CFD Markets News and Forecasts — 08-07-2021

 The U.S. Energy Information Administration (EIA) reported on Thursday that crude inventories dropped by 6.866 million barrels in the week ended July 2, following a draw of 6.718 million barrels in the previous week. Economists had forecast a decrease of 4.033 million barrels.

At the same time, gasoline stocks plunged by 6.076 million barrels, while analysts had expected a fall of 2.176 million barrels. Distillate stocks rose by 1.616 million barrels, while analysts had forecast a build of 0.171 million barrels.

Meanwhile, oil production in the U.S. increased by 200,000 barrels a day to 11,300 million barrels a day.

U.S. crude oil imports averaged 5.9 million barrels per day last week, decreased by 0.5 million barrels per day from the previous week.

FXStreet notes that USD/JPY has pushed lower through major trendline support that comes in around 110.46 today. Mazen Issa, the Senior FX Strategist at TD Securities, thinks a re-coupling in 10-year TIPS yield and USDJPY is likely underway. 

“USD/JPY has not kept pace with a sharp move lower in real rate differentials over the last several days. This has been a fairly reliable correlation over the last year, suggesting downside risks are building.”

“Ahead of the 110.40 (+/-) level is the main resistance zone to the upside, while the first significant target to the downside comes in at 109.72.”

eFXdata reports that Societe Generale Research discusses the ongoing move lower in USD/JPY.

"The yen is, after a period of ignoring the fall in US real yields, coming home to them with a bang. The chart shows 10yr TIPS and USD/JPY, which has been very hard to understand since mid-April. Q3 is starting on a much sounder footing. The caveat is that the fall in longer-dated US yields at the start of April saw USD/JPY fall from 111 to 107.50, before the largely unintelligible rally back to 111.60."

"This could be a false dawn especially if TIPS yields turn higher and market volatility leaches away again. But that’s unlikely with Covid concerns, more volatile oil prices, a debate about growth peaking, and with central bank policies diverging." 

FXStreet reports that economist at UOB Group Lee Sue Ann reviews the latest RBA event.

“At its July meeting, the Reserve Bank of Australia (RBA) decided to: retain the April 2024 bond as the bond for the yield target and retain the target of 10bps; continue purchasing government bonds after the completion of the current bond purchase program in early September. But these purchases will be at the rate of AUD4bn a week until at least mid-November (from AUD5bn a week); maintain the cash rate target at 10bps and the interest rate on Exchange Settlement balances of zero per cent.”

“In recent months, the RBA has been very clear with its message that it is not in any hurry to withdraw stimulus from the economy, even though some aspects of the recovery have been stronger-than-expected. Indeed, Lowe reiterated that he expected the jobless rate would need to be close to 4% for an extended period to spur wages growth to the desired rate of above 3%.”

“We remain of the view that the RBA’s conditions for rate hikes are unlikely to be met until at least late 2023. The April 2024 bond was retained as the target bond for the yield curve control program. While not our base case, the yield target can be revisited over time should the economy and outlook change. Bond purchases will continue until mid-November and will be subject to review at the November board meeting. Clearly, the RBA has decided to take a more flexible approach to its bond-buying program than we have seen in the past (in place of announcing a specific target program such as the two previous AUD100bn programs), which allows for a near-term adjustment at the November meeting. We expect its QE program to be extended again in November, with a further reduction in the pace of purchases likely.”

FXStreet notes that the ECB has released its long-awaited strategy review and now targets 2% inflation (symmetrically. The question is how much deviation they will tolerate. Suffice to say, the news has already been baked into the cake, and economists at TD Securities see little impact on the EUR at this time. For now, they think EUR/USD will most likely be USD-driven. 

“The leaks have pointed to the Governing Council adopting a symmetrical inflation target around 2%, and that was indeed what was delivered. The main issue of concern will be how much deviation policymakers will allow. The inclusion of house prices into the inflation measure ‘over time’ is cute, as it will add some upside to inflation but not enough to put it over the top.”

“Taken in isolation, a symmetrical inflation target is a touch more dovish than their current policy framework. This can’t be seen as any real surprise, however, and looks fully baked into the cake. As such, it may not be dovish enough. All else equal, that leaves us looking for some scope for EUR/USD to correct higher today, but it is far from a pound-the-table view.”

