CFD Markets News and Forecasts — 08-10-2021

eFXdata reports that analysts at CIBC Research provide their reaction to today's Canadian jobs report for September.

"Services sectors continued their rehiring spree in September. Out of the total 157K jobs created, which blew past consensus expectations, 142K were in services sectors. By the end of the month, employment had reached pre-pandemic levels again, but there was still slack to be absorbed given that the population has increased since early 2020." 

"With the participation rate rising in September, coinciding with a decline in Canadians receiving government supports, the unemployment rate only declined to 6.9%. While the headline print likely seals the deal for another taper from the Bank of Canada later this month, there's still a ways to go to fully heal the labour market."

FXStreet reports that economists at Westpac expect Japan’s yen to continue losing ground against the US dollar and see USD/JPY trading at 112 and 113 by the end of 2021 and 2022.

“The recovery in GDP there can only be described as weak and disappointing, and annual core inflation is at zero despite considerable support from upstream prices.”

“The BoJ will have no alternative but to continue its extraordinary measures at full stretch for the foreseeable future, in the hope of moving towards 2.0%yr inflation, while the rest of the world normalises.”

“USD/JPY is therefore seen at 112 end-2021; 113 end-2022; and 116 end-2023.”

The Commerce Department announced on Friday the U.S. wholesale inventories jumped 1.2 percent m-o-m in August, being in line with the preliminary estimate of a 1.2 percent m-o-m gain.

Economists had forecast the reading to stay unrevised at 1.2 percent m-o-m.

In July, wholesale inventories increased 0.6 percent m-o-m.

According to the report, durable goods inventories climbed 1.2 percent m-o-m in August, while stocks of nondurable goods surged 1.1 percent m-o-m.

In y-o-y terms, wholesale inventories soared 12.3 percent in August.

FXStreet notes that the loonie caught a bid following Canada's employment beat. Economists at TD Securities are biased to further CAD outperformance with elevated energy prices and a key Bank of Canada (BoC) meeting later next week. 

“The Canadian economy added another 157.1K jobs in September, well above the market consensus for job growth to slow to 60K after the 90-95K prints in July-August. Details were broadly upbeat... Total employment is also back to its pre-COVID level, although the employment rate remains ~1pp below levels from February 2020.”

“Today's jobs print makes it easier for the BoC to continue signaling rate hikes in the second half of next year - we don't see an argument for shifting the forward guidance to 2022H1 on the back of this jobs print.”

“With energy prices likely to remain elevated and a key BOC meeting later this month, we think the CAD can continue to perform.”

U.S. stock-index futures rose on Friday, as disappointing September jobs data raised questions whether the Fed will delay a taper announcement past November.

Global Stocks:

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Statistics Canada reported on Friday that the number of employed people rose by 157,100 m-o-m in September (or +0.8 percent m-o-m) after an unrevised advance of 90,200 m-o-m in the previous month. This was the biggest gain in Canada’s employment in three months, which brought employment back to the same level as in February 2020, just before the onset of the pandemic. 

Economists had forecast a gain of 65,000 m-o-m.

Meanwhile, Canada's unemployment rate fell to 6.9 percent in September from 7.1 percent in August, matching economists’ forecast for 6.9 percent. This was the lowest rate since February 2020.

According to the report, full-time employment rose by 193,600 (or +1.3 percent m-o-m) in September, while part-time jobs declined by 36,500 (or -1.0 percent m-o-m).

In September, the number of public sector employees jumped by 78,000 (or +1.9 percent m-o-m), while the number of private sector employees went up 98,400 (or +0.8 percent m-o-m). Meanwhile, the number of self-employed decreased by 19,300 (or -0.7 percent m-o-m) last month.

Sector-wise, employment rose both in the services-producing (+0.9 percent m-o-m) and the goods-producing (+0.4 percent m-o-m) businesses.

The U.S. Labor Department announced on Friday that nonfarm payrolls rose by 194,000 in September after a revised 366,000 gain in the prior month (originally an advance of 235,000). This was the smallest monthly advance so far this year. Since a recent trough in April 2020, nonfarm employment has increased by 17.4 million but is down by 5.0 million, or 3.3 percent, from its pre-pandemic level in February 2020.

According to the report, notable job gains were recorded in occurred in leisure and hospitality (+74,000), professional and business services (+60,000), retail trade (+56,000), and transportation and warehousing (+47,000). At the same time, employment in public education (-161,000) declined over the month.

The unemployment rate decreased to 4.8 percent in September from 5.2 percent in August. This was the lowest rate since March 2020. Still, the rate remained well above the pre-crisis level of about 3.5 percent.

