CFD Markets News and Forecasts — 11-05-2020

FXStreet reports that according to TD Securities, store closures likely led to fewer price data points, reducing the reliability of the CPI report somewhat, but the data were likely more than sufficient to produce a credible report.

“We expect a gasoline-led plunge in the headline index and at least a moderate drop in the core index.”

“Our forecast implies a drop in the overall 12-month change to 0.5% from 1.5%. We expect the 12-month change in the core index to slow to 1.7% from 2.1%.”

“Among core components, the most dramatic weakness will probably be in the travel-related parts. We also expect a decline in apparel prices and some slowing in rents.”

FXStreet notes that markets have increased bets on the Fed introducing negative rates but Nordea’s analyst Morten Lund does not think the Fed is close to crossing the Rubicon of negative interest rates.

“We do not think the Fed will introduce NIRP – not even if the economic outlook worsens and our worst case scenario unfolds. However, that does not mean that the Fed is ‘done’ yet.”

“Further measures will just not be conventional ones, but rather we should expect more initiatives that aim to provide credit as well as secure market functioning (such as purchases of government and corporate bonds and extending the PPP liquidity facility).”

• This is not a short-term crisis
• In the near-term, we cannot afford to make drastic changes
• There is no easy or quick solution
• The Government must prepare for the challenges that the winter flu season will bring
• For the foreseeable future, workers should continue to work from home rather than their normal physical workplace, wherever possible
• All workers who cannot work from home should travel to work if their workplace is open
• When travelling everybody (including critical workers) should continue to avoid public transport wherever possible
• Social distancing guidance on public transport must be followed rigorously
• Clinically vulnerable people should continue to take particular care to minimise contact with others outside their households
• Government is examining more stringent enforcement measures for non-compliance; will impose higher fines to reflect the increased risk to others of breaking the rules
• Government will require all international arrivals not on shortlist of exemptions to self-isolate in their accommodation for fourteen days on arrival into UK
• International travel measures will not come into force on May 13 but will be introduced as soon as possible
• Examining how to enable people to gather in slightly larger groups to better facilitate small weddings
• Content and timing of the second stage of adjustments will depend on the most up-to-date assessment of risk posed by virus; Government's current aim is that the second step will be made no earlier than Monday 1 June
• Second step may include such measures as: a phased return for early years settings and schools, permitting cultural and sporting events to take place behind closed-doors, re-opening more local public transport in urban areas
• Ambition at step three is to open at least some of the remaining businesses and premises that have been required to close, including personal care (such as hairdressers and beauty salons) hospitality (such as food service providers, pubs and accommodation), public places (such as places of worship) and leisure facilities (like cinemas)
• Measures, anounced by Government to maintain livelihoods and restore the economy, are extraordinarily costly and cannot be sustained for a prolonged period of time; precise costs will depend on a range of factors including the impact of the crisis on the wider economy and the level of take up for each scheme

FXStreet reports that economists at ABN Amro set out five reasons to expect the economy to take time to recover.

“According to the various government plans, the exit process is going to be a gradual process in most jurisdictions. In addition, there will likely be a long tail with some activities working at below pre-corona capacity levels because of social distancing measures that will likely persist for several months.”

“There is a distinct possibility that the exit process is not smooth, but determined by how the virus data react to the lifting of restrictions. Deteriorations in the virus data could lead to a pause in the process of lifting restrictions or even a re-introduction of some measures.”

“The lack of a silver bullet solution or alternatively virus trends being very suppressed could lead to ongoing subdued consumer behaviour.” 

“China’s post lockdown experience also points to a slow recovery in the services sector, with consumers remaining cautious.”

“The second round effects from the initial economic shock will continue to weigh on the economy, as these effects take longer to work their way through.”

• We will be taking advantage of zero rates
• U.S. will not bailout state pension funds or other previous problems in states
• Fed facilities were intended to be backstops; corporate bond markets are now unlocked
• Economic numbers will improve this summer as reopening takes place
• President Trump will do whatever it takes to support economy

U.S. stock-index futures fell on Monday amid growing worries of the second wave of COVID-19 with several countries reopening their economies.

