CFD Markets News and Forecasts — 07-07-2021

eFXdata reports that analysts at MUFG Research discuss their expectations for today's FOMC minutes from the June meeting.

"The FOMC this evening provides another reason for caution on selling the US dollar from here. There will be a number of aspects market participants will be looking at in this evening’s minutes related to tapering timing; the DOTs profile and perhaps the reasoning for the 5bp tweak in the RRF."

"The RRP usage is a function of the scale of liquidity and yields across the curve have been declining. Yes, the federal funds rate has increased from 0.06% to 0.10% but that’s what you would expect. Still, the FOMC minutes this evening will be closely looked at for any information surrounding the decision to raise the RRF rate by 5bps to 0.05%."

The Ivey Business School Purchasing Managers Index (PMI), measuring Canada’s economic activity, rose to 71.9 in June from 64.7 in May. This was the highest reading since March.

A reading above 50 signals expansion, while a reading below 50 indicates contraction.

Within sub-indexes, the employment measure rose to 69.6 in June from 67.0 in the previous month, while the prices index increased to 79.4 from 78.6 and the inventories indicator edged up to 65.4 from 65.3. In addition, the supplier deliveries gauge improved to 37.9 in June from 34.8 in May.

The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department on Wednesday revealed a 0.2 percent m-o-m gain in the U.S. job openings in May after a revised 10.9 percent m-o-m climb in April (originally a 12.0 percent m-o-m jump).

According to the report, employers posted 9.209 million job openings in May compared to the April figure of 9.193 million (revised from 9.286 million in the original estimate) and economists’ expectations of 9.388 million. The job openings rate was 6.0 percent in May, unchanged from the previous month. The report showed that the job openings rose in other services (+109,000), state and local government education (+46,000), and educational services (+35,000), but fell in arts, entertainment, and recreation (-80,000); state and local government, excluding education (-56,000); and federal government (-17,000).

Meanwhile, the number of hires decreased 1.4 percent m-o-m to 5.927 million in May from a revised 6.012 million in April (originally 6.075 million). The hiring rate was 4.1 percent in May, slightly down from an unrevised 4.2 percent in the prior month. Hires went dropped in state and local government, excluding education (-56,000) and in federal government (-10,000).

The separation rate in May was 5.318 million or 3.7 percent, compared to 5.803 million or 4.0 percent in April. Within separations, the quits rate was 2.5 percent (-0.3 p.p. m-o-m), and the layoffs rate was 0.9 percent (-0.1 p.p. m-o-m).

• Timely use of RRR cuts will support real economy
• We will not resort to flood-like stimulus
• We will keep monetary policy stable, increase policy effectiveness

U.S. stock-index futures rose on Wednesday, as the growth stocks continued to benefit from a decrease in long-term U.S. Treasury yields, while investors awaited the release of the minutes from the last Federal Reserve’s policy meeting later today. 

Global Stocks:

FXStreet notes that gold (XAU/USD) has again held key in-range support at $1765/55. Strategists at Credit Suisse look for a fresh swing higher in the range.

“Gold has again held price support at $1765/55, and we look for strength back to the 200-day average at $1829. A close above here is needed to open the door to a move back to more important resistance at $1940/66.”

“A close below $1755/51 would warn of a retest of more important support at $1682/71.”

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

Bank of America (BAC) assumed with a Mkt Perform at Keefe Bruyette; target $40

Citigroup (C) assumed with an Outperform at Keefe Bruyette; target $85

Goldman Sachs (GS) assumed with a Mkt Perform at Keefe Bruyette; target $391

JPMorgan Chase (JPM) assumed with a Mkt Perform at Keefe Bruyette; target $167

Morgan Stanley (MS) assumed with an Outperform at Keefe Bruyette; target $115

According to The Wall Street Journal (WSJ), behind the standoff inside OPEC over whether to increase the oil production is the United Arab Emirates (U.A.E.), a key cartel member, with its new strategy: sell as much crude as possible before demand dries up.

The new strategy of the U.A.E., as described by officials familiar with the matter, represents one of the most significant shifts in oil policy by a major Mideast petrostate. For years, the region’s oil-producing governments have said they aren’t worried about finding crude buyers far into the future, the WSJ notes. The U.A.E. holds some of the world’s largest untapped crude reserves.

