CFD Markets News and Forecasts — 07-04-2020

FXStreet reports that analysts at the National Bank of Canada (NBF) note that the oil price collapse and operational shutdowns mandated by federal and provincial governments due to the coronavirus pandemic are not surprisingly weighing on Canada's economic growth and employment.

“The Canadian economy likely entered recession in the first quarter of 2020 as evidenced by soaring employment insurance claims. Those concerning numbers on claims will be followed by less timely data on GDP showing a massive contraction in March courtesy of forced shutdowns.” 

“Taking account of closures ordered by the government, our bottom-up analysis suggests a sharp decline of GDP can be expected in Q1 followed by a steeper drop of over 30% annualized in Q2, before a subsequent rebound in the second half of the year.” 

“2020 real GDP growth is pegged at -4.8%, the largest annual contraction on records going back to 1961.”

G20 energy ministers are to meet "to foster global dialogue and cooperation to ensure stable energy markets and enable a stronger global economy". They will also act to alleviate the impact of the coronavirus pandemic on global energy markets, the statement said.

The Ivey Business School Purchasing Managers Index (PMI), measuring Canada's economic activity, decreased to 26.0 in March from an unrevised 54.1 in February. This was the lowest reading on record.

Economists had expected the gauge to hit 41.

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

Within sub-indexes, the employment measure plunged to 26.8 in March from 54.7 in the previous month, the inventories indicator tumbled to 33.6 from 53.3, and the supplier deliveries gauge dropped to 17.7 from 41.8. Meanwhile, the prices index rose to 57.3 in March from 56.6 in February.

The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department on Tuesday revealed a 1.9 percent m-o-m drop in the U.S. job openings in February after a revised 7.0 percent m-o-m gain in January (originally a 6.3 percent m-o-m advance).

According to the report, employers posted 6.882 million job openings in February, compared to the January figure of 7.012 million (revised from 6.963 million in original estimate) and economists' expectations of 6.600 million. The job openings rate was 4.3 percent in February, down from an unrevised 4.4 percent in the prior month. The report showed that job openings decreased in real estate and rental and leasing (-30,000) and information (-29,000).

Meanwhile, the number of hires fell by 0.5 percent m-o-m to 5.896 million in February from a revised 5.925 in January. The hiring rate remained unchanged at 3.9 percent. The hires level increased in durable goods manufacturing (+29,000) and retail trade (+18,000), but fell in construction (-26,000), accommodation and food services (-19,000) and educational services (-12,000).

The separation rate in February was 5.560 million or 3.6 percent, compared to 5.703 million or 3.7 percent in January. Within separations, the quits rate was 2.3 percent (flat m-o-m), and the layoffs rate was 1.2 percent (+0.1 pp m-o-m).

FXStreet notes that gold has achieved the ‘measured base objective’ at $1700/05, but analysts at Credit Suisse stay bullish on the yellow metal.

“Gold has seen an exact move to our long-held ‘measured base objective’ at $1700/05. Whilst we suspect further consolidation can emerge here, as we have repeatedly highlighted our core outlook stays bullish and we look for a move above $1705 in due course, with resistance next at $1796.” 

“Big picture, we continue to look for new highs. Below key price support at $1453/46 is needed to change this view as this would mark a top, turning the risk lower as well as ending our long-held bullish outlook.”

“Extreme long positioning in gold is starting to unwind, which we see as constructive for our bullish view.”

FXStreet notes that for decades, economists and investors have been questioning the sustainability of Japan’s government debt burden. The announcement from PM Abe of a stunningly large stimulus package worth around 20% of GDP has clearly refocused attention back on how easily the government will fund this, per Rabobank.

“Reuters this week reported that Japan will boost government bond issuance by USD149 bln to fund the latest stimulus package. In light of this, it seems almost impossible to imagine the BoJ ratcheting down its purchasing programme.”

“According to S&P ‘within the next one to two years, Japan will return to a fiscal trajectory that stabilises or improves its government debt level relative to GDP.’  It would appear that the market will continue to absorb the news, a truly huge stimulus package almost without blinking.”