“With the daily RSI already in oversold territory and EUR/USD running into support around 1.1780, we would probably be looking for a modest rebound anyway as we remain biased to expect the broader ranges to hold overall.”

“We think additional support should arise around 1.1760 and then 1.1735/40 ahead of the end-March lows around the figure.”

U.S. stock-index futures plunged on Thursday amid growing worries about global economic recovery.

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Global Stocks:

• Symmetry means negative and positive deviation from the target are equally undesirable
• New more "narrative-based" statement will replace introductory statement at ECB press conference
• Link between monetary aggregates and inflation has weakened
• Regular review cycle will begin with next review planned in 2025

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

NVIDIA (NVDA) target raised to $925 from $700 at Oppenheimer

Freeport-McMoRan (FCX) downgraded to Underweight from Equal Weight at Barclays; target $29

The data from the Labor Department showed on Thursday the number of applications for unemployment unexpectedly increase last week.

According to the report, the initial claims for unemployment benefits rose by 2,000 to 373,000 for the week ended July 3.

Economists had expected 350,000 new claims last week.

Claims for the prior week were revised upwardly to 371,000 from the initial estimate of 364,000.

Meanwhile, the four-week moving average of jobless claims decreased slightly to 394,500 from an upwardly unrevised 394,750 in the previous week.

Continuing claims fell to 3,339,000 from an upwardly revised 3,484,000 in the previous week. This was the lowest reading since March 2020.

The European Central Bank (ECB) released its new monetary policy strategy, which adopts a symmetric 2%-inflation target over the medium term. 

"The Governing Council considers that price stability is best maintained by aiming for a 2% inflation target over the medium term," stated ECB in its release. "This target is symmetric, meaning negative and positive deviations of inflation from the target are equally undesirable. When the economy is operating close to the lower bound on nominal interest rates, it requires especially forceful or persistent monetary policy action to avoid negative deviations from the inflation target becoming entrenched. This may also imply a transitory period in which inflation is moderately above target."

The Governing Council also confirmed that the Harmonised Index of Consumer Prices (HICP) remains the appropriate measure for assessing price stability, while the set of ECB interest rates remains the primary monetary policy instrument. The ECB also added climate change considerations to its monetary policy strategy.

JPY gained against most of its major rivals in the European session on Thursday as demand for the safe-haven assets renewed amid growing worries about the strength of the global economic recovery.

The data from Johns Hopkins University revealed on Wednesday that the total number of confirmed global Covid-19 cases passed 185.1 million and deaths exceeded 4 million, as the virus' delta variant spreads quickly around the world. The spread of a more infectious variant of the coronavirus raised worries about a slowdown in global economic recovery.  In an attempt to combat the virus, Japan’s government declared an extension of the state of emergency for Tokyo through late August. 

Investors also continued to digest the minutes from the U.S. Federal Reserve’s last meeting, which indicated that the Fed’s policymakers continued to stay in a wait-and-see mode in June, as the bank’s “standard of "substantial further progress" [on job growth and inflation] was generally seen as not having yet been met, though participants expected progress to continue”. However, the minutes also revealed that “various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings.” Overall, the Fed’s policymakers “agreed, according to the minutes, to continue assessing the economy's progress” toward the central bank’s goals and to begin to discuss their plans for adjusting the path and composition of asset purchases in coming meetings. In addition, they reiterated their "intention to provide notice well in advance of an announcement to reduce the pace of purchases".

FXStreet reports that FX Strategists at UOB Group suggest that the upward momentum could push USD/CNH to the 6.4900 level in the next weeks.

24-hour view: “Our expectation for USD to ‘strengthen further’ did not materialize as it traded between 6.4650 and 6.4829 before closing little changed at 6.4753 (-0.02%). The outlook for today is mixed and USD could trade sideways within a 6.4670/6.4870 range.”

Next 1-3 weeks: “While there is no change in our view for now, USD has not been able to make much headway on the upside as it traded within a 6.4650/6.4829 range before closing little change at 6.4753 (-0.02%). We continue to expect USD to trade higher for now and only a breach of 6.4640 would indicate that the current upward pressure has eased.”

FXStreet reports that the Credit Suisse analyst team notes that AUD/USD was recently aggressively capped below key resistance at 0.7599/7617. A break below 0.7418 is likely to trigger an acceleration lower.