“This is the time to maximize the value of the country’s hydrocarbon resources, while they have value,” told WSJ a person briefed on the U.A.E.’s new strategy. “The aim of the investment is to generate revenue for the diversification of the economy, both for investment in new energy and, as importantly, in new revenue streams.”

According to people familiar with the new tack, the country wants to pump and sell as much as it can now, when demand and prices are strong. Proceeds will help it wean its economy off oil.

FXStreet notes that EUR/USD looks oversold. Nonetheless, economists at TD Securities are skeptical that the downside should be faded with the 100 and 200-day moving average crossover near.

“Last week, we had thought we may have marked a near-term low last week ahead of NFP, but this now looks to be in a bit of trouble, particularly as the 100 and 200-DMA crossover is at risk of emerging in the coming days. Historically, the crossover has been a solid technical barometer for the pair that foreshadows future momentum.” 

“The last time the 100-DMA crossed below the 200-DMA was in July 2018 when the pair essentially ground from ~1.20 to ~1.08 in 2020. Over the last 15 years, the crossover has occurred 15 times; 12 of those have produced notable gains/losses.” 

“We are cognizant that other technical indicators suggest that the pair is a bit oversold near 1.18, but with positioning where it is and summer liquidity potentially at play, we require a bit more convincing that dips should be faded.”

EUR weakened against most of its major rivals in the European session on Wednesday, as a set of disappointing data out of Germany, the Eurozone’s biggest economy, raised worries about the strength of the region’s recovery.

The ZEW economic research institute reported on Tuesday that its closely-watched investor sentiment index plunged 16.5 points to 63.3 in July. This was the lowest level since January, but continued to indicate that “the overall economic situation to be extraordinarily positive in the coming six months”. Economists had expected the indicator to decrease only to 75.2.  

The report from the Federal Statistical Office (Destatis) showed an unexpected decrease in Germany's industrial production in May, as the supply bottlenecks continued to weigh on the automotive sector. According to the report, German industrial output dropped by 0.3% m/m in May, the same pace as in April. Economists had expected a 0.5% m/m gain. On a yearly basis, industrial production grew by 17.3%, decelerating from a record 27.6% increase in April, reflecting both the low base effect and the consolidation of the economic recovery from the pandemic hit.

• It is essential that U.S. and other countries with accelerating recoveries avoid overreacting to transitory inflation pressures
• Higher U.S. interest rates could lead to sharp tightening of global financial conditions, significant capital outflows from emerging economies
• Monetary policy should remain accommodative in most economies and only tighten where inflationary pressures are high and expectations not firmly anchored
• There is risk of more sustained rise in U.S. inflation or inflation expectations; this situation could require sooner-than-expected policy tightening in U.S.

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. fell 1.8 percent in the week ended July 2, following a 6.9 percent plunge in the previous week. This marked the second straight weekly decrease in total mortgage application volume.

According to the report, refinance applications declined 2.3 percent, while applications to purchase a home dropped 1.1 percent.

Meanwhile, the average fixed 30-year mortgage rate decreased from 3.20 percent to 3.15 percent, the lowest in three weeks.

“Swift home-price growth across much of the country, driven by insufficient housing supply, is weighing on the purchase market and is pushing average loan amounts higher,” noted Joel Kan, MBA’s associate vice president of economic and industry forecasting.

FXStreet reports that the Credit Suisse analyst team notes that EUR/USD remains on course to test pivotal support from the lower end of its broad range, seen starting at 1.1769 and stretching down to 1.1703/1.1695.

“EUR/USD continues to fall sharply following its rejection from ahead of 1.2350 and break of its 200-day average and is on course to test the lower end of its broad range, seen starting at 1.1769 and stretching down to 1.1703/1.1695. Our bias remains to look for a fresh floor here and swing higher in the range.” 

“A close below 1.1695 though would mark an important top and change of trend lower, with support then seen next at 1.1612/04, then the key March 2020 high at 1.1495.”

FXStreet notes that gold (XAU/USD) has seen recovery just ahead of the 2019-2021 uptrend line at $1739. While underpinned here, the bias of analysts at Commerzbank is bullish.

“Gold has bounced ahead of the $1739 2019-2021 uptrend line. While above there we will retain our longer-term upside bias.” 