“The stimulus package is unlikely to avert a recession, though clearly it will soften the blow.  Over the next month or two at least economic data can be expected to wield some disastrous news.”  

“While the USD looks set to outperform the JPY on any worsening of risk appetite, we see further downside potential for EUR/JPY on a 3-month view towards 113.4.”

U.S. stock-index futures rose solidly on Tuesday, pointing to an opening jump in early morning trade amid preserved optimism that the lockdown measures helped slow the spread of the global coronavirus pandemic.

Global Stocks:

FXStreet reports that analysts at Credit Suisse note that the S&P 500 remains well below the lower end of its ‘typical’ extreme, 15% below the 200-day average, further increasing the risk we may be seeing the early stages of a more sustained decline.

“Support is seen at 2364/60, below which can add momentum to the decline again, with support thereafter seen at the current YTD low at 2192, beneath which we see more important support at 2030/2000, the 50% retracement of the entire 2009/2020 bull market.”

“Above 2641/51 on a weekly closing basis would suggest a deeper recovery/consolidation phase can indeed unfold, with resistance next at 2793, then more importantly starting at 2855 and stretching up to the 200-day average at 3022. We would look for a fresh top here.”

“Monthly RSI has broken support stretching back to 2011 and is seen likely to fall further.”

“Monthly MACD holds a long-term bearish divergence and has also turned decisively lower.”

• Says President Trump looking at areas of the country where economy can be reopened
• Hopes to have 'main street lending' program up and running with Fed soon
• Over 3000 lenders are participating in small business lending program
• Working very quickly on aid for airlines
• Meeting with advisors on airline program this week
• Direct payments should be sent out by the end of next week
• Administration wants to make sure critical supplies are made in U.S.
  
• Certain parts of the economy will come back "immediately", others will take longer
• Expects a very strong rebound in second half of 2020

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

General Motors (GM) downgraded to Hold from Buy at Deutsche Bank; target $25

Freeport-McMoRan (FCX) upgraded to Neutral from Underperform at Credit Suisse; target lowered to $8

FXStreet reports that according to analysts at TD Securities, the Aussie is among the day’s strongest currencies after the RBA kept its policy settings on hold. AUD/USD could extend its gains.

“AUD/USD's technical backdrop also looks constructive. The daily RSI is near its range-midpoint, while the MACD histogram also continues to edge higher.”

“Our immediate focus is on resistance at 0.6214 (31 March high), which could serve as a notable gateway to further gains. Above this, the next objective for AUD bulls comes in at 0.6313.”

• PM has not been diagnosed with pneumonia
• PM was stable overnight and remains in good spirits
• PM is not on ventilator, is receiving oxygen
• Government has a clear plan to respond to coronavirus
• Cabinet is working to implement it
• Expects there to be update on PM's condition later today

FXStreet notes that GBP/USD strength is seen as corrective and economists at Credit Suisse look for a fresh move lower in Q2.

“GBP/USD has seen a sharp rebound but with a large bear ‘triangle’ now established this is viewed as a corrective bounce, and we look for the trend to turn lower again in Q2.” 

“We look for resistance at 1.2517/1.2726 to cap further strength for a clear break of the long term uptrend from 1985 for a fresh look at the 1.1412 low from March.”

“Above 1.2726 would suggest the trend has shifted neutral, with resistance then at 1.3200.”

• Says that deficits or increased financing needs could lead to changes to planned issuances in H2
• There is still considerable uncertainty about possible changes

USD fell against the rest major currencies in the European session on Tuesday as investors' risk appetite rebounded amid encouraging signs that the spread of the global coronavirus pandemic may be slowing, helped by the lockdown measures.