Global Stocks:

• This brings the total output cut carried out by the kingdom, to around 4.8 million barrels per day from April production level
• Kingdom's oil production for June, after both its targeted and voluntary cuts, will be 7.492 million barrels per day
• Saudi Arabia aims through this additional cut to encourage OPEC+ participants and other producers to comply with the production cuts they have committed to

FXStreet reports that economists at HSBC think that the dominance of the RORO phenomenon and possibly Brexit headlines will likely bring more volatility to the pound in the near-term.

“The BoE kept its monetary policy unchanged, but two members voted for more asset purchases. With downside risks to inflation and the split vote, our economists think the door is open to more QE.

“As the UK economy begins its lockdown exit programme, most likely later this month, the GBP may spend more energy contemplating a different exit. As the possibility of a hard Brexit cannot completely be ruled out, a focus on Brexit might weigh on the GBP.”

“The GBP has moved into the frisk-on' bucket, possibly because of Brexit and the UK economy's gradually softening ties with the large economy of the Eurozone. As such, the GBP is likely to struggle in a risk-off environment, in our view.”

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

FXStreet reports that analysts at Credit Suisse think that S&P 500 above 2934 – the 61.8% retracement of the Q1 collapse – would suggest strength can extend to the price gap from early March and pivotal 200-day average at 2986/3002.

“Above 2934, S&P 500 can see strength extend to what we view as major resistance at 2986/3002. We continue to look for this to cap and for a top to eventually form.”

“Support is seen at 2912 initially, then 2903/02, above which can keep the immediate risk higher.”

NVIDIA (NVDA) target raised to $360 from $270 at Needham

Lyft (LYFT) downgraded to Hold from Buy at Stifel; target lowered to $35

USD rose against its major rivals in the European session on Monday, as demand for the U.S. currency increased amid worries that economic recovery might be slower than expected. The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, increased 0.36% to 100.09.

The major European countries including Italy, Spain and France, continued to move toward a further easing of lockdown restrictions. The UK's prime minister Johnson laid out a three-phase coronavirus exit strategy, while Japan's economy minister Nishimura said that the state of emergency in many regions of the country could be lifted this week if new coronavirus cases are under control.

Meanwhile, the Robert Koch Institute (RKI) announced on Monday that Germany's coronavirus reproduction rate (or infection rate) jumped to 1.13, up from 1.1 the day before and 0.83 on Friday. The RKI noted that the increase made it necessary to watch the development very carefully in the next few days. However, the German health ministry said that the climb in coronavirus reproduction rate did not mean an uncontrolled outbreak. In addition, South Korea reported its largest single-day increase of COVID-19 infections in a month and warned of a second wave of the virus. This raised concerns that reopening activity might be embraced, making investors adjust their risk expectations.

The prospect of worsening relations between the U.S. and China continued to weigh on risk sentiment. The U.S. President Trump said on Friday he was "very torn" about whether to end the phase one trade deal with China, just hours after top trade officials from both countries pledged to "meet their obligations under the agreement in a timely manner" even despite coronavirus. On Monday, Beijing warned that it would take countermeasures in response to Washington's decision to tighten visa rules for Chinese journalists and urged Washington to immediately correct its mistakes.

FXStreet reports that economists at Rabobank would favour selling rallies in cable towards a move down to GBP/USD 1.19 into the summer. 

“The poor initial response to PM’s unwind-plan will only add to widespread criticism over his government’s handling of the lockdown in March, its shortfalls of PPE in April and its lack of testing. “ 

“As no real progress was made on the last round of post-Brexit talks between the UK and the EU and given that the summer deadline for any request for an extension to the transition phase is looming, it is difficult to be optimistic on GBP.”

“We continue to expect GBP to be on the back foot into the summer and see scope for a move towards GBP/USD 1.19 on a 3-month view.” 

FXStreet reports that FX Strategists at UOB Group noted that there is no change to the neutral stance on USD/JPY in the short-term horizon.