“Rallies will find initial resistance offered by the 200-day ma at $1829 and the $1857.25 4th June low. This guards the June high at $1916.91 and Fibo at $1921.” 

“Longer-term we still target the $1959/65 November 2020 high and the 2021 high. These guard the $1989/78.6% retracement and the $2072 2020 peak."

FXStreet reports that FX Strategists at UOB Group suggest that further upside in USD/CNH could test the 6.4900 region in the short-term horizon.

24-hour view; “Yesterday, we held the view that USD ‘could dip towards 6.4560 first before a rebound can be expected’. USD subsequently dipped to 6.4585 before rebounding strongly to 6.4855. The rebound has gathered momentum and USD is likely to strengthen further. However, the chance for a clear break of 6.4900 is not high (next resistance is at 6.4945). Support is at 6.4750 followed by 6.4700.”

Next 1-3 weeks: “Shorter-term upward momentum has improved and from here, USD is expected to trade with an upward bias towards 6.4900. A break of this level is not ruled out but any further advance is expected to encounter solid resistance at 6.4950. Overall, only a breach of 6.4640 would indicate that the current upward pressure has eased.”

Reuters reports that German Finance Minister Olaf Scholz said he does not expect hurdles to moving ahead with a planned global tax reform at a G20 meeting in Venice this weekend.

"Everything will happen very quickly now. The goal is very ambitious: we want to have everything ready already so that it becomes international practice in 2023," Scholz added.

Last week, 130 countries, representing more than 90% of global GDP, backed the biggest changes to cross-border corporate tax in more than a generation with new rules on where companies are taxed and a tax rate of at least 15%.

The package goes to G20 finance ministers next to give political endorsement at a meeting on Friday and Saturday in Venice. 

"We are talking about a lot of additional money for Europe and for Germany," Scholz said. "It's really about billions," he added, without giving exact figures.

"Then the main thing is to make sure we end the practice of tax avoidance that has crept in over the last years and decades," he said. "We will put an end to that. The tax-cutting race will come to an end."

"I am convinced that in the end we will manage to get European countries to all agree on these rules together," Scholz said. "From my point of view, they would apply in any case."

Scholz described the global minimum tax as a breakthrough and the biggest reform in decades.

FXStreet reports that the Credit Suisse analyst team discusses USD/CAD prospects.

“USD/CAD surged higher on Tuesday, breaking above minor resistance at 1.2451 to increase the risk of a larger basing structure. So far, the pair is once again stalling at key resistance at 1.2487/2514, which also capped the market back in June.” 

“With daily MACD staying outright bullish and the market maintaining its break above the 55-day average though, we look for a break above here to open up a move to the major cluster of resistances at 1.2639/56, which includes the 200-day average, a long term retracement level and a cluster of price highs. It’s worth highlighting that a break above here would complete a major base to turn the broader risks higher.”

Reuters reports that the European Commission revised upward its estimates for euro zone growth this year and next, but warned against risks posed by new variants of the coronavirus that should be contained to avoid new restrictions.

The EU Commission predicted the euro zone will grow by 4.8% this year, much faster than the 4.3% growth it had forecast in May.

The large revision is largely due to the reopening of the bloc's national economies in the second quarter which benefited the services sector and is expected to boost tourism within the EU, the Commission said.

The rebound from the economic crisis caused by the pandemic is projected to continue next year, when the euro zone is forecast to grow by 4.5%, more than the 4.4% expansion estimated in May.

The Commission warned however that risks about the outlook remained high, although they were seen as balanced.

It urged the further stepping up of the vaccination campaign to contain threats posed by the spread and emergence of variants of the coronavirus, and in particular by the more transmissible Delta variant. 

Inflation, which has become one of the main concerns for economists as global economic growth accelerates, is projected to reach 1.9% this year in the euro zone, up from the 1.7% the Commission estimated in May. Next year, it is expected to slow to 1.4%.

According to the report from Istat, in May 2021 estimates for seasonally adjusted index of retail trade slightly increased by 0.2% in value terms, likewise volume rose by 0.4% in the month on month series. Despite the growth, in May 2021 total retail sales levels for both value and volume were still lower than pre-pandemic levels of February 2020.

In the three months to May 2021 value of sales increased by 3.3% when compared with the previous three-month period, while volume was up 3.5%.

