.0 percent. That was the highest rate recorded since comparable data became available in 1976.

According to the report, full-time employment increased by 291,400 (or +1.6 percent m-o-m) in May, while part-time jobs rose by 70,300 (or +2.8 percent m-o-m).

In May, the number of public sector employees fell by 21,200 (or -0.6 percent m-o-m), while the number of private sector employees surged by 329,700 (or +3.4 percent m-o-m). At the same time, the number of self-employed dropped by 18,800 (or -0.7 percent m-o-m) last month.

Sector-wise, employment increased both in goods-producing (+5.0 percent m-o-m) and service-producing (+1.0 percent m-o-m) businesses.

UnitedHealth (UNH) initiated with a Buy at Goldman; target $384

The U.S. Labor Department announced on Friday that nonfarm payrolls rose by 2,509,000 in May after an upwardly revised 20,687,000 plunge in the prior month (originally a tumble of 20,537,000), reflecting a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus pandemic and efforts to contain it.

According to the report, employment rose sharply in leisure and hospitality (+1.2 million jobs), construction (+464,000), education and health services (+424,000), and retail trade (368,000). By contrast, employment in government (-585,000) continued to decline sharply.

The unemployment rate fell to 13.3 percent in May from a record level of 14.7 percent in April.

Economists had forecast the nonfarm payrolls to fall by 8,000,000 and the jobless rate to surge to 19.8 percent.

The labor force participation rate increased by 0.6 percentage point in May to 60.8 percent, while hourly earnings for private-sector workers fell 1.0 percent m-o-m (or $0.29) to $29.75, following an unrevised 4.7 percent m-o-m gain in April. Economists had forecast a 1.0 percent m-o-m advance in the average hourly earnings. Over the year, average hourly earnings have increased by 6.7 percent, following a revised 8.0 percent rise in April (originally an increase of 7.9 percent).

The average workweek increased by 0.5 hour to 34.7 hours in May, exceeding economists' forecast for 34.3 hours.

• Progress remains limited but our talks have been positive in tone
  
• We are now at an important moment for these talks
• We are close to reaching the limits of what we can achieve through the format of remote formal rounds
  
• If we are to make progress, it is clear that we must intensify and accelerate our work
• We are discussing with the commission how to intensify the process
• Any deal must accommodate the UK's position on fisheries and level playing field
  

EUR rose against most other major currencies as it continued to receive support from the latest decision by the European Central Bank (ECB) to nearly double its pandemic emergency purchase program and a broad optimism that the global economy will recover as COVID-19 lockdowns are relaxed.

The ECB announced on Thursday that its governing council had decided to increase the Pandemic Emergency Purchase Program (PEPP) by EUR600 billion to EUR1.35 trillion, while extending purchase into the summer of 2021. The announced increase in the size of the PEPP exceeded economists’ expectations of around EUR500 billion.

Meanwhile, the ECB’s president Christine Largade warned about an “unprecedented” contraction in the Eurozone’s economy in the second quarter. The ECB also downgraded its economic activity and inflation outlook is due to uncertainty. 

Support for the European single currency was also bolstered somewhat by the reports that the EU set to gradually lift restrictions for non-EU travelers in early July.

Now, market participants are awaiting the release of the closely-watched U.S. Employment Situation Report later today (12:30 GMT), which is expected to show 8 million job losses for May, along with a headline unemployment rate of 19.8%, the highest since the Great Depression.

• Latest round of Brexit negotiations made no significant progress
• UK has not shown any true will on fisheries issue
• There was no progress in talks on level playing field
• Fisheries, level playing field cannot be separated out from trade in new partnership

FXStreet reports that analysts at Charles Schwab note that crude oil prices closed at a three-month high yesterday adding to their impressive recent gains as the front month July contract (CLN20) has rebounded from a 17.27 low on April 28 to a 38.18 high posted on Thursday. The 41.88 level provides resistance.

