CFD Markets News and Forecasts — 07-10-2021

FXStreet reports that Karen Jones, Head of FICC Technical Analysis at Commerzbank, sees the 0.8471/49 band holding the downside in EUR/GBP for the time being.

“EUR/GBP is under pressure near term following last week’s failure just ahead of .8671, the July 2021 high. The market has reacted back to key support at .8505/00, the lows from mid-July, and these are exposed and failure here will target key support is .8471/49, the recent low and lows since 2019. We again look for these to hold the downside.”

eFXdata reports that analysts at Citi flag a scope for a negative surprise from the NFP September print on Friday.

"Risks are asymmetrically skewed for a weaker NFP print on Friday. Should there be a negative print, the Fed’s taper timeline needs to be reconsidered, which is likely to drive an unwinding of some recent US fixed income shorts and USD longs."

"The markets are not pricing in much risk of a volatile Friday; therefore, short-dated USD/JPY puts look cheap."

The Ivey Business School Purchasing Managers Index (PMI), measuring Canada’s economic activity, rose to 70.4 in September from 66.0 in August. This was the highest reading since June.

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

Within sub-indexes, the prices index increased to 79.1 in September from 69.7 in the previous month, while the supplier deliveries gauge increased to 36.5 from 34.2 but still remained in contraction territory. At the same time, the employment measure fell to 63.7 from 66.9, and the inventories indicator dropped to 57.7 from 60.3.

• Current rise can largely be attributed to temporary factors
• Overreacting to such factors could be harmful
• There's some uncertainty as to how persistent some of the factors could be
• It's premature to assume prices will entirely subside next year
• Chances are high that above-target inflation will fall back
• Reopening has pushed up services inflation
• Supply chain disruptions could be a more durable effect on prices
• Pandemic may have altered behaviour

U.S. stock-index futures gained on Thursday amid eased worries about the U.S. debt-ceiling and higher inflation.

Global Stocks:

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

Bank of America (BAC) downgraded to Peer Perform from Outperform at Wolfe Research

AT&T (T) upgraded to Neutral from Sell at MoffettNathanson; target raised to $28

The data from the Labor Department showed on Thursday the number of applications for unemployment declined more than forecast last week.

According to the report, the initial claims for unemployment benefits decreased by 38,000 to 326,000 for the week ended October 2. This was the lowest reading since the week ended September 4.

Economists had expected 348,000 new claims last week.

Claims for the prior week were revised upwardly to 364,000 from the initial estimate of 362,000.

Meanwhile, the four-week moving average of jobless claims increased to 344,000 from an upwardly revised 340,500 in the previous week.

As for continuing claims, they fell to 2,714,000 from an upwardly revised 2,811,000 in the previous week. This was the lowest reading since March 2020.

The ECB released account of its September 8-9 monetary policy meeting. It noted that:

• As for assessment of inflation outlook, significant improvement over the course of the year was acknowledged
• It was noted that near-term increase in inflation was largely driven by temporary factors that would fade in medium term and not call for policy tightening
• According to September ECB staff projections, inflation was not expected to persistently reach levels that fully offset the pandemic impact on inflation path at relevant medium-term horizon
• Members agreed that persistently favourable financing conditions along with somewhat improved medium-term outlook for inflation would allow the Governing Council to moderately scale down the pace of purchases under the PEPP while confirming all other monetary policy measures
• A concern was expressed that slower pace might induce market perceptions of tighter than expected monetary policy, which could result in tightening of financing conditions
• An argument was made that markets were already expecting end to net asset purchases under PEPP by March 2022
• The point was made that, even without PEPP, overall monetary policy stance remained highly accommodative
• A view was expressed, however, that perception of premature removal of accommodation could raise questions on the Governing Council’s determination to deliver on its inflation target
• Attention was also drawn to the Governing Council’s efforts to be more transparent and to communicate better with the general public; it was suggested that more information be provided in official communication about reasoning behind the APP, the PEPP and related policy decisions

USD weakened against most of its major counterparts in the European session on Thursday, as demand for safe-haven currencies reduced as worries about the U.S. debt-ceiling and energy-induced inflation eased.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, decreased 0.17% to 94.11.