Economists had forecast the nonfarm payrolls to increase by 500,000 and the jobless rate to slip to 5.1 percent.

The labor force participation rate edged down to 61.6 percent in September from 61.7 percent in the previous month, while hourly earnings for private-sector workers rose 0.6 percent m-o-m (or $0.19) to $30.85, following a revised 0.4 percent m-o-m gain in August (originally a climb of 0.6 percent m-o-m). Economists had forecast the average hourly earnings to rise 0.4 percent m-o-m in September. Over the year, the average hourly earnings jumped 4.6 percent in September, following a revised 4.0 percent jump in August (originally a surge of 4.3 percent).

The average workweek increased 0.2 hour to 34.8 hours in September, being slightly above economists' forecast for 34.7 hours.

FXStreet reports that FX Strategists at UOB Group suggest that the upside momentum in AUD/USD gathers further pace and could retest the 0.7350 level.

24-hour view: “We expected AUD to strengthen yesterday but we were of the view that ‘a clear break of 0.7300 is unlikely’. The subsequent AUD strength exceeded our expectations as it broke 0.7300 and rose to 0.7324. The rapid rise appears to be running ahead of itself and AUD is unlikely to strengthen much further. For today, AUD is likely to trade sideways, expected to be within 0.7285/0.7330 range.” 

Next 1-3 weeks: “AUD edged above 0.7320 yesterday (07 Oct) and upward momentum is beginning to build. From here, AUD could edge higher but at this stage, any advance is likely limited to a test of 0.7350. On the downside, a break of the ‘strong support’ (currently at 0.7255) would indicate that the current mild upward pressure has eased.”

• Current inflation spike in euro area is largely temporary
• Premature tightening could harm recovery and labour market

USD traded flat against other major currencies in the European session on Friday as investors looked for the release of the U.S.  jobs report for September, due at 12:30 GMT.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, edged down 0.06% to 94.16.

It is expected that the strong jobs data will support the Federal Reserve's move towards tightening. In his press conference that followed the Fed's September policy meeting, the U.S. central bank’s chairman Jerome Powell stated that a slowing of the pace of bond purchases could start after the November 2-3 meeting if the U.S. job growth through September is "reasonably strong”. He also added that "it wouldn't take a knockout or super-strong employment report" to begin the "taper" of the bond-buying program, with the process expected to end by mid-2022.

Economists forecast the September employment report will show the world's biggest economy added 500,000 jobs last month after 235,000 in August. The unemployment rate is seen to slip to 5.1% in September from 5.2% in August.

FXStreet reports that economists at the National Bank of Canada (NBF) expect the USD/CAD pair to edge lower towards the 1.20 level next year.

“Given that we do not see a significant drop in energy prices in the coming months, we believe that the CAD should appreciate against the USD.”

“We continue to expect another round of QE tapering from the Bank of Canada in October.”

“Given our upwardly revised forecast for the price of oil and natural gas, we now see USD/CAD at 1.20 in 2022.” 

FXStreet reports that economists at Société Générale expect the 10-year U.S. Treasury bond yield to extend its bounce towards March highs at 1.72%/1.77%.

“10Y UST looks poised to edge higher towards 1.63% and could even challenge the peak of March at 1.72%/1.77%.”

“The 200-DMA near 1.38%/1.35% should be an important support near-term.”

FXStreet reports that UOB Group’s FX Strategists remain of the view that USD/CNH is to trade within the 6.4240/6.4800 range for the time being.

24-hour view: “We expected USD to ‘trade between 6.4460 and 6.4660’ yesterday. USD subsequently traded within a narrower range than expected (6.4481/6.4566). The quiet price actions offer no fresh clues and further sideway-trading appears likely. Expected range for today, 6.4450/6.4650.”

Next 1-3 weeks: “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.”

• UK banking system is strong enough to continue to support households and businesses through economic recovery
• UK financial system is resilient to risks from the higher level of debt among UK businesses; the way these risks evolve will depend on how the economy recovers from the pandemic
• The increase in debt in UK corporate sector has been concentrated in some sectors and types of businesses, in particular in small and medium-sized enterprises (SMEs)
• There is evidence that investors are taking higher levels of risk in some global markets, e.g. there are fewer protections in place when investors lend to companies with high levels of debt in so-called "leveraged loan" markets, and the prices of some financial assets appear high relative to historical norms
• We are monitoring these risks closely. We are also working with UK and other international authorities to make market-based finance more resilient to shocks, so that financial markets can support economy in bad times as well as good
• Asset valuations could correct sharply if, for example, market participants re‐evaluate prospects for growth, inflation or interest rates; any such correction could be amplified by vulnerabilities in market‐based finance that were exposed in March 2020. This could have consequences for market functioning and financial conditions, and hence real economy
• Cryptoasset markets continue to grow rapidly, but currently pose limited risk to UK financial stability
• However, regulatory and law enforcement frameworks, both domestically and at global level, need to keep pace with developments in these fast-growing markets in order to manage risks

FXStreet reports that economists at the National Bank of Canada expect the pound to strengthen.