“With the trade expecting a 3.2 million bbl build in inventories, the EIA measured an actual draw of 2.10 million bbl. That buoyed prices yesterday despite some negatives in the products categories.”

“Market analysts maintain that most OPEC+ members are in favor of extending the current level of cuts for another month. Saudi Arabia may be pushing for an even longer extension of up to three months.” 

“The top of the sharp gap created on March 9 at 41.88 will offer near-term resistance. Beyond the 200-day moving average awaits at the 46.30 mark, followed by some old tops at 48.96. Selloffs will find first support at 35.38, followed by the 31.14 and 30.72 lows.”

FXStreet notes that uptrend at 0.8835 is set to support the EUR/GBP pair. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, expects the cross to continue the bullish trend and above 0.9086 should target 0.9184.

“EUR/GBP came very close last week to its upside measured target of 0.9060 (high was 0.9056). We have seen some profit taking but dips held over the 55-day ma and the market looks to have already reasserted its up move.” 

“Above 0.9086 we target the 0.9184 then 0.9323, the 61.8% and 78.6% retracement of the move seen since March.” 

“A bullish bias will be maintained while above the short-term support line at 0.8835 and we look for dips lower to hold here.”

• And also exercise a market stabilization function to the extent as necessary
• PEPP increase is proportionate response to the outlook
• ECB stands ready to adjust all of its instruments as appropriate

The Aussie rally is just expected to warrant attention from the RBA in  case the AUD/USD pair surges above 0.75 with scant evidence of a robust global growth recovery, per ANZ Bank.

“The rally back to 0.69 now represents a full pricing in of the global recovery, as well as a return to fair value for the AUD. So from here, things get a bit more interesting. It will be crucial that moves in the AUD remain in line with global economic fortunes and the terms of trade.”

“Should the recovery be slow and fitful with persistently high unemployment, as we are expecting, the RBA is likely to focus more on the AUD when it rises above 0.70. If it then makes a sustained move above 0.75 it is likely to draw policy consideration, unless there is a commensurate improvement in global growth, and by extension currency fundamentals.”

Reuters reports that European stocks are likely to rise another 10% by the end of September as the re-opening of economies after virus lockdowns is likely to lead to a significant pick-up in business activity, Bank of America analysts said on Friday.

European stocks have already bounced back 38% from their March trough at the peak of the COVID-19 financial market crash and a further 10% rise would cover all the losses year-to-date.

The bank is "overweight" on banks and mining stocks, seeing them benefiting the most from a turnaround of the economy. It sees euro area composite Purchasing Managers Index (PMI) new orders rising to 53 in August and 58 in September, from 30 in May.

"While some economic activity will not come back anytime soon, the broad-based lifting of restrictions nonetheless implies scope for a marked pick-up in economic activity," BofA analysts said in a note to clients.

FXStreet reports that EUR/CHF broke the 1.0842 55-week ma and is now pointing to the 1.0913 2018-2020 resistance line, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, briefs.

“EUR/CHF has eroded the 1.0812 September 2019 low to reach the 1.0842 55-week ma and 1.0861 23.6% retracement (of the move down from the 2018 peak). This guards the 1.0913 2018-2020 resistance line.”

“Dips will find initial support at the near-term uptrend at 1.0673 ahead of the 55-day ma at 1.0579. Initial support is the 1.0709 March high.”

“Below the 55-day ma will alleviate upside pressure and imply another slide back to the 1.0509/00 zone once again.”

According to the report from Istat, in April 2020 estimates for seasonally adjusted retail trade index sharply declined by 10.5% in value terms in the month on month series, after decreasing by 21.3% in March 2020, as numerous stores stayed shut due to lockdown measures contrasting the Covid-19 outbreak. Likewise volume of sales decreased by 11.4% when compared to the previous month.

In the three months to April 2020, both value and volume of sales dropped by 15.8% and 16.6%, respectively.

Year-on-year value of sales was down 26.3%, while volume reached -28.1% when compared with April 2019. Food sales increased by 6.1% in value terms, while non-food sales plunged by 52.2%.