Risk sentiment picked up, following the news of a potential concession on the U.S. debt ceiling, which came late Wednesday. Senate Republican leader Mitch McConnell offered a short-term suspension proposal to Senate Democrats. They were likely to accept the deal that would temporarily raise the U.S. debt ceiling “at a fixed dollar amount” and allow the government to keep operating until some point in December. This will allow the U.S. to avoid a historic default later this month. According to the estimates of the U.S. Treasury Secretary Janet Yellen, the government is to run out of money on October 18, and will not be able to service its existing debts, if Congress does not suspend or raise the debt ceiling. 

Meanwhile, energy prices retreated from multi-year highs, calming worries of higher inflation.

FXStreet reports that Karen Jones, Head of FICC Technical Analysis at Commerzbank, still favours further downside in Cable in light of the recent price action.

“GBP/USD has not maintained the break of the 1.3515/04 January 2009 low and 2019 peak – it is not clear if this was a premature break or a false break, but intraday Elliott wave counts remain negative and for now we will favour the downside. Initial resistance is 1.3752, the 23rd September high and the 55-day ma at 1.3758 and the 1.3914 mid-September high.”

“Currently while capped by 1.3914 we will maintain a negative bias and allow for scope to the 200-week ma at 1.3161.”

FXStreet reports that FX Strategists at UOB Group see USD/CNH is now sticking to the 6.4240/6.4800 range in the next weeks.

24-hour view: “USD popped to a high of 6.4704 before dropping back down to end the day slightly higher at 6.4550 (+0.09%). The relatively choppy price actions have resulted in a mixed outlook. For today, USD could trade between 6.4460 and 6.4660.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (06 Oct, spot at 6.4500). As highlighted, the recent downside risk has dissipated and USD is likely to trade between 6.4240 and 6.4800 for a period of time.”

• Bets that ECB’s first hike will happen around mid-2023 “are not in accordance with our forward guidance”
• ECB will try to avoid any disruption after the end of its EUR 1.85 trillion emergency debt-buying program
• Asset purchases aim at favorable financing conditions, at smooth transition of monetary policy to prevent any kind of fragmentation in jurisdictions in euro area; I’m sure that Governing Council will continue to aim at this
• ECB will review policy alternatives in December
• Inflation forecasts are lower for eurozone than in U.S. and in UK; it’s natural that we’re in different phase of monetary policy
• I will not rush to say that we have stagflation now
• ECB's forecasts point to inflation slowdown to below its 2% target next year

• Negative interest rates are both feasible and likely to ease monetary conditions
• I do expect interest rates to remain at relatively low levels for the coming years, even as impact of the COVID-19 pandemic recede
• Balance of risks is currently shifting towards great concerns about inflation outlook
• I would emphasise that risks to the economic and inflation outlook are again clearly becoming two-sided
• Current strength of inflation looks set to prove more long-lasting than originally anticipated

According to the report from Istat, in August 2021 estimates for seasonally adjusted index of retail trade rose in the month on month series by 0.4% both in value and in volume terms. Economists had expected a 0.2% increase.

In the three months to August 2021 value of sales was up 0.8% when compared with the previous three-month period, likewise volume increased by 0.5%.

In August 2021 both value and volume of retail trade continued to grow for the 6th month in a row in the year on year series. Value sales increased by 1.9% and volume sales rose by 1.0% comparing to August 2020.

Online sales increased by 20.7% in August 2021 when compared with August 2020.

Looking at the value of sales for non-food products, all sectors experienced growth besides tools (-2.2%), furniture, textile items and household furnishing (-0.2%) and clothing (0.0%). The largest increases were reported for electric household appliances, audio-video equipment (+20.5%) and other goods (+8.2%).

eFXdata reports that Citi discusses AUD/NZD outlook.

"AUDNZD does not have a significant correlation to the long-term interest-rate spread either over the long term, but similarly to AUDUSD, the correlation has recovered recently. The recent rebound by AUDNZD is consistent with the small contraction in the yield spread. However, given the difference in the stances towards the normalization of monetary policy between the RBA and the RBNZ, the yield differential will likely begin to widen again. We expect a rebound in AUDNZD to hit resistance at the February low of around 1.055," Citi adds. 

FXStreet reports that Tai Hui, Chief Asia market strategist at JP Morgan Asset Management, discusses US dollar prospects.

