CFD Markets News and Forecasts — 09-03-2021

FXStreet reports that Ho Woei Chen, CFA, an economist at UOB Group, reviews the recent trade results in the Chinese economy.

“China’s Jan-Feb exports and imports were both above market’s expectations. In USDterms, exports surged by 60.6% y/y (Bloomberg est: +40.0% y/y; Dec: 18.1% y/y) while imports rose 22.2% y/y (Bloomberg est: +16.0% y/y; Dec: 6.5% y/y) YTD.”

“A number of factors have contributed to the stronger-than-expected trade numbers including a low base of comparison, improving demand and domestic travel restrictions that would have allowed factories to resume production faster post-Lunar New Year holidays.”

“Overall, China’s trade in Jan-Feb is consistent with continued economic recovery which is being led by improving external demand where exports have outperformed the recovery in imports so far. Pent-up demand and vaccination rollout worldwide will likely provide further support to the growth recovery in China this year while downside risks include pandemic resurgence and USChina trade tensions which could limit the export expansion ahead."

"We maintain our GDP growth forecast for China at 8.5% in 2021 (2020: 2.3%).”

Last week, Johnson & Johnson (JNJ) informed the EU that issues with the supply of vaccine ingredients and equipment meant it was “under stress” to meet the plan of delivering 55 million doses by the end of Q2, the EU official, directly involved in talks with J&J, told Reuters. He, however, added the company had said it was not impossible to meet the goal, but that it showed caution.

FXStreet reports that analysts at Nordea see room for further downside in EUR/NOK, given the current oil price around $70/bbl, but brief periods where the pair jumps higher cannot be excluded though.

“The key event for NOK last week was the OPEC+ meeting, at which the cartel member decided to keep production broadly unchanged. This was a better-than-expected outcome for oil prices, as it means that global oil inventories can continue to fall, thereby increasing the scope for higher prices both now and down the road. So NOK should continue to gain support from oil prices, both in the short-term and longer out.”

“We do see room for higher USD rates, and that makes us a bit hesitant to become super bullish on NOK in the short-term, as higher rates could have an adverse impact on the stock market and thereby also NOK. Hence, we cannot exclude brief periods where EURNOK jumps higher.”

FXStreet reports that Senior Economist at UOB Group Alvin Liew assesses the February Nonfarm Payroll, which was released last Friday.

“The US jobs market was surprisingly strong in Feb as the US nonfarm payrolls (NFP) rose by 379,000 (NFP) jobs, well above the Bloomberg median estimate of 198,000 jobs. 

“In tandem with the robust jobs rebound, the unemployment rate eased further to 6.2% in Feb (from 6.3% in Jan) while the participation rate stayed steady at 61.4% (unchanged from Jan).”

“With the healthy jobs uptick in Feb and the material upward revision for Jan, the outlook for US employment situation looks brighter although we are cognizant that the US employment level is still 8.5 million below of that in Feb 2020, while the participation rate is also nearly 2 percentage points below in this same period of comparison.”

“The factors underpinning the positive US jobs outlook will be the acceleration of the vaccine rollout and the recent approval of a new single-dose regime inoculation, and more fiscal stimulus to cushion the COVID-19 impact for businesses and households in the form of President Biden’s US$1.9 trillion coronavirus relief bill."

"We now expect US unemployment rate to ease further through the year, to 5.3% by end-2021 (versus the previous estimate of 6.0%).”

FXStreet notes that there have been growing concerns over a global shortage of semiconductors - a key input to the production of most electronic goods. Strategists at Capital Economics analyze the global economic implications of chip shortages.

“Semiconductor shortages could derail the recovery in motor vehicle output, at least until semiconductor production adjusts. For the world as a whole, motor vehicle production accounts for little more than 1% of total output. But auto-dependent economies including Germany, Mexico and several in Central Europe could feel significant effects.”

“Increases in semiconductor prices will add to upward pressure on inflation in the coming months. Shortages in the chips are coming on top of a surge in the prices of the metals that are used to produce them, so sharp price increases seem inevitable.”

“A shortage of semiconductors will be one of several factors boosting inflation in the near-term. In Europe, we suspect that the weakness of domestic demand will ensure that such pressures are transitory, but supply shortages could drive a more sustained rise in inflation in the US.”

U.S. stock-index futures surged on Tuesday, as investors bought the dip in the tech stocks amid a pullback in U.S. Treasury yields. 