Large-scale distribution fell by 16.4% compared with the same period a year earlier, while small-scale distribution reported a record decline, decreasing by 37.1%.

In April 2020, non-store sales suffered a drop of 45.2% compared with April 2019.

Despite other channels of distribution experienced a significant decline, online sales increased by 27.1% when compared with the same month a year earlier.

Looking at the value of sales for non-food products, all categories fell dramatically in the year-on-year series.

This drop resulted in extremely low levels for shoes, leather goods and travel items (-90.6%), furniture and textile items and household furnishings (-83.6%), clothing (-83.4%) and sporting equipment, games and toys (-82.5%), while pharmaceutical products was the category suffering the least with a negative 3.5%.

FXStreet reports that FX Strategists at UOB Group suggested USD/CNH could drop further on a breach of 7.0850.

24-hour view: “USD traded between 7.1034 and 7.1337 yesterday, wider than our expected range of 7.1100/1.1350. The underlying tone has weakened somewhat and but for now, any weakness is viewed as a lower trading range of 7.1000/7.1300 (a sustained decline below 7.1000 is not expected).”

Next 1-3 weeks: “The pace and extent of the pull-back from last week’s 7.1966 high came as a surprise. For now, we continue to hold the view that USD is “trading sideways” but if USD closes below 7.0850, it could signal the start of a deeper decline in USD. At this stage, the prospect for such a move is not that high but it would increase unless USD can move above 7.1500 within these few days.”

CNBC reports that the U.S. will not likely want to “break” its so-called phase one trade deal with China, even though tensions between the two countries have escalated in recent weeks, a Morgan Stanley economist said on Friday.

U.S. President Donald Trump said last month he was “very torn” about whether to end the phase one deal. His comments raised concerns among investors and analysts that the world’s two largest economies would resume a tariff war that’s damaging to the global economy.

“At this point, our view from an economics standpoint ... is as long as we have the phase one deal going on and there is no renewed escalation in terms of tariffs, then the global growth projections that we have should be intact,” Chetan Ahya, Morgan Stanley’s chief economist and global head of economics, told CNBC.

He explained that the Trump administration “would be focused on economy right now and will not want to break the phase one deal,” so the risk of a renewed U.S.-China trade war hitting the global economy “is not likely to be happening in our forecast.”

Trump has not updated his stance on the trade deal, which was signed in January and put a pause in the tariff fight with China that lasted over a year.

But U.S. Trade Representative Robert Lighthizer, one of the key negotiators in the trade deal with Beijing, reportedly said Thursday he felt “very good” about the deal and that “China has done a pretty good job” in some structural changes.

China last week also repeated that it will continue working toward implementing the phase one trade deal, even as experts have said that Beijing is not likely to meet the requirements to significantly increase its purchase of U.S. goods and services.

China has predictably fallen short of its commitments so far due to the coronavirus pandemic.

FXStreet reports that EUR/USD broke the 1.1240 December peak and met the 1.1333 initial target. The pair now points to the 1.1495 March high, as Commerzbank’s Karen Jones notes.

“EUR/USD has eroded the 1.1240 December peak; and has reached its initial target at 1.1333, the 200-week ma. It is possible that we may see some consolidation around here ahead of gains to the 1.1495 March peak.”

“Dips are indicated to hold in the 1.1250/1.1170 band ahead of further gains to 1.1570, the 2019 high then 1.1815/22, the 61.8% retracement of the move down from the 2018 peak.”

