CFD Markets News and Forecasts — 07-09-2021

eFXdata reports that analysts at Credit Suisse discuss the technical outlook for EUR/USD and highlight the importance of the 1.1894/1.1910 for near-term directional bias.

"EURUSD strength has stalled as looked for at what we see as ideally tougher resistance at the 38.2% retracement of the May/August fall and July high at 1.1894/1.1910 and we continue to look for this to cap and for the broader risk to turn lower again. Support moves to 1.1833 initially, then the 55-day average and 13-day exponential average at 1.1819/12. Beneath here and then the 1.1793/82 recent lows is needed to suggest the rebound is over and the broader risk has indeed turned lower again with support seen next at 1.1734/26, then 1.1695." 

"Should strength extend above 1.1910 though this would reinforce the broader converging range that has dominated all year with resistance seen next at the 50% retracement at 1.1965, with the key 200 -day average now at 1.2004." 

Commenting on Germany's industrial production data for July, Carsten Brzeski, the Global Head of Macro for ING Research, notes that after a disappointing second quarter, the country's industrial production has finally offered some long-expected signs of life.

"In July, industrial production increased by 1.0% month-on-month, from an upwardly revised -1.0% in June. On the year, industrial production was up by 5.7%. Today’s data finally brought the long-awaited rebound of the German industry but it is far from being a production explosion, stressing that supply chain frictions remain a bigger threat to the German industry than the pandemic."

"Remember that, despite a lifting of restrictions around the world, German industrial production disappointed in the second quarter, dropping every month between April and June. Supply chain frictions such as the blockage in the Suez Canal and semiconductor delivery problems affected key sectors of German industry and more than offset the positive impact from lifted restrictions. Supply chain frictions have not disappeared but at least in July, the pipeline pressure from filled order books and low inventories was simply too strong not to see industrial production surging."

FXStreet reports that economists at TD Securities like EUR/USD upside in the near-term perspective, which should eye a retest of 1.20.

"We expect the European Central Bank (ECB) to announce a reduced pace of Q4 PEPP purchases, partly reflecting easier financial conditions. All other policy levers are likely to be left on hold.”

“Communication risks are high, and Lagarde will want to avoid sounding overly hawkish, instead emphasizing ‘persistence’." 

“This backdrop should reinforce the recent bottom in the EUR/USD, indicating that we're likely to revisit 1.20 rather than 1.15 in the months ahead.”

U.S. stock-index futures traded flat on Tuesday amid lingering concerns about the COVID pandemic and its impact on the global recovery and uncertainty over the Federal Reserve's policy path.

Global Stocks:

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FXStreet reports that Jane Foley, Senior FX Strategist at Rabobank, believes the pound may struggle to reach the year-end forecast of EUR/GBP 0.84.

“Johnson’s strong parliamentary majority suggests that he, and therefore GBP, has a large buffer of protection against political uncertainty. That said, in terms of the extra cost implied by a tax hike, many businesses and consumers may be feeling a lot less protected.”

“This morning, BoE hawks Saunders noted that the UK economy is probably fairly close to pre-pandemic levels. However, he also commented that the recovery has been very uneven. He warned that it might be right to think that rates may go higher in the next year or so. However, even he expects that if the Bank rate were hiked it won‘t be by much. Since Saunders did not sound quite as hawkish as in his speech in late July, his remarks didn’t provide much support for GBP.”

“While we don’t expect much lasting support for the EUR from this week’s ECB meeting, our long held year-end target of EUR/GBP 0.84 could prove to be too big an ask for the pound.”

Netflix (NFLX) target raised to Street-high $780 from $690 at Atlantic Equities

Amgen (AMGN) downgraded to Equal-Weight from Overweight at Morgan Stanley; target $251

Johnson & Johnson (JNJ) downgraded to Equal-Weight from Overweight at Morgan Stanley; target $187

Merck (MRK) downgraded to Equal-Weight from Overweight at Morgan Stanley; target $85

FXStreet reports that UOB Group’s FX Strategists note NZD/USD’s upside is predicted to meet a solid resistance above the 0.7200-mark.

24-hour view: “We expected NZD to ‘consolidate and trade within a 0.7120/0.7170 range’. Our view for consolidation was not wrong even though NZD traded within a narrower range than expected (0.7128/0.7167). The current movement is still viewed as part of a consolidation but the slightly firmed underlying tone suggests a higher trading range of 0.7130/0.7175 range.”

