CFD Markets News and Forecasts — 11-11-2020

FXStreet notes that New Zealand’s success in containing the pandemic combined with optimism about a vaccine meant that the RBNZ’s warning about a negative interest and the potential purchase of overseas asset fell on deaf ears. USD/NZD pushed higher, though it is now struggling to hold the day’s best levels just above 0.69. Economists at Rabobank forecast the kiwi at 0.68 on a one-month view.

“As expected the RBNZ announced a Funding for Lending programme overnight stating that it will reduce banks' funding costs and reduce interest rates." 

“New Zealand has been very successful at preventing the spread of the coronavirus but says that the shock to the economy ‘is very large and persistent and inflation and employment targets will remain below the remit targets for a prolonged period’. The markets, however, were not listening to the dovish overtures.”

“RBNZ’s warning about both a negative interest combined with the possibility that it may buy overseas assets both underscore that it may take policy decisions that are particularly biased towards undermining the value of the NZD.”

“Despite the plentiful risks on the economic front, the geopolitical front and potentially from China this week’s vaccine news has brightening the horizon. Consequently, we have toned down our forecast for another surge of USD strength in the months ahead. We are now forecasting NZD/USD at 0.68 on a one-month view and at 0.69 in six months.” 

FXStreet notes that silver (XAG/USD) has rallied to and failed at the three-month downtrend at 26.00. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, is unable to rule out losses to the 200-day ma at 20.22 but 21.64/63 is still acting as a decent support.

“Silver has rallied to and so far failed at its three-month downtrend at 26.00.”

“The downtrend at 26.00 represents the barrier on the topside. This guards the 28.93 and 29.89 recent peaks.”

“Initial support lies at 22.59, the low from end of October.The 21.40 2008 peak guard the 200-day ma at 20.22, where we would look for signs of stabilisation, if seen.”

To gain the control of the Senate, Democrats have to win both Senate races in Georgia on January 5.

NFXStreet reports that strategists at Commerzbank suggest that gold (XAU/USD) completed rejection from mid-September high at $1973.80 and a breach of the $1850 would turn to a more negative bias for the yellow metal.

“Gold has rallied towards and failed just ahead of the 1973.80 mid-September high, and again sold off to the 1850 low, where it is holding.”

“Should a breach of the 1850 support be seen we would allow for further losses to the 200-day ma at 1784.43 and possibly the May high at 1765.61. This in turn protects the 1714.27 55-week ma.”

“In order to regenerate upside interest, the market will need to regain the mid-September high at 1973.8, for a rally to the 78.6% retracement at 2025 which guards the target band of 2070/2088.”

U.S. stock-index futures rose on Wednesday amid persisting hopes for a quicker-than-expected global economic recovery from the coronavirus pandemic with working vaccine and a rebound in technology stocks after sharp declines earlier this week.

Global Stocks:

FXStreet points out that Pfizer and BioNTech announced that their vaccine has shown a 90% efficacy rate in its Phase 3 trial. The news helped power a significant rally in global stocks. The S&P 500 was up 1.2%, after hitting a record high earlier in the session. Despite Monday's significant rally, economists at UBS continue to believe that stocks will move higher from here. 

“The market reaction underlines our recent message that investors need to diversify for the next leg, toward more cyclical parts of the market that have lagged behind in 2020, and away from big tech and the primary stay-at-home beneficiaries. We have said that the next leg up in stocks would be driven by an end to US political uncertainty and sustainable mobility gains backed by a vaccine. Developments in the past week support our view.”

“The better-than-expected efficacy data increases the chances of achieving our upside scenario, in which social activity fully normalizes by 2Q21 and developed countries' GDP returns to pre-pandemic levels by end-2021.”

“The S&P 500 is moving closer toward our central scenario target of 3,700 by June 2021. However, in our upside scenario, we would expect to see the S&P 500 trading at 3,900 by June. Monday's data reduces the downside risk of no effective vaccine being developed in 2021 while making the upside scenario look more likely.”

“Planning market entry can be difficult when stocks hit record highs due to timing concerns. But reaching a record high in stocks is no obstacle to further gains. Since 1960, one-year returns after the S&P 500 has hit a high have been 11.8%, slightly more than the 11.3% average.”