“Gas shortages and difficulty finding truck drivers has hobbled the UK. These factors are feeding into growing inflationary pressures. Rising inflation expectations also put the BoE in a delicate place.” 

“Although economic conditions are not ideal and with growth likely handicapped by the ongoing energy squeeze, the BoE could potentially start raising rates this year. In such a context, we do not expect the pound to depreciate, and a more hawkish BoE could move sterling higher.”

Reuters reports that vice central bank governor Liu Guoqiang said that China will deepen its loan prime rate (LPR) reforms and gradually make deposit rates more market-driven.

The PBOC will improve its policy interest rate regime with the seven-day reverse repo rate in open market operations as the short-term policy rate and the medium-term lending facility (MLF) interest rate as the medium-term policy rate, Liu said.

The central bank will also improve its interest rate corridor mechanism, and guide market interest rates to fluctuate around the central bank's policy interest rate, Liu said.

The LPR is set monthly by 18 banks, who submit a monthly quotation by adding a premium over the MLF rate. The PBOC has kept the benchmark lending rate unchanged for 17 months, but speculation is growing it may cut one of its key rates soon to bolster slowing economic growth.

eFXdata reports that ING Research discusses EUR/GBP outlook.

"EUR/GBP remains on the lows at 0.8500, largely on the view that the BoE will be more responsive to inflation than the ECB. Currently the market prices about 5bp of tightening at the November BoE meeting and 25bp by the February meeting next year. We think that is too aggressive, but the BoE has yet to disavow the market of these expectations. Perhaps the BoE is welcoming the benefits of a stronger GBP in insulating against higher energy prices?," ING notes.

Bloomberg reports that the U.S. Senate approved legislation that pulls the nation from the brink of a payment default with a short-term debt-ceiling increase.

The vote was 50-48, with no Republicans in favor of the measure that simply kicks the can toward another precarious debt-limit fight in less than two months. The $480 billion increase in statutory borrowing would run out around Dec. 3.

The debt limit increase still needs a vote in the House, which has been on break. But Majority Leader Steny Hoyer said Thursday night that representatives would return on Tuesday. The measure is expected to be approved in that chamber. President Joe Biden “looks forward to signing this bill as soon as it passes the House and reaches his desk,” White House Press Secretary Jen Psaki said in a statement. 

FXStreet reports that economists at ABN Amro forecast Bund yields to remain elevated for a few months.

“Even though we think that the spillover from the US is coming to an end, a further acceleration in eurozone inflation in the near term is likely to put a bit more upward pressure on yields. Indeed, we forecast inflation to rise a bit higher over the coming months and think headline inflation could rise to around 4% at the end of this year.”

“At the start of next year, we expect inflation to fall sharply, and this should again push Bund yields lower. Moreover, we forecast inflation to be below the ECB’s target over the medium-term. We foresee a gradual decline in the 10y Bund yield towards -0.30% in Q1 2022 and to -0.40% in Q2 2022 and expect it to remain at that level for a while.”

Bloomberg reports that according to Barclays Plc, China’s targets to decrease the energy-reliance of its economy means power-rationing will continue into next year, and if strictly enforced, could reduce economic growth in 2021 well below consensus forecasts to 6%.

China set a nationwide target of decreasing the “energy intensiveness” of its economy -- the amount of energy used per unit of GDP -- by 3% this year as it seeks to reduce pollution. Beijing warned in August that most provinces were not on track to meet the target, leading some to cut power use to energy-intensive sectors like aluminum and steel production. 

Beijing set an energy-production growth target of 2.9% for 2021, which implies a similar target for growth in energy consumption, the Barclays economists said. But energy consumption growth so far this year is above 4%, they estimate, meaning that full-year economic growth could slow to 6% if the energy consumption target is strictly enforced, they added.

CNBC reports that according to political risk consultancy Eurasia Group, time may be running out for the U.S. and Iran to restart nuclear talks, as Tehran continues to advance its nuclear program. 