24-hour view: “USD traded between 106.21 and 106.74 last Friday, narrower than our expected consolidation range of 106.00/06.70. The strong price action after opening this morning has resulted in a quick pick-up in momentum. From here, a break of 107.00 would not be surprising but the next resistance at 107.50 is likely out of reach for today. On the downside, 106.50 is expected to be strong enough to hold any intraday pullback.”

Next 1-3 weeks: “We highlighted last Friday (08 May, spot at 106.35) that USD ‘could continue to consolidate but risk of a break of 106.00 has increased’. USD rebounded and closed on a firm note on Friday (106.65. +0.36%) before extending its gain this morning and is currently approaching a relatively strong resistance at 107.00. Downward pressure has eased and from here, USD is likely still trading within a 106.00/107.50 consolidation range.”

• We will step up macroeconomic policy adjustments
• We will strive to achieve economic and social development targets

• Aims to show guideline for lifting coronavirus state of emergency
  
  

FXStreet reports that Credit Suisse note that USD/CHF saw another rejection of the 200-day average and recent highs at 0.9784/9803, keeping the market within its range. 

“A clear and closing break above 0.9803 is needed to end the recent range-bound phase and confirm the risks have turned back higher, with resistance seen thereafter at 0.9829, ahead of the 2019 downtrend at 0.9863, where we would expect to see another attempt to cap if reached.” 

“Support is seen at 0.9696, then 0.9681, ahead of 0.9646.”

FXStreet reports that NZD/USD has struggled to sustain breaks above 0.6150 and analysts at ANZ Bank don’t expect a sustained break higher this week either.

“We do see some risk that the NZD will spike higher if the RBNZ maintains their earlier guidance that the OCR will remain at 0.25% for at least the next 12 months. However, we’d characterise that as a knee-jerk reaction that would likely prove short-lived.”

“We are also mindful that NZD price action over the past few weeks has shown that it remains sensitive to risk sentiment, and given our caution with regard to the apparent disconnect between the economic outlook and asset prices, we still see NZD strength as being on borrowed time.”

FXStreet reports that Terence Wu, an FX strategist at OCBC Bank, analyzes the USD/CAD outlook as the pair may be settling into a range-bound pattern.

“With the 1.4000 support breached, the next support level enters at 1.3850, which has held in two previous occasions in April. Any breach of that level risks further downside.”

“With crude oil prices topping off for now, we would not be expecting 1.3850 to be breached just yet. Topside resistance at 1.4000.”

• Deficit of German federal government, states, local authorities is estimated at more than EUR300 billion by 2024
  
  

• Says court ruling on ECB has "great importance"
• It is understandable that European Commission stresses that national courts cannot call European Court of Justice into question

FXStreet reports that EUR/JPY has staged a sharp recovery and is back above resistance at 115.53 but even though analysts at Credit Suisse see scope for this to extend further yet, strength stays seen as corrective for now.

"We see scope for a test of price resistance at 116.57/61 but we look for this to then try and cap for an attempt to turn lower again."

"Support is seen at 115.84/82 initially, below which can ease the immediate upside bias, but with a move below 115.08/03 needed to suggest the downtrend has resumed for a fall back to 114.38."

"Above 116.61 can see the recovery extend further with resistance seen next at 116.92/117.02 and then more importantly at 117.77/83, which we look to cap."

CNBC reports that Mark Zandi of Moody's Analytics is getting increasingly worried states are taking a large gamble by reopening businesses too quickly.

He warns a spark in new coronavirus infections would send the economy further into tailspin - especially since there's no vaccine.

"If we get a second wave, it will be a depression," the firm's chief economist told CNBC. "We may not shut down again, but certainly it will scare people and spook people and weigh on the economy."

Zandi defines a depression as 12 months or more of double digit unemployment.

On Friday, the Labor Department reported the April jobless rate soared to 14.7%, and non-farm payrolls tumbled by 20.5 million. Both sets of employment data are post-World War II records.

"The market is casting a pretty high probability of a V-shaped shaped recovery," said Zandi. "The horizon may be a little short term: Next month, the month after, the month after that."