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

American Intl (AIG) downgraded to Neutral from Buy at Goldman; target raised to $39

• Economy to stagnate over winter months due to second wave of infections, renewed lockdown measures
• ECB should end its Pandemic Emergency Purchase Program (PEPP) as soon as the economic recovery is taking hold

• When thinking about favourable financing conditions, what maters is not only the level of financing conditions but the duration of policy support
• Recovery from a services-led recession tends to be slower than from a durable-goods led recession
• All options are on the table
• We will continue to deliver the conditions necessary to protect the economy from impact of pandemic
• It is crucial that monetary policy ensures favourable financing conditions for the whole  economy
• The recovery from the pandemic could be bumpy
• Developments in exchange rate may have negative impact on the path of inflation
• Even if second wave proves to be less intense, it poses no less danger to the economy
• Fiscal policy has to remain at the centre of the stabilization effort

GBP fell against most of its major counterparts in the European session on Wednesday as reports that the EU and the UK are likely to continue discussions of their post-Brexit trade relations past the mid-November deadline somewhat clouded optimism that a potential vaccine against COVID-19 would bolster the UK's economy, which was hit hard by the virus.

Reuters reported, citing sources familiar with the matter, that ongoing talks in London are expected to run until the end of the week but the EU diplomats do not expect updates this week with Brexit tentatively being on the agenda for the 18 November meeting between the ambassadors of the 27 EU member states. The EU sources also told Reuters that they now expected negotiators to come up with an agreed text in the middle of next week, unless talks collapse or there is a breakthrough earlier. One EU diplomat added that the real deadline is "late next week". Uncertainty around the UK’s future trading relations with the EU weighs on the pound.

FXStreet reports that Senior Economist at UOB Group Alvin Liew reviewed the potential scenarios following the U.S. elections.

“Following a few days of uncertainty, on Sunday (8 Nov), Joe Biden was declared as PresidentElect with 290 votes against Trump’s 214 votes, after being awarded the electoral votes of Pennsylvania and Nevada.”

“President Trump has not conceded and his legal team will continue legal election challenges in key states. Barring any unlikely litigation surprises in Trump’s favour, all the election-related legal disputes are expected be resolved and all states will have certified election results by the 8 December safe harbor deadline.”

“But attention on the US elections is not over yet, and the focus shifts to the Senate race where the control of the upper chamber of the US Congress remains undecided as Democrats and Republican seats are tied at 48 seats each. Key to the race will be the two Senate seats in Georgia in a runoff election on 5 Jan 2021, because no single candidate managed to win more than 50% of the votes as required by the state laws of Georgia.”

“Our base case remains that it is likely to be a divided Congress where Republicans retain a slim majority in the Senate (51-49) under a Democrat President Biden and a Democrat-majority House of Representatives. A divided Congress is expected impede on Biden’s ability to push through domestic policies and Senate appointments of key positions in government.”

“Biden’s first announcements after his confirmation as President Elect were to set up a taskforce to combat the surging COVID-19 pandemic and to unify and heal “the divisions and wounds of America”. Beyond containing the pandemic and unifying a polarized America, the immediate US political event to focus on is the 11 December (2020) government funding deadline. The complication with the negotiation is that it will also be tied with a potential fiscal stimulus. Despite the proximity to the deadline, it is still very uncertain how the fiscal stimulus discussion will pan out. If the Congress fails to agree to a government funding bill, the US government will face a partial shutdown before the end of 2020.”

FXStreet notes that the well-telegraphed decision of the Reserve Bank of New Zealand (RBNZ), which left its interest rate unchanged while introduced a Funding for Lending Programme (FLP), has been met with a 1% gain for NZD/USD. Economists at MUFG Bank expect the kiwi to continue to appreciate. 

“Given the current backdrop of a vaccine potentially resolving the COVID-19 pandemic in 2021, investors are more likely to take an optimistic assessment of action. The RBNZ, as expected, launched a Funding for Lending Program totalling NZD28 B with these loans offered at the prevailing OCR. The RBNZ’s outlook though for 2021 improved with real GDP now projected at -4.0% compared to -5.8% expected in August.” 

“New Zealand’s 2-year government bond yield has surged 10bps as negative rate expectations have been reduced. NZD/USD looks to be heading back into a 0.7000-0.7500 range. We doubt this will fuel too much concern within the RBNZ given the brightening prospects for 2021 and given NZD on a TWI basis has been trending lower for 6 years now and is some 12.5% below the peak in 2014. As long as the NZD advance is not rapid, there is upside scope from here.”