Global Stocks:

FXStreet reports that analysts at Credit Suisse expect the S&P 500 to remain in a potentially lengthy consolidation/corrective phase with key resistance seen at the near-term downtrend at 3896.

“S&P 500 strength yesterday was capped ahead of its near-term downtrend, today seen at 3896 and the subsequent retreat has seen the market move back below its 13-day exponential average, now at 3838. This choppy price action is seen adding weight to our view that the market has entered a lengthy consolidation/corrective phase following the move to our 3900/3930 core target in mid-February and for the time being we are reluctant to materially chase either strength or weakness.” 

“Below support at 3808/04 is needed to clear the way for a fall back to 3784, a break of which is needed for a retest of the 3723 recent low." 

“Immediate resistance is seen at 3847/52, above which can see strength back to 3881, then a retest of the downtrend at 3896, but with a fresh cap expected here.” 

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

Home Depot (HD) initiated with a Buy at Citigroup; target $288

Tesla (TSLA) upgraded to Buy from Neutral at New Street; target $900

FXStreet reports that Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, notes that ICE Brent Crude Oil has reached the 71.28/95 resistance area which is expected to put a lid on the uptrend.

“ICE May Brent Crude Oil briefly slid to its current March low at 62.38 before surging higher to its current March high at 71.38, right between the January 2018, September 2019 and January 2020 highs at 71.28/95 which provoked failure.”

“Since the spike high has been followed by a drop below yesterday’s low at 67.80 and has also been accompanied by triple negative divergence on the daily RSI, we are of the opinion that a top is in the process of being formed. A fall through the February 19 and current March lows at 62.38/61.39 would confirm such a top.”

“Above the 62.38/61.39 levels the five-month support line can be spotted at 63.83 and below the 59.46 February 12 low.” 

FXStreet reports that the Credit Suisse analyst team notes that the USD/CHF pair is taking a breather after the strong swing higher, with short-term support seen at 0.9285.

“USD/CHF is trying to unwind the heavily overbought condition and we thus see scope for further near-term weakness, with support seen initially at 0.9328, beneath which would see a move to 0.9285 next, where we would expect the market to find a floor.”

“Beyond 0.9285 would instead see a small top completed with support thereafter at 0.9141/22 – a cluster of price supports that contains also the 200-day average – where we would expect to see a more important attempt to hold if reached.”

USD declined against its major rivals in the European session on Tuesday, as the U.S.Treasury yields eased. The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, dropped 0.25% to 92.09.

The benchmark 10-year U.S. Treasury bond yields went down by around 6 basis points from Monday's levels to 1.539% ahead of an auction of $120 billion of government debt. According to Bloomberg, the auctions start later this morning with a sale of $58 billion of 3-year notes. 

The U.S. Treasury yields have been growing in recent months as investors price in prospects of higher inflation and an improved outlook for the U.S. economy due to hefty stimulus and vaccine rollouts.

On Monday, however, the U.S. Treasury Secretary Janet Yellen said that President Joe Biden’s $1.9 trillion coronavirus aid package would fuel a “very strong” U.S. economic recovery, adding that “if it turns out to be inflationary, there are tools to deal with that".

It is expected that the U.S. House of Representatives will pass Biden’s stimulus bill today or tomorrow and the president will sign it later this week.

FXStreet reports that according to FX Strategists at UOB Group, USD/JPY now shifts the attention to a potential move to the 109.85 level in the next weeks.

24-hour view: “USD rose to 108.94 before extending its gains above 109.00 after the close in NY. While severely overstretched, the rally could grind higher to 109.50. The next resistance at 109.85 is likely out of reach. On the downside, the support at 108.50 is expected to act as a floor for today (minor support is at 108.80).”

Next 1-3 weeks: “In our latest narrative from yesterday (08 Mar, spot at 108.35), we held the view that ‘further USD strength still appears likely but overbought shorter-term conditions suggest 109.00 may not come into the picture so soon’. We underestimated the strength of the rally as USD surged above 109.00 after NY close. The outlook for USD is still clearly positive and the next level to focus on is at 109.85. Overall, the current positive outlook is deemed intact as long as USD does not move below 108.00 (‘strong support’ level was at 107.35 yesterday).”

UK: House prices to soar 3% in 2021 - Capital Economics

FXStreet reports that a quick economic recovery, sustained fiscal support, and the housing-specific measures in the UK Budget mean it is likely that policymakers will successfully mitigate the adverse impact of the pandemic on the housing market. As a result, strategists at Capital Economics now think that house prices will avoid a fall, and instead rise by 3% YoY in 2021 and 2.5% YoY in 2022.