Year on year, value of retail trade continued its growth, increasing by 13.3% and volume sales grew by 14.1% comparing to May 2020, when non-essential retail stores were partially closed due to pandemic restrictions.

In May 2021, all channels of distribution increased when compared with May 2020. Large-scale distribution was up 8.3%, small-scale distribution grew by 19.5% and non-store retail sales rose by 19.4%.

In May 2021, year on year online sales showed the slowest growth since November 2019, rising by +7.2%. This slowdown in growth rate is ascribable to the extraordinary high growth of sales seen in May 2020, when the Covid-19 crisis first set off the surge in online sales. However internet sales remained significantly higher than pre-pandemic levels in May 2021.

FXStreet reports that strategists at Credit Suisse discuss Brent Oil prospects.

“Brent Oil completed a bullish ‘triangle’ continuation pattern in Q2, which had been forming since March as well as breaking the key 2019 and 2020 highs at $71.75/95, hence reinforcing the existing bull ‘flag’ whilst also suggesting we are seeing a much larger, longer-term base.” 

“We stay bullish with resistance seen next at our original bull ‘flag’ target at $79.10, then the aforementioned ‘measured triangle objective’ at $82.50.”

“Bigger picture, above $82.50 can expose the 2018 high at even more distant $86.74 next, which we expect to cap the market at least temporarily.”

CNBC reports that a JPMorgan economist said that public spending from the federal and state governments likely hold the key to jumpstarting India’s post-Covid growth instead of consumption.

“We have been through two waves. There has been some scarring at the bottom of the pyramid,” Sajjid Chinoy, chief India economist at the U.S. investment bank, told.

Certain sections of the economy thrived despite the Covid crisis while others suffered. 

“We have got to be realistic — that given where the labor market is — that precautionary savings may rise for sometime and people might be a little bit more reluctant to spending aggressively,” Chinoy said, adding the slowdown in consumption, which has been India’s traditional growth driver, started before the pandemic.

In its federal budget for the current fiscal year that began on April 1 and ends in March 2022, India’s federal government earmarked trillions of rupees to spend on roads, highways, railways and other capital expenditure.

Likewise, state governments have also planned to ramp up spending this year, which Chinoy said is the right approach to getting growth back on track.

“I am not sure India can necessarily rely on stronger consumption growth or stronger investment growth coming out of the second wave,” he said, pointing out that many households have struggled through the crisis and saw their balance sheets scarred. Investment is also expected to remain sluggish in the absence of demand.

“So, the government spending — and in particular public investment, and capital expenditure — would have to be the key to the revival in the coming months,” Chinoy said, adding it’s important that in the next six months “those capital expenditure budgets get spent to jumpstart growth.”

FXStreet reports that strategists at DBS Bank look beyond gold’s near-term volatility and recommend including the yellow metal as a risk diversifier in portfolio.

“At the current prices, we believe the risk-reward is favourable as gold prices trade toward our year-end target price of $2,000 per ounce. Based on our quantitative model, gold price fair value should be around $1,910-2,048 when US 10Y bond yields are around 1.4-1.8% and the US Dollar Index (DXY) around 90- 95.”

“We believe the ride is going to be bumpy leading up to August before the Jackson Hole symposium when Fed chairman Jerome Powell will testify on the state of the US economy and outlook on monetary policies; there will be more clarity then.”

“Investors should look beyond this near-term volatility and continue to include gold as a risk diversifier in their portfolio. Central banks around the world are demanding gold as an alternative to USD, and with interest rates at such low levels, the opportunity costs of holding gold are almost non-existent.”

Reuters reports that results of a UBS survey showed that inflation has emerged as one of the top concerns for central bank reserve managers, alongside a failure to end the COVID-19 crisis and soaring debt levels.

Fears about inflation and uncontrolled rises in long-term yields, a risk not flagged by participants at all in last year’s Annual Reserve Manager Survey, were raised by 57% of respondents this year as a main risk to the global economy.

Failure to end the pandemic was cited as a worry by 79% of respondents, with 71% flagging government debt levels.

Reflecting angst about the gravity of COVID-19, half of participants in the survey believe the virus will be over only after 2022.