Next 1-3 weeks: “as highlighted, the sharp and rapid rise from last Friday appears to be running ahead of itself and it is left to be seen if the next major resistance at 0.7210 would come into the picture this time round. That said, the current NZD strength that started about 2 weeks ago (see annotations in the chart below) is deemed intact as long as 0.7080 is not breached (no change in ‘strong support’ level from yesterday).”

FXStreet reports that economists at ING continue to expect the USD/CAD pair to slide below the 1.25 level in fall.

“The Canadian economy surprisingly contracted in 2Q, showing a deeper impact of the covid wave. Meanwhile, the snap elections set for 20 September are adding some uncertainty as PM Trudeau’s Liberal Party may not secure a full parliament majority.” 

“Markets are starting to speculate that the BoC will turn more cautious on policy normalisation. We think much will depend on incoming jobs data: should we see a consolidation in employment gains, and adding a 3.7% inflation, we think the BoC will stay on track to end QE by year-end and start hiking in 2H22.”

“Despite less supportive domestic drivers at the moment, we still favour USD/CAD below 1.25 in fall, as CAD retains some rate attractiveness and can benefit from fresh search for carry.”

FXStreet reports that economists at MUFG Bank expect the USD/JPY will continue to gradually decline in light of expectations that yields will remain subdued, the overvalued dollar and swelling US current account deficit, and the yen's recovery from low levels.

“In September, we expect the FOMC meeting will help to support the USD/JPY, but expectations of a slowdown in global economic growth are likely to drive the yen higher. We, therefore, expect the tussle between the dollar and yen to keep USD/JPY movements centered around the 109 level.”

“Economic indicators suggest that the market is increasingly likely to anticipate a slowdown in growth both worldwide and in the US. We expect this would result in expectations that it will be quite sometime before the Fed hikes rates, which is likely to be accompanied by a softening of the dollar.”

“We expect the USD/JPY to weaken slightly toward 109 rather than 110 through to the end of the month.”

“Looking out to October and beyond, the Fed is likely to start tapering in December, but we do not expect this to do much to strengthen the dollar.”

“Tighter supply/demand for dollar funds in money market toward the end of the year has not produced a seasonal boost to the dollar for the last two years in FX market. We therefore still think the most likely scenario is that the USD/JPY will decline gradually as the Fed moves to normalize monetary policy.”

• Sees robust Swiss GDP growth in 2021

FXStreet reports that FX Strategists at UOB Group suggest that USD/CNH still risks further downside in the short-term horizon.

24-hour view: “USD traded within a 6.4382/6.4543 range yesterday, narrower than our expected range of 6.4330/6.4550. The quiet price actions offer no fresh clues and USD could continue to trade sideways. Expected range for today, 6.4400/6.4580.”

Next 1-3 weeks: “As highlighted, USD is still under pressure but the next major support at 6.4200 may not come into the picture so soon. On the upside, a break of 6.4660 (no change in ‘strong resistance’ level) would indicate that the current downward pressure has eased.”

EUR rose against most of its major rivals in the European session on Tuesday, as investors assessed a slew of economic data from the Eurozone and Germany, the region's biggest economy, preparing for the European Central Bank's (ECB) policy meeting later this week.

Eurostat reported that the euro area's GDP rose 2.2% q/q in the second quarter of 2021, compared with a preliminary estimate of 2.0% q/q advance. In y/y terms, the GDP grew 14.3% in the second quarter. This was better than a previously estimated gain of 13.6% and marked the fastest expansion on record. Economists had forecast that both final quarterly and annual rates of the GDP growth would be left unrevised. 

The statistical office of the European Union also announced that the eurozone's employment increased 0.7% q/q in the second quarter and 1.8% y/y. Economists had forecast both readings to remain unrevised compared with the preliminary estimates, showing a 0.5% q/q advance and a 1.8% y/y climb for the second quarter.