“The risks to the housing market from higher unemployment, both indirectly through its effect on sentiment and directly by causing distressed selling has reduced. Excellent progress in vaccination and government support to household incomes means that we expect a quick economic recovery when restrictions are eased.”

“While we still expect house prices to cool over the course of this year, we no longer expect them to decline. Annual house price inflation is set to remain high in the next two quarters as the base effect of a stall in house prices in Q2 2020, when the market was closed, boosts the annual comparison. But it is likely to ease off materially in Q4.”

“Our new annual house price forecast is +3.0% YoY in Q4 2021 and +2.5% YoY in Q4 2022.”

FXStreet reports that gold (XAU/USD) found some support near the $1675 region and is edging higher on Tuesday. Analysts at Standard Chartered believe that the yellow metal should remain resilient as the U.S. dollar is set to resume its downtrend while real yields are not expected to march forward in the coming months.

“We continue to view gold as a core holding and retain our bullish bias on a 6-12 month horizon, underpinned by our expectation of a weaker USD and range-bound real yields.”

“Moving forward, inflation will likely creep higher as the global economy recovers, but we expect nominal bond yields will be capped by the Fed. This means real yields are unlikely to rise significantly, while the USD should gradually resume its downtrend.” 

FXStreet reports that FX Strategists at UOB Group suggest that the door remains open to further weakness in NZD/USD to the mid-0.7000s in the short-term horizon.

24-hour view: “Our expectation for the ‘rebound in NZD to extend’ was incorrect as it dropped to 0.7105. Downward momentum has improved, albeit not by much. NZD could edge below the major support at 0.7100 but the next support at 0.7050 is not expected to come under threat.”

Next 1-3 weeks: “In our latest update from yesterday (08 Mar, spot at 0.7180), we highlighted that ‘it may take more than a week before NZD can move below 0.7100’. We did not anticipate the subsequent swift and sharp drop to 0.7105 during NY hours. NZD is still weak and after yesterday’s price actions, a break of 0.7100 is likely. The next support is at 0.7050. On the upside, a break of 0.7210 (‘strong resistance’ level was at 0.7260 yesterday) would indicate the current weakness in NZD has run its course.”

FXStreet reports that USD/JPY has climbed from just below the 104.00-level at the end of January to a fresh intraday high of 109.23 which has brought the pair back to within a touching distance of the high from last June of 109.85. Lee Hardman, a currency analyst at MUFG Bank, notes that Leveraged Funds start to build short JPY positions and that the USD/JPY pair is most overbought since late in 2016, which leaves room for a correction lower.

“The sharp reversal for USD/JPY has triggered a shake-up in yen positioning in recent weeks. According to the latest IMM report, Leveraged Funds have now flipped to holding short yen positions totalling -6,528 contracts in the week ending the 2nd March after holding long positions totalling 8,376 contracts a couple of weeks ago. It is the largest short yen position since the week ending the 20th October of last year.”

“According to technical indicators such as the RSI, USD/JPY is now the most overbought since late in 2016. A similar setup is also evident for the 10-year US Treasury yield where the RSI recently reached its most overbought levels since late 2016.”

“The historical precedent suggests that USD/JPY is likely to correct lower from overbought levels once the sharp move higher in long-term US yields loses upward momentum.” 

FXStreet reports that in the view of Lisa Shalett, Chief Investment Officer, Wealth Management at Morgan Stanley, markets may move sideways for a while.

“Interest rates may be near their peak. With the 10-year Treasury yield at 1.6%, we also expect market volatility to recede. Once the year-over-year rates of positive change in key measures of economic and earnings growth and Fed stimulus start to decline, they may fall dramatically, which could negatively affect market sentiment. These transitions could cause US equity prices to move sideways, as investors adjust to a slower rate of growth than they had experienced the year before.”

According to the report from Eurostat, the number of employed persons increased by 0.3% in the euro area and by 0.4% in the EU in the fourth quarter of 2020, compared with the previous quarter. In the third quarter of 2020, employment had increased by 1.0% in the euro area and by 0.9% in the EU.

For the year 2020 as a whole, employment decreased by 1.6% in the euro area and 1.5% in the EU, after +1.2% and +1.0% respectively in 2019.

Compared with the same quarter of the previous year, employment decreased by 1.9% in the euro area and by 1.6% in the EU in the fourth quarter of 2020, after -2.1% and -2.0% in the third quarter of 2020.