Zandi predicts jobs will start to rebound by Memorial Day weekend as businesses reopen. If there's no second wave, he estimates the gains will flow through the summer into early fall.

"After that, I think we're going to be in quicksand because of the uncertainty around the virus and the impact that it's going to have on consumers and businesses," he added.

For the economy to get back on track, he contends it's necessary to get solid progress on a vaccine. A delay or failure to come up with a vaccine within the next year or so would also cause a 1930s-type downturn, according to Zandi.

FXStreet reports that according to FX Strategists at UOB Group, USD/CNH could slip back to the 7.0535 level in the next weeks.

24-hour view: "Our expectation from last Friday for USD to 'weaken further to 7.0680' was incorrect as it rebounded from a low of 7.0814. Downward pressure has dissipated quickly, and USD has likely moved into a consolidation phase and is expected to trade between 7.0800 and 7.1050."

Next 1-3 weeks: "After USD surged strongly last Friday, we indicated on Monday (04 May, spot at 7.1370) that the 'rebound in USD has room to test the March's peak near 7.1650'. We added, 'the odds for USD to move above this level in a sustained manner are not high'. USD subsequently traded in a quiet manner for a few days before lurching lower yesterday. The risk has shifted quickly to the downside and from here; USD could test the end-April low of 7.0535. On the upside, only a move above 7.1180 would indicate the current downward pressure has eased."

Bloomberg reports that for investors wondering what it will take to shake the yuan out of its recent slumber, Goldman Sachs Group Inc. has an answer: focus on tariffs.

Events related to tariffs in the China-U.S. trade dispute have a bigger influence on the currency than other issues, such as as restrictions on the technology industry or those linked to Hong Kong or Taiwan, Goldman economists led by Hui Shan wrote in a note dated May 8.

The yuan weakened an average of about 1% in the week after five events related to tariffs in 2018 and 2019, according to Goldman. News about other points of contention in the China-U.S. relationship led to "no consistent moves," the bank said.

Swings in China's currency have been muted recently, with a measure of historical volatility dropping to the lowest level in more than three months. The yuan rose just 0.3% in April, which was the smallest monthly move since November.

China-U.S. tensions have worsened recently, with a dispute between the nations over the origins of the coronavirus threatening to derail an initial trade agreement. U.S. President Donald Trump cast doubt on the future of that deal on Friday, saying he's "having a very hard time with China."

FXStreet reports that fresh research conducted by the European Central Bank (ECB) suggested on Monday, the impact of the exchange rate price action on the Eurozone consumer price inflation has reduced and is close to insignificant.

"While a weaker euro does raise import prices, the impact on the bank's key measure, the so-called harmonized index consumer prices (HICP) is close to insignificant."

"A 1% depreciation of the euro raises total import prices in the euro area and its member countries by, on average, about 0.30% within a year."

"Over the same period, headline HICP rises by about 0.04%, although the estimates are not always significantly different from zero."

According to the report from Istat, in March 2020 the seasonally adjusted industrial production index decreased by 28.4% compared with the previous month. The change in the first quarter of this year with respect to the previous one was -8.4%.

The index measures the monthly evolution of the volume of industrial production (excluding construction). With effect from January 2018 the indices are calculated with reference to the base year 2015 using the Ateco 2007 classification (Italian edition of Nace Rev. 2).

The calendar adjusted industrial production index decreased by 29.3% compared with March 2019 (calendar working days being 22 versus 21 days in March 2019).

The unadjusted industrial production index decreased by 27.1% compared with March 2019.

The pandemic emergency impacted on the data collection of the survey and a moderate loss in the responses rate was registered. Strategies implemented to deal with the missing responses allowed to calculate and release accurate indices for March 2020.

FXStreet reports that strategists at Rabobank expect spot Brent prices to remain anchored at $30/bbl in the near-term, however, the medium to longer-term setup is becoming increasingly bullish.

"We expect spot Brent prices to be anchored at $30/bbl until the glut of crude oil storage anchored offshore is worked off in the weeks and months ahead."