Meanwhile, the latest survey from the ZEW economic research institute showed that economic sentiment in the Eurozone weakened sharply in September. The ZEW’s investor sentiment index for the Eurozone plunged 11.6 points to 31.1 points in September. This was the lowest level since April 2020. On a positive note, its indicator for the current economic situation in the Eurozone surged 7.9 points to 22.5 points and its inflation indicator for the region plunged 22.1 points to 20.1 points, pointing to the continuing decline in inflation expectations.  The report also revealed that economic sentiment in Germany dropped for the fourth consecutive month in September, with the corresponding indicator tumbling 13.9 points to 26.5 points in September. This was the lowest reading since March 2020. The assessment of the economic situation in Germany, however, went up 2.6 points to 31.9 points. The current reading of the ZEW indicator of economic sentiment for Germany implies that over the next six months economic growth in Germany will only slightly be higher than its current rate, the report said.

Elsewhere, data from Destatis showed that Germany's industrial production recovered in July after three months of declines. According to the report, German industrial output rose 1.0% m/m in July, recording its first monthly gain in four months. Economists had forecast a 0.9% m/m rise in July. On a y/y basis, industrial production jumped 5.7% in July. Compared with February 2020, the month before COVID-19 restrictions were imposed in Germany, production was still 5.5% lower.

Market participants are preparing for the ECB’s monetary policy meeting on Thursday, at which its policymakers are to review the Bank’s pandemic emergency purchase program (PEPP). 

The ZEW economic research institute reported on Tuesday that its investor sentiment index for Eurozone plunged 11.6 points to 31.1 points in September. This was the lowest level since April 2020.

According to the report, roughly 12.8 percent of respondents expected a deterioration in economic activity, while 43.3 percent forecast no changes and 43.9 percent anticipated an improvement.

At the same time, the ZEW's indicator for the current economic situation in the Eurozone surged 7.9 points to 22.5 points and its inflation indicator for the region plunged 22.1 points to 20.1 points, pointing to the continuing decline in inflation expectations.

The reports also revealed that the ZEW's indicator of economic sentiment for Germany tumbled 13.9 points to 26.5 points in September. This was the lowest reading since March 2020. The assessment of the economic situation in Germany however, went up 2.6 points to 31.9 points. The current reading of the ZEW Indicator of Economic Sentiment for Germany implies that over the next six months economic growth in Germany will only slightly be higher than its current rate, the report said.

“Expectations fell markedly once more in September 2021,” noted ZEW President Professor Achim Wambach. “Although financial market experts expect further improvements of the economic situation over the next six months, the expected magnitude and the dynamics of the improvements have decreased considerably. Global chip shortage in the automobile sector and shortage of building material in the construction sector have caused a significant reduction in profit expectations for these sectors. This may have had a negative effect on economic expectations.”

Eurostat, the statistical office of the European Union (EU), reported on Tuesday its second estimates showed that Eurozone GDP grew by 2.2 percent q-o-q in the second quarter of 2021, compared with a preliminary estimate of 2.0 percent q-o-q advance. In the first quarter of 2021, the GDP fell by 0.3 percent q-o-q.

In y-o-y terms, Eurozone’s economy expanded 14.3 percent in the second quarter compared to +13.6 percent in the previous estimate and -1.3 percent in the prior three-month period. That was the sharpest increase on record.

Economists had forecast that both final quarterly and annual rates of the GDP growth would be left unrevised.

According to the report, household consumption expenditure jumped 3.7 percent q-o-q in the second quarter, while government consumption expenditure increased by 1.2 percent q-o-q and gross fixed capital formation rose 1.1 percent q-o-q.

Among the euro area’s countries, Ireland (+6.3 percent) recorded the sharpest q-o-q rise in GDP, followed by Portugal (+4.9 percent) and Latvia (+4.4 percent). At the same time, Malta (-0.5 percent) posted the biggest decline.

The report also revealed that employment in Eurozone in the second quarter increased by 0.7 percent q-o-q and surged 1.8 percent y-o-y. In the previous quarter, the number of persons employed fell 0.2 percent q-o-q and 1.8 percent y-o-y. Economists had forecast both readings to remain unrevised compared to preliminary estimates, showing a 0.5 percent q-o-q advance and a 1.8 percent y-o-y climb for the second quarter.

The report from Halifax and IHS Markit showed that the house prices in the UK rose 0.7 percent m-o-m to a record of GBP262,954 in August after an unrevised 0.4 percent m-o-m increase in July. That was below economist forecast of a 1.1 percent m-o-m advance.

On a three-month basis, the house prices increased 1.2 percent q-o-q in three months to August, decelerating from 2.4 percent q-o-q in three months to July.