Market participants' digested the following events: Japan's Prime Minister Shinzo Abe officially declared a month-long state of emergency for Tokyo and six other prefectures due to a climb in coronavirus cases and announced a JPY39 trillion fiscal spending plan to combat the coronavirus pandemic. Meanwhile, the Reserve Bank of New Zealand (RBNZ) announced it would begin purchasing local government bonds on the secondary market as part of its quantitative easing (QE) program to support liquidity and keep interest rates low, while the Reserve Bank of Australia (RBA) left its cash rate at the record low of 0.25%, as widely expected. Traders are also awaiting news on the UK Prime Minister Johnson, who stays in an intensive care unit as he continues to receive treatment for coronavirus.

Commodity currencies were also supported by the expectations that the world's biggest crude producers will agree to cut output to help the oil prices.

analysts at Natixis that FX Strategists at UOB Group noted USD/JPY is expected to trade within the 108.40-109.30 range in the very near term.

24-hour view: “We highlighted yesterday the ‘rapid improvement in upward momentum suggests further USD gains towards 109.40’. However, USD eased off after touching 109.37. Upward pressure has more or less dissipated and for today, further USD strength appears unlikely. USD is more likely to consolidate and trade between 108.40 and 109.30.”

Next 1-3 weeks: “We highlighted last Friday (03 Apr, spot at 108.00) that ‘risk of a short-term bottom has increased’. The breach of the 108.75 ‘strong resistance’ level earlier this morning indicates that last Tuesday (01 Apr) low of 106.89 is a short-term bottom. The near-term bias is for USD to test the 110.40 level from here. A clear break of this level would indicate USD could extend towards last month’s top at 111.71. On the downside, only a breach of 107.30 (‘strong support’ level) would indicate that the current upward pressure has eased.”

FXStreet reports that analysts at Natixis note that several euro-zone countries are now making loud calls for the issuance of eurobonds (coronabonds) to finance the massive fiscal deficits in the euro zone in response to the coronavirus crisis.

“Issuing coronabonds in 2020 would be politically significant, as a demonstration of European solidarity. But it would be of little use economically or financially, as the ECB is going to monetise all the additional fiscal deficits resulting from the coronavirus crisis.”

“Once the health crisis is over, there will be new public spending needs (support for investment, the healthcare sector and the onshoring of strategic industries). These additional structural fiscal deficits will be difficult to finance, because they will not be monetised by the ECB.”

“There is more of a need for ‘post-corona’ bonds, to finance these large public spending needs after the crisis, than for coronabonds to finance the immediate crisis response.”

On average, ALM conducted almost 47,488 tests a day, up from an average of 44,851 a day the week before last.

FXStreet reports that FX Strategists at UOB Group suggest that NZD/USD is still seen navigating a broad consolidative pattern.

24-hour view: “NZD traded between 0.5851 and 0.5961 yesterday, wider than our expected range of 0.5850/0.5940 range before ending the day on a strong note at 0.5927 (+1.07%). Upward momentum has picked up and this could lead NZD moving higher towards 0.5985. For today, a rise beyond 0.6020 is not expected. Support is at 0.5910 followed by 0.5870.”

Next 1-3 weeks: “While our ‘strong support’ level of 0.5880 ‘survived’ for the second straight day (overnight low of 0.5881), the price action is enough to indicate that last Friday’s (27 Mar) high of 0.6067 is a short-term top. From here, the immediate risk is tilted to the downside but any weakness is viewed as part of a 0.5820/0.6020 range (a sustained decline below 0.5820 appears unlikely for now). In other words, NZD is likely to trade within a broad range a period.”

• State of emergency is not like lockdown seen overseas
• We will certainly not be closing roads
• Essential public services will operate as normal
• We want people to refrain from going to bars, nightclubs
• We want businesses to reduce numbers in workplace by 70%
• We are placing a higher priority on economic revival than fiscal reform now

CNBC reports that the Brexit trade deal will face greater challenges ahead as British Prime Minister Boris Johnson is now in intensive care because of the coronavirus, while other key negotiators have either been infected or are in self-isolation.