"The market in the near term is going to focus on the fact that we expect US Treasury yields to keep rising on the back of the Fed's tapering of QE and also the ongoing recovery in the US economy" 

"Treasury yields are not going to rise indefinitely. At some point, they're going to stabilize and I think that's when the dollar is going to face a bit more downward pressure and that's why we are still expecting the dollar to get weaker."

Reuters reports that data from the central bank's State Administration of Foreign Exchange showed that China's foreign exchange reserves fell almost 1% in September from the previous month, as the dollar gained ground against a basket of other major currencies.

The country's foreign exchange reserves - the world's largest - stood at $3.201 trillion at the end of September. That was lower than the $3.225 trillion forecast and down from $3.232 trillion at the end of August.

The $31.5 billion month-on-month decline was the steepest since March.

The dollar index climbed 1.7% in September, making the value of assets in other major currencies lower in dollar terms.

Bloomberg reports that according to S&P Global Ratings, global debt levels could reach about 260% of gross domestic product by year-end, though low interest rates mean the ability to service it will be manageable.

The pile-on of debt was necessary given policy responses during the pandemic, Vera Chaplin, the credit ratings agency’s managing director and lead analytical manager, said. Higher leverage and weakened credit metrics amid the recovery will probably trigger more defaults, she added.  

Chaplin said the recovery won’t be complete until vaccinations are widespread enough to make people more comfortable to move about, and that the pandemic hasn’t wrecked the “Asian century.”

Bruce Gosper, a vice president at the Asian Development Bank, agreed the region’s recovery is underway and trade continues to rebound. Poverty reduction, however, has “more or less stalled across the region” and small businesses are still disproportionately struggling, he said.

Reuters reports that the United Nations food agency said that world food prices rose for a second consecutive month in September, driven by increases in cereals and vegetable oils, to remain about a third above their level a year ago.

FAO also raised slightly its projection of global cereal production in 2021, to 2.800 billion tonnes from 2.788 billion tonnes estimated a month ago.

FAO's food price index, which tracks international prices of the most globally traded food commodities, averaged 130.0 points last month compared with a revised 128.5 for August. On a year-on-year basis, prices were up 32.8% in September.

Agricultural commodity prices have risen steeply in the past year, fuelled by harvest setbacks and Chinese-fuelled demand.

CNBC reports that with inflation fears persisting and the economic cycle maturing, Barclays sees a period of higher volatility and lower returns for European stock markets.

However, analysts at the British lender still find equities more attractive than bonds, and has recommended that investors should look to buy the dip.

In an October strategy update, Barclays European equity analysts cautioned that inflation is “sticky,” the economic cycle is maturing, price-to-earnings ratios are high and earnings per share growth is set to moderate, while central banks are becoming more hawkish. Price-to-earnings ratios are an important metric used by traders to gauge the value of a stock.

Yet Barclays retains a positive outlook for equities, arguing that the TINA (there is no alternative) principle still prevails, with fund inflows having slowed lately. With price-to-earnings ratios having compressed, the bank expects future returns to be lower, but still positive.

“As risk premia increase, risk-adjusted returns will be lower. Yet we still find equities more attractive than bonds and believe dips should be bought,” Head of European Equity Strategy Emmanuel Cau said.

FXStreet reports that in the opinion of FX Strategists at UOB Group, NZD/USD faces a deeper retracement on a close below 0.6860 in the short-term horizon.

Next 1-3 weeks: “Two days ago, we highlighted that the recent weakness in NZD has come to an end and we expected NZD to consolidate within a 0.6880/0.7010 range. NZD dropped a few pips below the bottom of the expected range (low of 0.6877) yesterday before rebounding. While the underlying tone has weakened somewhat, NZD does not appear to be ready to head lower in a sustained manner just yet. Only a clear break of 0.6860 would indicate that NZD is ready to head lower. The chance for a clear break of 0.6860 is not high for now but would remain intact as long as NZD does not move above 0.6960 within these few days.”

During today's Asian trading, the US dollar fell against the euro, the pound and the australian dollar, but was almost unchanged against the yen.

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 0.13%.

Meanwhile, analysts note that some progress in solving the problem of the US government debt limit contributes to an increase in risk appetite in global markets.