"The worst price action is behind us now but the recovery will likely take some time to develop. Prices will struggle to run too far in the short-term as that will just attract barrels out of storage which will pressure spot prices back lower in a vicious cycle."

"We expect the back of the curve to lead oil prices higher in the second half of this year as supply and demand eventually find balance

"We still favor buying deferred crude oil contracts to play the longer-term bullish fundamental story that is forming while simultaneously holding a short calendar spread position at the front end of the curve given the enormous amount of inventories that will need to be financed in the meantime."

Reuters reports that China's monthly auto sales rose for the first time in almost two years in April, industry data showed, as more customers visited showrooms after the economy began to open up and authorities loosened coronavirus-related travel restrictions.

Auto sales in April hit 2.07 million units in the world's biggest car market, up 4.4% from a year earlier, according to data from the China Association of Automobile Manufacturers (CAAM), the country's largest auto industry association.

This follows a 43% drop in March and a sharper 79% plunge in February as the pandemic pummelled auto demand. Monthly auto sales in China last rose in June 2018.

The number of new energy vehicles (NEVs) sold fell for a tenth straight month to 72,000 units, the data showed. NEVs include battery-powered electric, plug-in hybrid and hydrogen fuel-cell vehicles.

The global auto industry has been hit hard by the health crisis, but there is growing optimism of improvement in business in China as the country has largely contained the outbreak and started easing lockdown measures.

FXStreet reports that EUR/USD touched and then bounced off the near-term support line at 1.0769 last week. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, analyzes the EUR/USD technical picture.

"We may see a recovery to the top of the range at 1.0988. This latter level will be reinforced by the 200-day ma at 1.1027 currently. The market is side lined, but bid in its range near-term and we look for a rally to the top of this range."

"Below 1.0769 will target the 1.0727 24th April low and potentially the 1.0636 March low and the 1.0340 2017 low."

CNBC reports that according to a forecast by think tank Center for Strategic and International Studies the coronavirus pandemic will cause China's purchases of U.S. goods this year to fall way short of what was agreed to in the "phase one" trade deal.

The American think tank projected that exports of U.S. goods to China could come in at only $60 billion for all of 2020 - much lower than the $186.6 billion needed to meet requirements in the agreement that both countries signed in January.

That forecast was "admittedly" a "worst-case scenario" because Chinese purchases of U.S. goods could rise later in the year as the economy recovers, but any increases still "will not change the overall picture, just the details," Scott Kennedy, senior advisor and trustee chair in Chinese business and economics at CSIS, wrote in report.

"The targets were never realistic; they were just gaudy numbers meant to impress. The pandemic made the unrealistic the impossible," he said.

The coronavirus was first detected in China late last year, and Beijing responded by taking measures that many considered draconian - such as locking down cities, suspending public transport and shutting businesses - to contain the outbreak. Those measures led to a plunge in demand for goods and services in China, one of the world's largest consumer markets.

Consequently, U.S. goods exports to China fell by 10% year over year in the first quarter of 2020, noted Kennedy, citing data from the U.S. Commerce Department. Official U.S. data for services is not yet published, but "it is likely to show a huge falloff due to the collapse of Chinese travel and tourism and the early closing of U.S. universities," he added.

On Monday, the dollar rose against most major currencies as attempts by the United States and other countries to reopen their economies raised investors hopes for a rapid recovery in the global economy after a deep recession caused by the coronavirus crisis. California, Michigan and Ohio, three important states for manufacturing in the US, are taking steps to allow factories and some businesses to resume operations.

However, concerns about the spread of COVID-19 remain. US Vice President Mike Pence is being quarantined at the White house, representatives of the press service said on Sunday. He isolated himself after his employee tested positive for a new coronavirus. Officials in China have reported a new outbreak of infections in the North-Eastern province of Jilin, which is another cause for concern. And in Wuhan, five new cases of coronavirus infection were detected.

The British pound was almost unchanged against the dollar and euro after British Prime Minister Boris Johnson said on Sunday that he intended to gradually ease all restrictions due to the coronavirus.