“Given the pace of its nuclear advancements, Iran is nearing the point at which the nuclear deal’s nonproliferation benefits will be unrecoverable without major changes to the accord, at which Tehran would balk,” the analysts said.

The deal is more urgent than ever because of irreversible moves such as Iran gaining knowledge on how to operate advanced centrifuges for uranium enrichment, they said. At the same time, it has reduced the likelihood of a deal being reached.

FXStreet reports that Benjamin Wong, Strategist at DBS bank, said that further upside on USD/JPY is contingent on US 10Y yields cracking a 1.72%.

“The outlook on the US 10-year yields is contingent on a terse break of the 1.72% mark. The outlook appears contingent on a plausible bullish inverse head-and-shoulders pattern being triggered if the neckline around 1.72% can be pierced – remember this pattern is yet to be triggered but has the scope to do so. In the interim, this backdrop does provide a binge of support for USD/JPY as US yields hold their own. 

“The moot question is whether USD/JPY can trigger a breakout above the channel’s 112.23 top. Should the breakout be successful, the breakout augurs a target sandwiched between two Fibonacci extensions contouring 113.25 and 114.31.”

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

The focus of the market is on data on the US labor market. 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 Fed to begin winding down the asset purchase program as early as next month, experts say.

The data published on the eve of the US Department of Labor showed a decrease in the number of applications for unemployment benefits in the country. The number of Americans who applied for benefits for the first time decreased by 38 thousand last week - to 326 thousand people. The indicator is near the lowest value since the beginning of the pandemic, recorded in September.

The growth of risk appetite in global markets is facilitated by the progress made by American lawmakers in solving the problem of the US debt limit. The US Senate on Thursday approved a bill raising the debt ceiling by $480 billion - this is the amount in which the US Treasury estimates the country's needs until December 3. The bill must also receive the approval of the House of Representatives, after which it will be sent to US President Joe Biden for signature. The White House has already said that Biden will sign the bill.

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 0.10%

FXStreet reports that economists at Westpac discuss EUR/USD prospects.

“The surge in energy prices, notably regional gas, is now adding to concerns over supply constraints to weigh on both business and consumer expectations and so EUR has also faltered and continues to pressure range support.”

“It is critical to monitor how broader sentiment develops during the early stages of 4Q and at present that prospects appear to be continuing to weigh on expectations.” 

“Although downside momentum may be lessening, EUR/USD support in the 1.1500 region looks increasingly under pressure and a break could extend EUR/USD slippage towards 1.12.”

Bloomberg reports that according to the report from the Recruitment & Employment Confederation and KPMG, U.K. wage growth rose at its strongest pace on record in a survey of job recruiters, indicating strains from a shortage of workers are persisting.

The REC survey will add to inflationary pressures that are already ringing alarm bells at the Bank of England. Data also indicates difficulty moving people off of furlough and into work following the pandemic.

Starting salaries for permanent workers rose at the strongest pace in 24 years of data collection in September. At the same time, the pool of available workers fell at near the sharpest rate on record. 

“While higher salaries are good for job seekers, wage growth alone is unlikely to help sustain the economic recovery,” said Claire Warnes, head of education, skills and productivity at KPMG. “Many do not have the right skills to transfer to the sectors with most demand.”

EUR/USD

Resistance levels (open interest**, contracts)

$1.1700 (2250)

$1.1651 (996)

$1.1605 (1215)

Price at time of writing this review: $1.1547

Support levels (open interest**, contracts):

$1.1498 (6538)

$1.1449 (411)

$1.1400 (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, 7) 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: $1.3602

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, 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 August 2021, German exports were down by 1.2% and imports were up by 3.5% on a calendar and seasonally adjusted basis compared with July 2021. Destatis also reports that, after calendar and seasonal adjustment, exports were 0.5% and imports 9.9% higher than in February 2020, the month before restrictions were imposed due to the coronavirus pandemic in Germany.

In August 2021, exports of goods amounted to 104.4 billion euros and imports of goods to 93.8 billion euros. Compared with August 2020, exports increased by 14.4% and imports by 18.1% in August 2021.

The foreign trade balance showed a surplus of 10.7 billion euros in August 2021. In August 2020, the surplus amounted to 11.9 billion euros. The calendar and seasonally adjusted surplus in August 2021 was 13.0 billion euros.

The current account of the balance of payments showed a surplus of 11.8 billion euros in August 2021, which takes into account the balances of trade in goods (+11.0 billion euros), services (-4.8 billion euros), primary income (+10.3 billion euros) and secondary income (-4.8 billion euros). In August 2020, the current account showed a surplus of 16.7 billion euros.