“The aussie has broken to new year-to-date lows this morning, bringing more important support at the 23.6% retracement of the upmove from 2020 at 0.7418 into focus. It’s worth noting that there is a dearth of meaningful support below here, meaning the downtrend could accelerate on a break below this level, with next minor support at 0.7379/72, then 0.7338.” 

“Near-term resistances move to 0.7535, then 0.7576, with more important resistance seen at the ‘neckline’ resistance at 0.7599/7617."

FXStreet notes that the U.S. Dollar Index (DXY) continues to trade with a more assured tone, a trend that has been in place since the Fed’s hawkish pivot mid-June. In the view of economists at Westpac, DXY could test 93.5 range highs in the third quarter.

“The puzzling fall in US yields complicates the more constructive USD story, but it’s mostly a curve flattening story and a recalibration of inflation expectations in the wake of the Fed’s hawkish pivot.” 

“Payrolls prints around 500-850K in coming months likely meet the Fed’s test for ‘substantial progress’, opening the door to a taper signal at the August 28 Jackson Hole Fed symposium.” 

“DXY could well be testing fresh 2021 highs beyond 93.45 as taper talk rises to a crescendo in Q3, though it would likely take a clear signal from Chair Powell that tapering discussions are moving forward to open the door to a more sustained DXY lift.”

Japan's prime minister (PM) Yoshihide Suga said the state of emergency would remain in place until August 22. "Taking into consideration the effect of coronavirus variants and not to let the infections spread again to the rest of the nation, we need to strengthen our countermeasures," the PM noted.

The state of emergency for the Japanese capital was announced after the meeting between the Japanese government, the International Olympic Committee president Thomas Bach and the organizing committee.

The Olympic Games are scheduled to take place in Tokyo between July 23 and August 8, and the Paralympic Games are to be held between August 24 and September 5.

Reuters reports that Refinitiv data showed that asian firms received their smallest upgrade in 12 months in June, hit by a resurgence of COVID-19 infections in the region which prompted new restrictions on people's movement to curb fresh coronavirus outbreaks.

Analysts lifted their forecasts for Asian companies' forward 12-month profits by 0.2% in June, the smallest upgrade in a year.

The manufacturing activity grew at a slower pace in China and Japan as raw material prices rose, while activity shrank in Vietnam, Malaysia and India, where governments imposed tougher restrictions to contain new outbreaks.

Growth in China's factory activity slowed to a 15-month low in June, hit by supply chain woes and a resurgence of COVID-19 cases.

Japan and Hong Kong had small upgrades. On the other hand, Australian firms' profits were lifted by 3%, thanks to a surge in commodity prices.

Analysts also raised their forward 12-month earnings estimates for Vietnamese companies by 9.3% in the last month as a recovery in developed economies bolstered the country's exports.

The data showed Asia is expected to post an earnings growth of 34.7% in 2021, compared with Europe's 63.4% and the United States' 45.5%.

FXStreet reports that economists at ANZ Bank have raised their short-term (0-3m) target to $85/bbl.

“Amid strong demand, no additional supply from OPEC in August would see crude oil markets tighten. However, a lack of unity in the group presents a real risk over the medium-term.”

“It appears the current production cuts will remain. Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, seemed to confirm this after the talks broke down, when he said the current deal (5.7mb/d of cuts) would stay. This is likely to tighten the market.” 

“As demand has improved, inventories have been falling sharply. We estimate this drawdown could end up being as large as 1.9mb/d in Q3, assuming there are no increases in supply before October. No doubt tightness will continue to raise prices in the short term. We have subsequently raised our short-term (0-3m) target to $85/bbl.”

CNBC reports that the OECD’s secretary-general has warned that new outbreaks of Covid-19 remain one of the top risks to a global economic recovery.

“We must do what we can to get as many people as we can, all around the world, vaccinated. There is a particular responsibility for developed economies and it’s not just a matter of charity or benevolence, it’s actually a matter of self interest both in terms of making sure we keep our populations safe ... and also to ensure the economic recovery can be sustained,” Mathias Cormann, secretary-general of the OECD, said.

“New outbreaks are still one of the biggest downside risks in terms of the sustained economic recovery moving forward,” he told.

“There is a race on between getting as many people vaccinated all around the world including and in particular in developing economies and the risk of new variants appearing, and variants that may be resistant to the vaccines currently available,” he noted.