In y-o-y terms, the house prices surged 7.1 percent in August after an unrevised 7.6 percent y-o-y jump in July. This was the smallest annual gain in house prices since March.

“Given the rapid gains seen over the past 12 months, August’s rise was relatively modest and the annual

rate of house price inflation continued to slow, hitting a five-month low of 7.1%,” noted Russell Galley, Managing Director, Halifax. “Much of the impact from the stamp duty holiday has now left the market, as highlighted by the drop in industry transaction numbers compared to a year ago. However, while such Government schemes have provided vital stimulus, there have also been other significant drivers of house price inflation.”

FXStreet reports that FX Strategists at UOB Group still view EUR/USD surpassing the 1.1910 level in the next weeks.

24-hour view: “We highlighted yesterday that “upward momentum has eased somewhat and this coupled with overbought conditions suggests that EUR is unlikely to strengthen much further” and we expected EUR to “trade sideways between 1.1865 and 1.1910”. However, EUR traded within a lower (and narrower) range than expected (1.1854/1.1886). Momentum indicators are mostly neutral and further sideway-trading would not be surprising. Expected range for today, 1.1855/1.1895.”

Next 1-3 weeks: “As highlighted, while overbought shorter-term conditions could lead to a couple of days of consolidation first, a clear break of the major resistance at 1.1910 would not be surprising. That said, the prospect for the current EUR strength to extend to 1.1970 is not high for now.”

FXStreet reports that strategists at Société Générale believe that gold (XAU/USD) needs to erode the $1835 to see further gains.

“A move beyond $1835 can result in an extended bounce towards $1885 and June peak of $1916/1932.”

“First support is at $1790/1780, the 38.2% retracement of the bounce.”

• We no longer need as much stimulus as previously
• Worries that continuing asset purchases when CPI is 4% might cause medium-term inflation expectations to drift higher; this could cause a more severe monetary policy response later
• Says that BoE should ease off the accelerator rather than apply brakes
• Believes UK will not face a persistent inflation problem

AUD fell against most other major currencies in the Asian session on Tuesday after the Reserve Bank of Australia’s (RBA) policymakers signaled that they stand firm with their policy stance set out to taper bond purchases, but postponed any additional taper until at least February 2022.

At the latest meeting, the Reserve Bank of Australia’s (RBA) officials decided to leave the cash rate unchanged at 0.1 percent at its September monetary policy meeting, as widely expected. In addition, they maintained the 3-year bond yields target at 0.1 percent and the bond purchase at the rate of AUD4 billion a week, which, however, was extended until at least February 2022 from November 2021. The RBA’s governor Philip Lowe explained that the Bank’s decision to extend the purchase period until February next year was a response to “the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak”. He also highlighted that the “setback to the economic expansion is expected to be only temporary” and the economy is seen to “be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year.” (As a reminder, the RBA announced in August that it plans to start tapering the bond purchases in early September to AUD4 billion from AUD5 billion and said that the new weekly bond purchases would last till at least mid-November). In addition, the RBA reiterated it would not increase its cash rate until actual inflation is sustainably within the 2-3% target range.

Following the RBA’s policy update, the Australian dollar rose briefly against its major rivals, but then erased all these gains and began slipping.

Meanwhile, more steep declines in AUD were capped by improvement in overall risk sentiment, which was bolstered by better-than-expected trade data out of China. The report from the General Administration of Customs of China (GACC) revealed that the country’s exports jumped 25.6% y/y in August, exceeding economists’ expectations for a 17.1% y/y rise. At the same time, its imports climbed 33.1% y/y last month, also beating economists’ forecast for a 26.8% y/y increase. As a result, China recorded a trade surplus of $58.34 billion in August, compared to an upwardly revised surplus of $56.59 billion in July and $57.25 billion in August 2020. This was the largest trade surplus since January. Economists had expected a trade surplus of $51.05 billion in August. China is Australia's largest trading partner.

The Federal Statistical Office (Destatis) reported on Tuesday that Germany’s industrial production rose 1.0 percent m-o-m in July after a revised 1.0 percent m-o-m decrease in the prior month (primary a decline of 1.3 percent m-o-m).

Economists had forecast a 0.9 percent m-o-m rise in July.

Compared with February 2020, the month before COVID-19 restrictions were imposed in Germany, production was 5.5 percent lower.