The leader of the Republican minority in the Senate, Mitch McConnell, said yesterday that Republicans are ready to support an emergency increase in the debt limit by a fixed amount that will cover the state's expenses until the December deadline. Democratic senators have made it clear that they will accept the Republican proposal. This will eliminate the threat of a state default in the near future, but will postpone the political battle over the issue of the debt limit to the end of this year.

The focus of the market this week is September data on the number of jobs in the United States, which will be released on Friday. Experts on average expect an increase in the number of jobs by 500 thousand and a decrease in unemployment to 5.1% from 5.2%.

The September employment growth rate is likely to be sufficient for the Federal Reserve to begin winding down the asset repurchase program this year, experts say.

Reuters reports that the Bank of Japan cut its assessment for five of the country's nine regions, saying their recovery has stalled due to a resurgence in Covid-19 infections.

Production cutbacks following supply shortages also weighed in those areas, the BOJ said in its quarterly regional economic report

"While some regions saw the rebound in their economies moderating, many maintained the view that their economies were picking up," the central bank said.

According to the report from Halifax Bank of Scotland, average UK property price now at record £267,587. Annual house price inflation up to 7.4%, up from 7.2%. Wales and Scotland continue to outperform the UK average.

Russell Galley, Managing Director, Halifax, said: “UK house prices rose by 1.7% in September, adding more than £4,400 to the value of the average property. This rate of monthly growth was the strongest since February 2007, pushing year-on-year house price inflation up to 7.4%. This also reversed the recent three-month downward trend in annual growth, which had peaked at an annual rate of 9.6% in May. The price of an average house is now as expensive as it has ever been, standing at just over £267,500.

“While the end of the stamp duty holiday in England – and a desire amongst homebuyers to close deals at speed – may have played some part in these figures, it’s important to remember that most mortgages agreed in September would not have completed before the tax break expired. This shows that multiple factors have played a significant role in house price developments during the pandemic.“

“Against a backdrop of rising pressures on the cost of living and impending increases in taxes, demand might be expected to soften in the months ahead, with some industry measures already indicating lower levels of buyer activity. Nevertheless, low borrowing costs and improving labour market prospects for those already in employment are likely to continue to provide support.“

EUR/USD

Resistance levels (open interest**, contracts)

$1.1701 (2250)

$1.1652 (996)

$1.1608 (1215)

Price at time of writing this review: $1.1555

Support levels (open interest**, contracts):

$1.1495 (6538)

$1.1448 (411)

$1.1399 (425)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 8 is 81046 contracts (according to data from October, 6) with the maximum number of contracts with strike price $1,2200 (8606);

GBP/USD

$1.3751 (213)

$1.3704 (411)

$1.3661 (212)

Price at time of writing this review: $1.3586

Support levels (open interest**, contracts):

$1.3527 (647)

$1.3489 (1322)

$1.3445 (2183)

Comments:

- Overall open interest on the CALL options with the expiration date October, 8 is 13665 contracts, with the maximum number of contracts with strike price $1,4150 (2064);

- Overall open interest on the PUT options with the expiration date October, 8 is 20857 contracts, with the maximum number of contracts with strike price $1,3450 (2183);

- The ratio of PUT/CALL was 1.53 versus 1.46 from the previous trading day according to data from October, 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 provisional data of the Federal Statistical Office (Destatis), in August 2021, production in industry was down by 4.0% on the previous month on a price, seasonally and calendar adjusted. Economists had expected a 0.4% decrease. Compared with August 2020, the increase in calendar adjusted production in industry amounted to 1.7%. Compared with February 2020, the month before restrictions were imposed due to the corona pandemic in Germany, production in August 2021 was 9.0% lower in seasonally and calendar adjusted terms.

In August 2021, production in industry excluding energy and construction was down by 4.7%. Producers continue to report about the production being constrained by a shortage of supply of intermediate products. Within industry, the production of capital goods showed a decrease of 7.8%.

The manufacture of motor vehicles, trailers and semi-trailers dropped by 17.5% in August on July, the manufacture of machinery and equipment was down 6.3% on a month earlier. The production of consumer goods declined by 2.6% and that of intermediate goods by 2.4%.

Outside industry, energy production was up by 4.1% in July 2021 and the production in construction decreased by 3.1%.