Hours worked decreased by 1.6% in the euro area and by 1.4% in the EU in the fourth quarter of 2020, compared with the previous quarter. Compared with the same quarter of the previous year the declines were 5.6% in the euro area and 4.6% in the EU respectively (see annex table on employment in hours worked).

In the fourth quarter of 2020, Portugal, Estonia (both +1.9%) and Spain (+1.2%) recorded the highest growth of employment in persons compared with the previous quarter. The largest decreases were observed in Czechia, Croatia, Latvia and Malta (all -0.5%).

Based on seasonally adjusted figures, Eurostat estimates that in the fourth quarter of 2020, 206 million people were employed in the EU, of which 157.9 million were in the euro area. In relation to the COVID-19 pandemic, employment in persons was 3.1 million in the euro area and 3.5 million in the EU below the level of the fourth quarter of 2019.

According to the report from Eurostat, in the fourth quarter of 2020, seasonally adjusted GDP decreased by 0.7% in the euro area and by 0.5% in the EU compared with the previous quarter. Economists had expected a 0.6% decrease in the euro area. These declines follow a strong rebound in the third quarter of 2020 (+12.5% in the euro area and +11.6% in the EU) and the sharpest decreases since the time series started in 1995 observed in the second quarter of 2020 (-11.6% in the euro area and -11.2% in the EU).

For the year 2020 as a whole, GDP fell by 6.6% in the euro area and by 6.2% in the EU, after +1.3% and +1.6% respectively in 2019.

Compared with the same quarter of the previous year, seasonally adjusted GDP decreased by 4.9% in the euro area and by 4.6% in the EU in the fourth quarter of 2020, after -4.2% and -4.1% respectively in the previous quarter.

FXStreet reports that UOB Group’s FX Strategists now see USD/CNH pointing to a test of 6.5970 in the next weeks.

Next 1-3 weeks: “We have held a positive view in USD for about 3 weeks now. In our latest narrative from yesterday (08 Mar, spot at 6.5060), we highlighted that ‘while overbought shorter-term conditions could lead to consolidation first, the current USD strength could extend to 6.5500 later on’. In other words, while our view for a higher USD is correct, we underestimated the pace of the advance as USD surged above 6.5500 during NY hours. From here, the focus has shifted to 6.5970. Overall, the positive outlook is deemed intact as long as USD does not move below 6.5000 (‘strong support’ level was at 6.4680 yesterday).”

According to the report from Istat, in January 2021 the seasonally adjusted industrial production index increased by 1.0% compared with the previous month. The change of the average of the last three months with respect to the previous three months was -1.7%. The index measures the monthly evolution of the volume of industrial production (excluding construction). 

The calendar adjusted industrial production index decreased by 2.4% compared with January 2020 (calendar working days being 19 versus 21 days in January 2020).

The unadjusted industrial production index decreased by 8.1% compared with January 2020.

eFXdata reports that Bank of America Global Research hopes for clarity and a stronger (dovish) message from this week's ECB policy meeting.

"The only reason we see for European rates selling-off is the inability of the ECB to stop them from following the global trend. It is therefore important for the ECB this week to push against the market and re-establish its credibility. Before the recent market volatility, we had expressed strong concerns about vague and mixed ECB communication. A strong message from Lagarde, particularly in light of the ECB’s new commitment to keep monetary conditions supportive, ideally backed by some insights on the direction of the Strategy Review, is what markets would like to hear, in our view. If the ECB raises to the challenge, the market should start pricing diverging monetary policies and EURUSD should finally start weakening. It remains to be seen," BofA adds.

Bloomberg reports that Deputy Governor Chen Yulu said that China’s central bank will take measures to prevent systemic financial risks from building in the economy as the recovery takes hold.

Chen said the People’s Bank of China will improve its macro-prudential assessment framework and strengthen supervision of “systemically important” institutions, businesses and infrastructure.

“The priority of the work is to build a systemic financial risk prevention and control system,” Chen said. “We will further require shareholders, various creditors and local governments to implement their responsibilities, and work with financial regulatory authorities to maintain the bottom line of avoiding systemic financial risks.”

In the period covering China’s new five-year plan through 2025, the PBOC will continue opening up the financial sector, which includes freeing up the capital account more and promoting the yuan’s use internationally in a steady and prudent manner, the deputy governor said.