“Inflation is back at the top of concerns for central bankers,” Massimiliano Castelli, UBS’s head of strategy and advice, global sovereign markets, told.

“The majority is saying they expect a rise, but not sort of moving to very high levels of inflation. So it seems there is a sort of view among the central banking community that the current rising inflation that we are experiencing is transitory.”

During today's Asian trading, the US dollar was trading steadily against major currencies.

The market is focused on the minutes of the Federal Reserve System (Fed) meeting from June 15-16, which will be published this evening.

The Fed kept the base interest rate in the range of 0-0. 25% per annum at the end of the June meeting. The Fed also confirmed that it will continue to buy back assets totaling $120 billion every month "until significant progress is made towards the goals of maximum employment and price stability."

At the same time, Fed Chairman Jerome Powell said during a press conference following the meeting that the leaders of the Fed began to discuss a possible reduction in the asset repurchase program. These words were perceived by investors as a "hawkish" signal. A more" hawkish " tone of the FOMC meeting minutes may support the dollar, analysts say.

The June statistics on the US labor market, published last week, turned out to be ambiguous. The ISM index of business activity in the US services sector in June fell to 60.1 points from a record 64 points in May, according to data from the Institute for Supply Management (ISM), published on Tuesday. Experts expected the index to decline to 63.5 points.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell by 0.02%.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1951 (3154)

$1.1906 (589)

$1.1870 (395)

Price at time of writing this review: $1.1822

Support levels (open interest**, contracts):

$1.1789 (1264)

$1.1746 (1244)

$1.1698 (1453)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date July, 6 is 56191 contracts (according to data from July, 9) with the maximum number of contracts with strike price $1,1650 (3607);

GBP/USD

$1.4000 (1437)

$1.3951 (570)

$1.3905 (402)

Price at time of writing this review: $1.3807

Support levels (open interest**, contracts):

$1.3765 (881)

$1.3734 (722)

$1.3693 (585)

Comments:

- Overall open interest on the CALL options with the expiration date July, 9 is 17145 contracts, with the maximum number of contracts with strike price $1,4500 (3570);

- Overall open interest on the PUT options with the expiration date July, 9 is 16505 contracts, with the maximum number of contracts with strike price $1,4000 (2929);

- The ratio of PUT/CALL was 0.96 versus 1.00 from the previous trading day according to data from July, 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.

According to the report from Halifax Bank of Scotland, the average UK house price slipped by -0.5% in June, the first monthly fall since January. As a result annual house price inflation also eased back slightly from May’s 14-year high of +9.6% to stand at +8.8% in June. Average UK property price now £260,358.

Russell Galley, Managing Director, Halifax, said: "It is important to put such a moderate decrease in context, with average prices still more than £21,000 higher than this time last year, following a broadly unprecedented period of gains. With the stamp duty holiday now being phased out, it’s was predicted the market might start to lose some steam entering the latter half of the year, and it’s unlikely that those with mortgages approved in the early months of summer expected to benefit from the maximum tax break, given the time needed to complete transactions. That said, with the tapered approach, those purchasing at the current average price of £260,358 would still only pay about £500 in stamp duty at today’s rates, increasing to around £3,000 when things return to normal from the start of October. We would still expect annual growth to have slowed somewhat more by the end of the year, with unemployment expected to edge higher as job support measures unwind, and the peak of buyer demand now likely to have passed.”

According to provisional data of the Federal Statistical Office (Destatis), in May 2021, production in industry was down by 0.3% on the previous month on a price, seasonally and calendar adjusted. Economists had expected a 0.5% increase. 

The increase in calendar adjusted production in industry amounted to 17.3%, compared with May 2020 when large parts of industry had markedly reduced production as a consequence of the coronavirus pandemic. Compared with February 2020, the month before restrictions were imposed due to the corona pandemic in Germany, production in May 2021 was 5.0% lower in seasonally and calendar adjusted terms.

In May 2021, production in industry excluding energy and construction was down by 0.5%. Within industry, the production of consumer goods showed an increase of 4.1% and the production of intermediate goods of 0.6%. The production of capital goods decreased by 3.4%. Outside industry, energy production was down by 2.1% in May 2021 and the production in construction increased by 1.3%.

In April 2021, the corrected figure on the production in industry showed a decrease of 0.3% (provisional: -1.0%) from March 2021.