The Australian dollar, which is often traded as a risk indicator due to its close ties to the Chinese economy and commodities, has recovered from an early fall.

FXStreet reports that cable is seen navigating the 1.2280-1.2500 range for the next weeks, suggested FX Strategists at UOB Group.

24-hour view: "We noted last Friday that GBP "has picked up some momentum" and expected it to strengthen but were of the view that "1.2450 is unlikely to come into the picture". However, GBP spiked to a high of 1.2466 during NY hours before easing off quickly. Upward pressure has eased and for today, GBP is expected to consolidate, likely staying within Friday's 1.2354/1.2466 range."

Next 1-3 weeks: "The break of the 'strong support' level at 1.2370 on Wednesday (06 May) suggests that last week's 1.2644 high could be a short-term top. That said, downward momentum is lackluster and it is too early to expect a sustained decline. From here, GBP is more likely to consolidate and trade between 1.2280 and 1.2500 for a period."

• CNBC reports that from Monday, citizens who cannot work from home are being "actively encouraged" to go back to work, but avoid using public transport if possible.

• People will also be allowed to take unlimited amounts of exercise from Wednesday.

• Johnson added that "some hospitality places" could be open in July, also stating it will "soon be time" to impose quarantine on people traveling to the country by air.

• ECB measures form a powerful package

• Rating downgrades may be a risk to policy discussion

• ECB has not discussed impact of rating downgrades on purchases

FXStreet reports that FX Strategists at UOB Group noted EUR/USD is still seen navigating a broad 1.0730-1.0950 range in the next weeks.

24-hour view: "We highlighted last Friday that a 'short-term bottom is in place' and expected EUR to 'probe the top of the expected 1.0815/1.0885 consolidation range first'. EUR did not probe the 1.0885 level as it traded between 1.0813 and 1.0875. The current movement is still viewed as a consolidation phase. In other words, EUR is expected to trade sideways for today, likely within a 1.0805/1.0885 range."

Next 1-3 weeks: "There is not much to add to our update from Wednesday (06 May, spot at 1.0835). As highlighted, the recent sharp but short-lived swings have resulted in a mixed outlook. From here, EUR could continue to trade in an erratic manner and within a relatively broad range of 1.0730/1.0950 for a period."

Ifo institute also note that 50% of companies in hotels, 58% in restaurants business, 43% in travel agencies decided to cut jobs last month.

• CNBC reports that South Korea on Sunday warned of a second wave of cases as a new cluster formed around a number of night clubs. It shut down all night clubs, bars and discos in its capital Seoul.

• The number of cases worldwide crossed 4 million as governments planned to reopen economies, raising risks of a second wave of infection.

• India reported 4,213 new coronavirus cases in the last 24 hours to bring its tally of confirmed infections to 67,152, according to the latest data by the Ministry of Health and Family Welfare.

• Global cases: More than 4.09 million

• Global deaths: At least 282,553

• Most cases reported: United States (1,329,072), Spain (224,350), United Kingdom (220,449), Italy (219,070), Russia (209,688)

EUR/USD

Resistance levels (open interest**, contracts)

$1.1028 (1401)

$1.0959 (1458)

$1.0910 (551)

Price at time of writing this review: $1.0848

Support levels (open interest**, contracts):

$1.0791 (1195)

$1.0768 (2240)

$1.0739 (2396)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 5 is 83091 contracts (according to data from May, 8) with the maximum number of contracts with strike price $1,0600 (3878);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2580 (1030)

$1.2553 (1050)

$1.2530 (1141)

Price at time of writing this review: $1.2426

Support levels (open interest**, contracts):

$1.2351 (1083)

$1.2282 (350)

$1.2218 (1158)

Comments:

- Overall open interest on the CALL options with the expiration date June, 5 is 21819 contracts, with the maximum number of contracts with strike price $1,3500 (3410);

- Overall open interest on the PUT options with the expiration date June, 5 is 24622 contracts, with the maximum number of contracts with strike price $1,3500 (3095);

- The ratio of PUT/CALL was 1.13 versus 1.00 from the previous trading day according to data from May, 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.