On monetary policy, Chen said the central bank will keep the growth of money supply and aggregate financing in line with the expansion of nominal gross domestic product. It will also seek to improve the money supply mechanism and refrain from flooding the financial system with excess liquidity, he said.

FXStreet reports that economists at Rabobank note, the recovery path is lit but the European Union holds the switch.

“The Eurozone contracted by 6.8% in 2020. We forecast the Eurozone economy to grow by 4.0% in 2021, followed by 3.6% in 2022. This means we expect the economy to hit its pre-pandemic level mid-2022. Based on available information we forecast that the EU recovery fund will lift GDP by 0.5% over this and next year combined.

“Economic recovery is very dependent on the roll out of vaccines. The European strategy has not been very successful so far and tensions are rising.”

During today's Asian trading, the US dollar fell against the euro and the pound. At the same time, the dollar is held near the maximum level in three and a half months against the major currencies. The US dollar is supported by hopes for a faster recovery of the US economy after the crisis caused by the coronavirus pandemic, and the continued growth of US Treasuries yields.

Hopes for a recovery in the U.S. economy are growing amid the passage by the Senate over the weekend of a $1.9 trillion support package proposed by President Joe Biden.

A number of amendments were made during the consideration of the bill, and it will now be sent back to the House of Representatives for a final vote. Observers believe that the vote may take place this week. At the same time, there is a risk that it will not be possible to quickly complete the approval of the draft: at the request of moderate Democrats, the Senate was forced to make a number of significant changes to the text. However, now these changes may not please the left wing of the Democrats in the House of Representatives.

The yuan has stabilized against the dollar. The volume of Chinese exports in January-February 2021 increased by 60.6% compared to the same period a year earlier, amid increased global demand, as well as increased manufacturing activity in the United States and Europe. Exports in dollar terms jumped to $468.87 billion in two months, according to data from the General Customs Administration.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell 0.13%.

FXStreet reports that in the view of analysts at OCBC Bank, yield differentials continue to lead the market for now, therefore, the multi-session trajectory still favours the USD.

“Bank of England’s Bailey, in ‘a note of realism’, warned that risks are tilted to the downside. Not much bias for pulling back monetary stimulus detected. Expect consolidation around the 1.3800 to 1.3850 range for now, but the move lower may be inevitable if the USD bounce persists. Nonetheless, expect the GBP to likely outperform the rest of G-10”

According to the report from the Federal Statistical Office (Destatis), in January 2021, German exports were up 1.4%, while imports were down 4.7% on December 2020 on a calendar and seasonally adjusted basis. Destatis also reports that, after calendar and seasonal adjustment, exports were 3.3% and imports 5.2% lower than in February 2020, the month before restrictions were imposed due to the coronavirus pandemic in Germany.

Germany exported goods to the value of 98.1 billion euros and imported goods to the value of 83.8 billion euros in January 2021. Compared with January 2020, exports decreased by 8.0% and imports by 9.8% in January 2021.

The foreign trade balance showed a surplus of 14.3 billion euros in January 2021. In January 2020, the surplus amounted to 13.7 billion euros. In calendar and seasonally adjusted terms, the foreign trade balance recorded a surplus of 22.2 billion euros in January 2021.

The German current account of the balance of payments showed a surplus of 16.9 billion euros in January 2021, which takes into account the balances of trade in goods (+13.5 billion euros), services (+1.0 billion euros), primary income (+9.7 billion euros) and secondary income (-7.3 billion euros). In January 2020, the German current account showed a surplus of 15.9 billion euros.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2046 (285)

$1.2013 (459)

$1.1985 (1145)

Price at time of writing this review: $1.1857

Support levels (open interest**, contracts):

$1.1820 (2109)

$1.1798 (3712)

$1.1772 (2816)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 9 is 46972 contracts (according to data from March, 8) with the maximum number of contracts with strike price $1,1900 (3712);

GBP/USD

$1.4074 (358)

$1.4013 (705)

$1.3928 (675)

Price at time of writing this review: $1.3827

Support levels (open interest**, contracts):

$1.3769 (290)

$1.3751 (505)

$1.3705 (1916)

Comments:

- Overall open interest on the CALL options with the expiration date April, 9 is 7314 contracts, with the maximum number of contracts with strike price $1,4100 (1230);

- Overall open interest on the PUT options with the expiration date April, 9 is 16550 contracts, with the maximum number of contracts with strike price $1,3200 (3386);

- The ratio of PUT/CALL was 2.26 versus 2.28 from the previous trading day according to data from March, 8

* - 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.