FXStreet reports that Benjamin Wong, Strategists at DBS Bank notes, a technical pattern shows potential of prolonged CAD weakening.

“Looking at the weekly chart, the decline to 1.2007 and consequent stabilising reminds us of the rectangular support from the prior 1.1920 (May 2015) and 1.2062 (September 2017) key bottoms. If this holds, the potential for prolonged CAD weakening remains a plausible path.”

“The recovery so far has taken on a bullish MACD (moving average convergence/divergence) turn-up as the standard deviations measure also flag USD bottoming signs. Using its moving average guidance, USD/CAD nonetheless has yet to surmount the key moving average at 1.3112 – a reminder that USD/CAD’s movements are often chunky.”

“The Ichimoku daily chart now pegs 1.2270 Kijun support, and that should be a pivotal level to monitor in the near-term.”

Bloomberg reports that according to officials familiar with the matter, ECB policy makers have agreed to raise their inflation goal to 2% and allow room to overshoot it when needed, 

The decision marks a significant change from the previous target of “below, but close to, 2%,” which some policy makers felt was too vague. The consensus emerged at a special meeting on Tuesday and Wednesday to conclude the ECB’s first strategy review in almost 20 years.

The revamped strategy could give officials the justification for sustaining ultra-loose monetary policy for longer as they strive to reverse years of below-target inflation, which have weighed on the euro area’s economic potential.

It will also be crucial for guiding the central bank’s actions as the economy recovers from the pandemic. Policy makers are expected to debate after the summer how to exit emergency measures that include an exceptionally flexible 1.85 trillion-euro ($2.2 trillion) bond-buying program.

Reuters reports that a central bank deputy governor said China will continue to keep its currency stable and make timely adjustments to its policy tools to help struggling exporters.

“We’ve noticed that some companies may have this issue, so we will continue to keep the exchange rate stable and make timely adjustments to the policy tools,” Vice Governor Fan Yifei told a press conference, when asked about the issue that exporters are loss-making on all of their orders.

The yuan weakened on Thursday as the dollar traded near its highest levels in three months and after China’s cabinet floated the possibility of cuts to banks’ reserve requirements to support economic growth.

The government will continue to push real lending rates lower and reduce financing costs for small companies through targeted monetary policy tools, Fan added.

FXStreet reports that economists at MUFG Bank expect the US dollar to remain on a strong foot as fears of higher inflation quickly shift to growth concerns.

“The Committee as a whole agreed to begin the taper planning process ‘in coming meetings’ so they could be positioned to move more quickly if that become appropriate. The option to move more quickly in tapering QE was to help dampen upside risks to inflation expectations. That appears less of a concern now though with market–based measures of inflation expectations and bond yields falling in response to growth concerns.” 

“Recent developments would suggest that the Fed is more likely to wait until later this year rather than take out the option of an earlier taper in September.” 

“We expect the US dollar to remain bid in the near-term while market participants remain more concerned over the global growth outlook even as US yields have dropped back sharply recently.”

CNBC reports that China’s central bank is “quite worried” about risks to the global financial system from privately developed digital currencies, particularly so-called global stablecoins.

“Some commercial organizations’ so-called stablecoins, especially global stablecoins, may bring risks and challenges to the international monetary system, and payments and settlement system, etc.,” Fan Yifei, a deputy governor of the People’s Bank of China, told.

“We are still quite worried about this issue, so we have taken some measures,” Fan said.

On Tuesday, the central bank’s business development arm and Beijing city authorities ordered a local company to shut down on allegations it provided software services for cryptocurrency transactions.

The move followed a national-level call in late May to crack down on bitcoin mining and transactions, which has sent miners looking to move operations to the U.S. and other countries. 

“These (digital) currencies have themselves become speculation tools,” Fan said, adding there are potential threats to “financial security and social stability.”

He noted that his work at the central bank included digital currencies. The PBoC is developing a digital version of the Chinese yuan, which has been tested in several parts of the country in the last year.

So far, the invite-only digital yuan system has more than 10 million users, Fan said.

In contrast with bitcoin’s decentralized system, the PBoC’s digital yuan is controlled by the central bank.