The U.K. finally left the European Union on Jan. 31, but it remains in a transition period and has a deadline of end 2020 to set a free-trade deal with the EU. Now, whether Britain would be able to meet that deadline is in question.

"In all circumstances it's very difficult to imagine how some sort of large scale trade deal between the U.K. and the EU gets done by the end of the year," Amanda Sloat, a senior fellow at Brookings Institution, told CNBC.

"In the last couple weeks, we've seen EU's Brexit negotiator get coronavirus, the British negotiator has also been showing symptoms and now of course this very sad situation with the prime minister," she added. On March 19, Europe's chief Brexit negotiator Michel Barnier also announced he had been infected, while U.K. negotiator David Frost went into self-isolation around the same time after showing symptoms.

Foreign Secretary Dominic Raab will temporarily take over the prime minister's duties while Johnson is hospitalized, the government said.

"Clearly with this move into intensive care, there is a desire to put extra precautions into place, (Johnson) clearly is not in a position to govern at the moment," Sloat said.

FXStreet reports that negative real interest rates, easy money supply, heightened macroeconomic risks and fading USD strength together form the benign backdrop for gold investors, according to economists at ANZ Bank.

"Easy monetary policy and macro uncertainty favour gold investment demand."

"We see gold coin demand picking up along with ETF and futures this year."

"We see flight to safety investments attracting fund flows in gold. Silver looks underappreciated, with the gold-silver ratio above 110, leaving room for catch-up."

eFXdata reports that UOB Research discusses GBP/USD technical outlook and adopts a bearish bias in the near-term.

"When GBP surged to 1.2200 on 27 Mar, we indicated that the "recovery in GBP has scope to extend higher but prospect for a move beyond 1.2550 is not high for now". GBP subsequently extended its gain to 1.2484, traded sideways for several days before lurching lower last Friday (03 Apr) and came close to taking out our 'strong support' level at 1.2205. While the 'strong support' is still intact, upward pressure has dissipated with the sharp and rapid decline," UOB notes.

"The immediate risk from here is tilted to the downside but any weakness is viewed as part of a broad 1.1950/1.2420 range (a sustained decline below 1.1950 is not expected)," UOB adds.

FXStreet reports that analysts at ANZ Bank have downgraded their EUR/USD forecasts and anticipate a test of parity in coming months.

"Unlimited QE means the US has a ready buyer for the huge pipeline of Treasury debt issuance, reducing the need for a higher risk premium or weaker USD. Low inflation is also benefiting the dollar."

"Unless the euro area addresses the challenges facing its fiscally weaker members, or it starts to repatriate its stock of net foreign assets, we see the path of euro depreciation extending."

"The high speed, rollercoaster ride that has been the EUR/USD in 2020, is approaching this critical 1.05 area. There undoubtedly will be some support for the euro around that level, but we expect the depreciation will not stop there."

"We are now forecasting a move below parity by the end of 2020."

CNBC reports that Japan's economy has been dealt a "final blow" as the country deals with the fallout from the global coronavirus pandemic, leaving it on a path toward a "steep recession." That's according to Jun Saito, senior research fellow at the Japan Center for Economic Research (JCER).

The Japanese economy already started to slow down since late 2018, and the impact of trade tensions between China and the U.S. was further exacerbated by a consumption tax rate hike in Oct. 2019, Saito told CNBC.

"I think the coronavirus has given a final blow to the economy," he said, reiterating his view that Japan is headed for a "very steep recession." He said this would likely be caused by shocks from both demand and supply.

Furthermore, decisions such as the postponement of this year's Olympic and Paralympic Games have placed "further downward pressure" on the Japanese economy, he said.

Instead of trying to stimulate the economy, he said what is needed right now is policy packages in order to "prevent the free falling of the economy."

Elaborating more on this, Saito said there were three areas of support required to stem the economic decline.

First, support should be given toward the development of vaccines and drugs for the coronavirus, as well as to the medical sector for it to continue operating, he said. Next, support should be given to workers who have lost their jobs. Lastly, small-and-medium companies that have suffered a loss in demand and are facing financial difficulties from the economic hit of the coronavirus also need financial support, Saito said.