According to the report from Halifax Bank of Scotland, on a monthly basis, house prices in May were 0.2% lower than in April. Economists had expected a 0.7% decrease. In the latest quarter (March to May) house prices were 0.5% lower than in the preceding three months (December to February). House prices in May were 2.6% higher than in the same month a year earlier

Russell Galley, Managing Director, Halifax, said: “With the full impact of lockdown measures taking a firm grip on the UK property market by May, the average house price fell by 0.2% to £237,808. This is the third successive monthly fall, though more modest than in April, and reflects a continued loss of momentum following what was a strong start to the year. Though it should still be noted that with a limited number of transactions available, calculating average house prices remains challenging and increased volatility is to be expected. The mid-month relaxation of restrictions in England, allowing estate agents and conveyancers to restart operations, brought much-needed positive news with some advance indicators of buyer and seller interest quickly showing signs of improvement. This is likely to provide a short-term boost as buyers and homeowners attempt to kick-start transactions that had previously been put on hold. Looking ahead, we expect market activity to increase progressively as restrictions are eased further across the whole of the UK and we continue to have confidence in the underlying health of the housing market over the long-term. However, the extent of downward pressure on market confidence and prices over the coming months will depend on how quickly the economy is able to recover from the effects of the pandemic and the available government policy support for jobs and households.”

Reuters reports that British retailers saw sales plunge by nearly a fifth in May as the government's coronavirus lockdown measures kept shopping streets empty, a survey showed on Friday.

Accountancy and business advisory firm BDO said its monthly High Street Sales Tracker (HSST) found total like-for-like sales, consisting of both in-store and non-store (online) sales, declined by 18.3% in May - the second worst result on record after April's 29.6% decline.

BDO highlighted a 22.6% fall in fashion sales.

Britain went into lockdown on March 23 to slow the spread of the novel coronavirus, with all retail stores deemed "non essential" forced to close.

However, outdoor markets and car showrooms were allowed to open from June 1 and all other non-essential retail is set to follow from June 15 if the government's social distancing requirements are met.

With many retailers continuing to trade online during the lockdown, BDO recorded a 129.5% year-on-year jump in non-store like-for-like sales - the largest increase since it began measuring in 2010.

"Despite the significant pick-up in ecommerce, the monumental collapse in discretionary spend remains stark as retailers continue to face challenging headwinds," said Sophie Michael, head of retail and wholesale at BDO.

"As shops look to reopen on June 15, they will face disrupted supply chains, mounting out of season stock and reduced footfall, as well as staffing uncertainty."

Bundesbank latest forecasts on the German economy

• German GDP to grow by 3.2% in 2021, 3.8% in 2020

• German stimulus may raise 2020 GDP by more than 1%.

• Projections don't include the recent fiscal package by the government

• Fiscal support appropriate, takes positive view on govt’s measures.

• Low point in growth appears to have passed in April.

During today's Asian trading, the euro continued to rise against the US dollar thanks to the decision of the European Central Bank (ECB) to significantly expand measures to support the economy in the crisis caused by the coronavirus pandemic.

The ECB on Thursday decided to increase the volume of the Pandemic Emergency Purchase program (PEPP) by 600 billion euros to 1.350 trillion euros. The Central Bank also kept the base interest rate on loans at zero, and the deposit rate at -0.5%.

EUR/USD has been rising for the ninth consecutive session, which is the longest period of continuous growth since April 2011. The strengthening of the euro, however, will be held back by expectations of a sharp decline in Euro zone GDP this year, experts say.

According to the ECB forecast, the Euro zone economy will shrink by 8.7% this year.

Additional stimulus will certainly provide support, but "markets may be getting ahead of themselves in assessing how much this will improve the situation in the Euro zone economy," says Arkera currency market analyst Viraj Patel.

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), fell by 0.17%.

Reuters reports that half of companies in Germany postponed investments in May while 28% cancelled investment projects completely as the coronavirus pandemic takes its toll, a survey by economic institute Ifo showed on Friday.

That compared with 46% and 22% respectively in April. Manufacturing companies were particularly affected, with 64% postponing projects in May.

"These are worrying figures for the long-term development of the economy," said Klaus Wohlrabe, Ifo's head of surveys.

FXStreet reports that the upside momentum in AUD/USD could extend further north of the 0.7000 mark in the next weeks, suggested FX Strategists at UOB Group.