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

The minutes of the June meeting of the Federal Reserve System (Fed), published yesterday, showed that some of the Fed leaders see the possibility of an earlier-than-expected reduction in the volume of stimulus by the Fed against the background of rapid growth in economic activity in the United States.

"Various participants of the meeting noted that in the light of the latest statistical data, the conditions set by the Fed in order for it to begin reducing the volume of asset repurchases will be created somewhat earlier than expected at previous meetings," the minutes showed.

Other participants, however, noted that the weaker-than-expected May data on the US labor market require the Fed to be patient in planning the next steps. In general, the leaders of the Fed during the meeting on June 15-16 came to the conclusion that progress in moving towards the goals of the Central Bank is still insufficient, although it will continue.

Meanwhile, data published yesterday by the US Department of Labor showed that the number of open vacancies in the country in May reached another record - 9.21 million. The indicator of open vacancies has been breaking records for three months in a row, which indicates a huge demand for labor resources against the background of growing economic activity in the country.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose by 0.06%.

FXStreet reports that in the view of economists at Rabobank, EUR/GBP can creep towards the 0.84 level on a 6 month view. 

“Although there is evidence that the vaccination programme has significantly diluted the link between vaccination and hospitalisation, this has the potential to impact consumer confidence and activity. This is likely to underpin the BoE’s cautious tone and its central expectation that this year’s spike in CPI inflation will be transitory. As such, we expect steady rates from the Bank until 2023.”

“Although the scheduled completion of the Bank’s QE programme at the end of the year could provide GBP some support, it could take some time for EUR/GBP to find the incentive to break lower. UK monthly May GDP and production data due later this week may provide a little fresh direction for the pound.”

RTTNews reports that Reserve Bank of Australia Governor Philip Lowe said the unemployment rate will need to be sustained in "the low 4s" for the economy to be considered to be operating at full employment.

Citing the relationship between income growth and unemployment, Lowe said tighter labor markets do generate stronger wage increases - the laws of supply and demand still work. And second, the relationship seems to be stronger at unemployment rates below 5 percent, Lowe said.

The central bank strategy is to get the unemployment rate down so that wages growth picks up and inflation returns in a sustainable way to the target range.

The RBA expects that it will take until 2024 for inflation to be sustainably within the 2 to 3 percent target range.

The governor reiterated that the condition for an increase in the cash rate depends upon the data, not the date; it is based on inflation outcomes, not the calendar.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1950 (3156)

$1.1901 (705)

$1.1859 (622)

Price at time of writing this review: $1.1800

Support levels (open interest**, contracts):

$1.1747 (1247)

$1.1699 (1573)

$1.1650 (3607)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date July, 7 is 56756 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)

$1.3903 (389)

Price at time of writing this review: $1.3769

Support levels (open interest**, contracts):

$1.3740 (741)

$1.3697 (585)

$1.3649 (2148)

Comments:

- Overall open interest on the CALL options with the expiration date July, 9 is 17135 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 15038 contracts, with the maximum number of contracts with strike price $1,3650 (2148);

- The ratio of PUT/CALL was 0.88 versus 0.96 from the previous trading day according to data from July, 7

* - 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 the Federal Statistical Office (Destatis), in May 2021, German exports were up by 0.3% and imports by 3.4% on a calendar and seasonally adjusted basis compared with April 2021. Destatis also reports that, after calendar and seasonal adjustment, exports were 0.3% lower and imports 9.4% higher than in February 2020, the month before restrictions were imposed due to the coronavirus pandemic in Germany.

Germany exported goods to the value of 109.4 billion euros and imported goods to the value of 97.1 billion euros in May 2021. Compared with May 2020, exports increased by 36.4% and imports by 32.6% in May 2021. This rise is basically due to the low level of foreign trade in the comparison month (base effect).

The foreign trade balance showed a surplus of 12.3 billion euros in May 2021. In May 2020, the surplus amounted to 7.0 billion euros. In calendar and seasonally adjusted terms, the foreign trade balance recorded a surplus of 12.6 billion euros in May 2021.

The German current account of the balance of payments showed a surplus of 13.1 billion euros in May 2021, which takes into account the balances of trade in goods (+14.4 billion euros), services (+1.2 billion euros), primary income (-0.1 billion euros) and secondary income (-2.4 billion euros). In May 2020, the German current account showed a surplus of 7.1 billion euros.