FXStreet reports that EUR/GBP has sold off to the 0.8751 200 day ma, and is starting to recover from here, as Karen Jones from Commerzbank notes.

"In the 200-day ma vicinity, we also find the 61.8% retracement at 0.8747."

"We also note Two 13 counts on the 240 minute chart and a TD perfected set up on the daily chart, they imply the end of the down move."

"Recovery above 0.9022 will target 0.9225 and then last week's high at 0.9501."

"We are unable to rule out scope for 0.8712, 0.8673, the 6 week uptrend and the 55-day ma but this is not our favoured view."

FXStreet reports that risk On-Risk Off (RORO) is still the dominant force for FX. The USD and JPY should continue to outperform 'risk-on' currencies in a 'risk-off' environment, in the opinion of economists at HSBC.

"The dominance of the RORO factor suggests that markets are paying relatively little attention to the differences amongst the various policy responses delivered in the last few weeks."

"What matters appears to be the binary nature of COVID-19 and the economic fallout from the spread of the virus. If markets still think things are getting worse, then we will be firmly in 'risk-off' territory."

"The USD and JPY should continue to fare well, while currencies of smaller open economies - the AUD, NZD, GBP and many EM FX - will continue to struggle in a 'risk-off' environment."

According to the report from Halifax Bank of Scotland, house prices in March were 3.0% higher than in the same month a year earlier. Economists had expected a 3.3% increase.

On a monthly basis, house prices were flat at 0.0%. Economists had expected a 0.1% increase.

In the latest quarter (January to March) house prices were 2.1% higher than in the preceding three months (October to December).

Russell Galley, Managing Director, Halifax, said: "The UK housing market began March with similar trends to previous months, as key market indicators showed a sustained level of buyer and seller activity. Overall average house prices in the month were little changed from February's record high, while annual growth nudged up to 3%. These factors all underlined a positive trajectory and increased momentum in the early part of the year, with confidence rising as political and economic uncertainty eased. However, it's clear we ended the month in very different territory as a result of the country's response to the coronavirus pandemic".

During today 's Asian trading, the US dollar declined against the euro and yen. At the same time, the US dollar rose to the Australian dollar after keeping the Reserve Bank of Australia base rate at 0.25%.

Eurozone finance ministers are due to hold a videoconference on Tuesday to discuss taking concerted economic action in the pandemic. According to an informed source, eurozone countries are close to reaching an agreement. The video conference participants are likely to approve the opening of a 240 billion euro credit line at the expense of the European Stabilization Mechanism (ESM). At the same time, differences remain about the issue of "crown bonds," said one of the sources.

Meanwhile, Japanese Prime Minister Shinzo Abe announced on Monday that a state of emergency would be imposed in seven prefectures COVID-19 Japan, including Tokyo, starting Tuesday, due to the coronavirus, for a period of a month. In addition, the Prime Minister promised to allocate approximately 1 trillion yen to offset the damage caused to the Japanese economy by the coronavirus pandemic.

The Reserve Bank of Australia on Tuesday announced it was keeping the benchmark interest rate at a record low of 0.25%. At the same time, RBA manager Philip Lowe warned that the country is expected to have a "very large economic recession" in the second quarter, and "unemployment will jump to a multi-year high."

The ICE index, which tracks the dollar 's dynamics relative to six currencies (the euro, the Swiss franc, the yen, the Canadian dollar, sterling and the Swedish krona), was down 0.4%.

eFXdata reports that Credit Agricole Research discusses CAD outlook and adopts a cautious bias around current levels.

"The CAD has regained some composure of late on the back of cautious consolidation of global oil prices and after the BoC cut rate by 50bp and launched QE earlier last week...In addition, in the wake of the BoC's easing measures, the rates markets seem to assume that the MPC has hit its effective lower bound in rates. In turn, we think that at least some of the cyclical headwinds for the CAD could start abating from here," CACIB notes.