24-hour view: “Our expectation for AUD to consolidate yesterday was incorrect as it surged to a high of 0.6987 before dropping back quickly. Upward momentum is showing sign of ‘tiring’ and while AUD could advance nearer to the 0.7000 resistance, a sustained move above this level is unlikely for today (next resistance is at 0.7030). Support is at 0.6900 followed by 0.6870.”

Next 1-3 weeks: “There is not much to add to the update from Wednesday (03 Jun, spot at 0.6930). As highlighted, the outlook for AUD ‘is still clearly positive and the next resistance is at 0.7000 followed by 0.7030’. AUD touched 0.6987 yesterday (04 Jun) and while the 0.7000 level appears to be within reach, overbought conditions suggest that 0.7030 may not come into the picture so soon. Overall, the positive phase that started more than 2 weeks ago is deemed as intact as long as 0.6830 is not breached (‘strong support’ level was previously at 0.6800).”

According to the report from Federal Statistical Office (Destatis), the new orders in manufacturing in Germany decreased significantly again in April 2020 because of the coronavirus pandemic after they had fallen markedly already in March. 

Real (price adjusted) new orders decreased by a seasonally and calendar adjusted 25.8% in April 2020 compared with March 2020. This is the largest decline since the beginning of the time series in January 1991. Economists had expected a 19.7% decrease. Compared with April 2019, the decrease in calendar adjusted new orders amounted to 36.6%. Excluding major orders, real new orders in manufacturing seasonally and calendar adjusted were 25.1% lower than in the previous month.

Domestic orders decreased by 22.3% and foreign orders fell by 28.1% in April 2020 on the previous month. New orders from the euro area went down 30.6%, and new orders from other countries decreased by 26.7% compared with March 2020.

In April 2020 the manufacturers of intermediate goods saw new orders decrease by 22.7% compared with March 2020. The manufacturers of capital goods saw a decrease of 30.6% on the previous month. Regarding consumer goods, new orders fell 11.4%.

For March 2020, revision of the preliminary outcome resulted in a decrease of 15.0% compared with February 2020 (provisional: -15.6%).

• CNBC reports that the global number of coronavirus cases surpassed 6.6 million, as the pandemic continues to sweep across the world.

• The death toll in Brazil surpassed that of Italy on Thursday. South America was recently declared a new epicenter in the outbreak.

• In the U.S., coronavirus hospitalizations are on the rise around the country, Dr. Scott Gottlieb told, as states push forward with plans to reopen the economy and mass protests engulf the country. The convergence of events could become a problem in the fall, when hospitals around the country begin to fill with flu patients. As the two outbreaks coincide, health systems risk becoming strained. 

• Meanwhile, the NBA announced it approved a plan that would resume its season on July 31 in Orlando, Florida.

• Global cases: More than 6.6 million

• Global deaths: More than 389,620 

• U.S. cases: More than 1.8 million

• U.S. deaths: More than 108,208

EUR/USD

Resistance levels (open interest**, contracts)

$1.1453 (900)

$1.1410 (1516)

$1.1378 (926)

Price at time of writing this review: $1.1356

Support levels (open interest**, contracts):

$1.1292 (817)

$1.1248 (729)

$1.1199 (1267)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 5 is 103163 contracts (according to data from June, 4) with the maximum number of contracts with strike price $1,0700 (5296);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2752 (361)

$1.2704 (1600)

$1.2661 (1220)

Price at time of writing this review: $1.2631

Support levels (open interest**, contracts):

$1.2544 (1106)

$1.2498 (353)

$1.2409 (480)

Comments:

- Overall open interest on the CALL options with the expiration date June, 5 is 24522 contracts, with the maximum number of contracts with strike price $1,3500 (3420);

- Overall open interest on the PUT options with the expiration date June, 5 is 31870 contracts, with the maximum number of contracts with strike price $1,3500 (3095);

- The ratio of PUT/CALL was 1.30 versus 1.25 from the previous trading day according to data from June, 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.