According to the report, the major contributors to the July increase were gains in production of capital goods (+3.2 percent m-o-m) and consumer goods (+0.6 percent m-o-m) as well as construction output (+1.1 percent m-o-m). At the same time, production of intermediate goods (-0.5 percent m-o-m) and energy (-3.2 percent m-o-m) recorded declines.

Excluding energy and construction, production in the industry was up 1.3 percent m-o-m in July.

In y-o-y terms, industrial production rose 5.7 percent in July.

The State Secretariat for Economic Affairs (SECO) revealed Tuesday that Switzerland's seasonally unadjusted unemployment rate fell to 2.7 percent in August from 2.8 percent in July. This was the lowest rate since February 2020. Economists had forecast the reading to stay at 2.8 percent.

According to the report, the number of unemployed decreased by 1,924 persons m-o-m (or -1.5 percent m-o-m) to 126,355 at the end of August. Compared to August 2020, the number of unemployed people fell by 24,756 (or -16.4 percent y-o-y).

On an adjusted basis, the unemployment rate declined to 2.9 percent in August from 3.0 percent in the previous month. 

The Ministry of Internal Affairs and Communications announced on Tuesday that the Japanese household spending increased 0.7 percent y-o-y in July, following a 5.1 percent y-o-y drop in June.

Economists had expected household spending to rise 2.9 percent y-o-y in July.

According to the report, spending increased for transportation & communication (+14.2 percent y-o-y), apparel (+2.7 percent y-o-y), food (+1.9 percent y-o-y), and culture & recreation (+1.7 percent y-o-y), but reduced for education (-9.9 percent y-o-y), furniture & household utensils (-8.4 percent y-o-y), medical care (-7.0 percent y-o-y), utilities (-5.9 percent y-o-y), and housing (-1.7 percent y-o-y).

In m-o-m terms, household spending fell 0.9 percent in July after a 3.2 percent drop in June. Economists had predicted a 1.1 percent m-o-m gain in the Japanese household spending for July.

The report from the General Administration of Customs of China (GACC) revealed Tuesday the Chinese trade surplus expanded in August from July as well as compared with a year-ago surplus.

According to the report, China’s exports surged 25.6 percent y-o-y in August to $294.32 billion compared to a 19.3 percent increase in the prior month and economists’ forecast of a 17.1 percent gain.

Meanwhile, the country’s imports jumped 33.1 percent y-o-y last month to $235.98 billion after a 28.1 percent climb in July, while economists had forecast a 26.8 percent rise.

These trade flows produced a trade surplus of $58.34 billion in August, compared to a revised surplus of $56.59 billion in July (originally a surplus of $56.58) and $57.25 billion in August 2020. This was the largest trade surplus since January. Economists had expected a trade surplus of $51.05 billion in August.

The Reserve Bank of Australia (RBA) decided to leave the cash rate unchanged at 0.1 percent at its September monetary policy meeting. The move was widely expected by the markets. In addition, the 3-year bond yields target was maintained at 0.1 percent, while the bond purchases at $4 billion a week were extended until at least February 2022.

In a statement on the RBA's latest policy decision, its governor Philip Lowe noted:

• Recovery in Australian economy has been interrupted by Delta outbreak and the associated restrictions on activity;
• GDP is expected to decline materially in the September quarter and unemployment rate will move higher over coming months;
• This setback to economic expansion is expected to be only temporary; Delta outbreak is expected to delay, but not derail, recovery;
• There is, however, uncertainty about timing and pace of this bounce-back and it is likely to be slower than that earlier in the year… In our central scenario, economy will be growing again in December quarter and is expected to be back around its pre-Delta path in H2 2022;
• Board's decision to extend bond purchases at $4 billion a week until at least February 2022 reflects delay in economic recovery and increased uncertainty associated with Delta outbreak;
• Board will continue to review bond purchase program in light of economic conditions and health situation, and their implications for the expected progress towards full employment and the inflation target;
• Board is committed to maintaining highly supportive monetary conditions to achieve return to full employment in Australia and inflation consistent with target. It will not increase cash rate until actual inflation is sustainably within the 2-3% target range;
• Central scenario for economy is that this condition will not be met before 2024. Meeting this condition will require labour market to be tight enough to generate wages growth that is materially higher than it is currently