"Looking ahead, key for the CAD this week will be the outlook for oil as well as Canadian labour market. We believe that it would take further tangible evidence that the oil price outlook is stabilising to see the CAD extend its recent recovery. Moreover, the upcoming releases could highlight the grave impact of the oil price slump and Covid-19 on the Canadian economy and mute any CAD gains for the time being," CACIB adds.

• Epidemic has not yet reached its peak

FXStreet reports that FX Strategists at UOB Group still believe EUR/USD could grind lower in the next weeks, although a test of 2020 low at 1.0635 appears unlikely.

24-hour view: "Our expectation for EUR to 'edge higher towards 1.0860' did not materialize as it traded in a relatively narrow range between 1.0766 and 1.0834 (68 pips), the smallest 1-day range in about 1-1/2 months. The underlying tone has weakened somewhat and this could lead to EUR drifting lower to 1.0750. For today, the next support at 1.0700 is not expected to come into the picture. Resistance is at 1.0835 followed by 1.0870."

Next 1-3 weeks: "There is not much to add to our update from last Friday (03 Apr, spot at 1.0840). As highlighted, while there is room for EUR to weaken further, it is premature to expect a revisit of the March low of 1.0635 (1.0700 is already a strong support). To look at it another way, EUR is under mild downward pressure and could continue to edge lower in the coming days. On the upside, a break above 1.0930 ('strong resistance' level previously at 1.0980) would indicate the mild downward pressure has eased."

According to the report from Federal Statistical Office (Destatis), in February 2020, the coronavirus pandemic did not yet have any notable impact on the production in industry in Germany. The production in industry was up by 0.3% on the previous month on a price, seasonally and calendar adjusted basis. The data do not yet contain the latest figures of the local units in Rheinland-Pfalz but estimates thereof. Economists had expected a 0.9% decrease.

In February 2020, production in industry excluding energy and construction was up by 0.4%. Within industry, the production of intermediate goods increased by 0.8% and the production of consumer goods by 1.8. The production of capital goods showed a decrease by 0.3%. Outside industry, energy production was up by 2.7% in February 2020 and the production in construction decreased by 1.0%.

In January 2020, the corrected figure shows an increase of 3.2% (primary +3.0%) from December 2019.

• CNBC reports that Japanese Prime Minister Shinzo Abe said fiscal spending under Japan's massive stimulus package to tackle fallout from the coronavirus pandemic will total 39 trillion yen ($357 billion), according to a Reuters report.

• The world may never get back to what is considered "normal," White House health advisor Dr. Anthony Fauci said.

• U.K. Prime Minister Boris Johnson was moved to intensive care as his coronavirus symptoms worsened.

• Global cases: At least 1,341,907.

• Global deaths: At least 74,476.

• Most cases reported: United States (366,614), Spain (136,675), Italy (132,547), Germany (102,453), and France (98,959).

EUR/USD

Resistance levels (open interest**, contracts)

$1.0974 (533)

$1.0945 (530)

$1.0921 (484)

Price at time of writing this review: $1.0836

Support levels (open interest**, contracts):

$1.0725 (1813)

$1.0700 (1684)

$1.0670 (1454)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date May, 8 is 61545 contracts (according to data from April, 6) with the maximum number of contracts with strike price $1,0600 (2941);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2534 (206)

$1.2486 (286)

$1.2448 (128)

Price at time of writing this review: $1.2285

Support levels (open interest**, contracts):

$1.2177 (570)

$1.2125 (480)

$1.2063 (595)

Comments:

- Overall open interest on the CALL options with the expiration date May, 8 is 13057 contracts, with the maximum number of contracts with strike price $1,2700 (782);

- Overall open interest on the PUT options with the expiration date May, 8 is 14707 contracts, with the maximum number of contracts with strike price $1,2850 (1073);

- The ratio of PUT/CALL was 1.13 versus 1.15 from the previous trading day according to data from April, 6

* - 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.