Lyft (LYFT) reported Q3 FY 2020 loss of $0.89 per share (versus -$0.41 per share in Q3 FY 2019), being slightly better than analysts’ consensus estimate of -$0.90 per share.

The company’s quarterly revenues amounted to $0.500 bln (-47.7% y/y), beating analysts’ consensus estimate of $0.489 bln.

LYFT rose to $38.33 (+6.32%) in pre-market trading.

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. fell 0.5 percent in the week ended November 6, following a 3.8 percent climb in the previous week.

According to the report, applications to purchase a home decreased 2.6 percent, while refinance applications rose 0.6 percent.

Meanwhile, the average fixed 30-year mortgage rate declined to a survey low of 3.01 percent from 3.01 percent.

“The purchase market continued its recent slump, with the index decreasing for the sixth time in seven weeks to its lowest level since May 2020,” noted Joel Kan, an MBA economist. “Inadequate housing supply is putting upward pressure on home prices and is impacting affordability - especially for first-time buyers and lower-income buyers.”

FXStreet notes that the Canadian dollar, after a difficult week in the run-up to the U.S. election, has regained all the ground it lost against the greenback and is trading near its pre-pandemic level of about 1.30 to the USD. An easing of protectionist tensions between Washington and its allies coupled with the imminence of a new vaccine means that the Canadian dollar will strengthen sooner than that envisioned in the National Bank of Canada’s previous baseline scenario, which assumed vaccine availability in the second half of 2021. 

“The Canadian domestic economy is likely to remain well-supported by generous fiscal stimulus and by the increase in immigration quotas announced by Ottawa on the 30th of October in support of the recovery.”

“The better-than-expected performance of the Canadian economy, coupled with the easing of financial stress, led the Bank of Canada to recalibrate its QE asset-purchase program to $4 billion a week from $5 billion a week. With this backdrop and the good news on the vaccine front, we see the CAD strengthening more than previously anticipated in the months ahead.”

“Our new target is $1.25 to the USD in 2021.”

• Says a deal is doable but difficult

• Europe reflects positive evidence of negative interest rate policy; it has worked fairly well there
• It is important to engage with review of negative rates

• 2021 economic outlook will continue to be bumpy
• We are not excluding any measures ahead of December decision

FXStreet reports that critical now is the 0.8866/64 key price pivot, below which the EUR/GBP should, at last, confirm a major top has been established, per Credit Suisse.

“EUR/GBP weakness has accelerated sharply for not only a clear break of the uptrend from late April and recent low at 0.8966/46 but also and importantly and on a closing basis the 200-day average at 0.8926. This should further increase we are in the process of seeing a major bullish reversal for GBP with critical now the 0.8866/64 key price pivot.”

“Ultimately, we remain of the view the 0.8866/64 mark needs to be removed to suggest we have seen an important top complete to turn the core trend bearish. We would then see support initially at the 0.8671 low from late April, then the ‘neckline’ to the late 2019/early 2010 base at 0.8609, with the ‘measured top objective’ seen at 0.8436.”

Reuters reports that Goldman Sachs lifted its 2020 S&P 500 target to 3,700 points after a much-awaited positive vaccine announcement and Joe Biden's U.S. election win triggered a rally in global stock markets.

“Despite investor focus on the prospective policy implications of the Biden presidency, the vaccine for COVID-19 is a more important determinant of the path of both the economy and stock market in 2021,” the U.S. investment bank wrote in a note to clients.

It sees the S&P 500 hitting 4,300 at year-end 2021, a 21% jump from Tuesday’s closing levels.

JPMorgan said on Monday that it expected the S&P 500 to hit 4,000 points by early 2021.

FXStreet reports that economists at ANZ Bank forecast the yellow metal to reach $2,200 in the first months of the next year. 

“Central banks remain dovish, with interest rates expected to sit near zero. Ongoing quantitative easing should support investor demand.”

“We still expect gold prices to peak $2,200/oz in Q1 2021.” 

“Bond yields rose sharply this week following news of a successful coronavirus vaccine trials. This saw gold prices come under pressure. However, real rates are the real driver of gold prices. And they continued to push higher as inflation expectations rose.”

FXStreet reports that UOB Group’s Economist Ho Woei Chen, CFA, assessed the latest inflation figures in the Chinese economy.

“China’s headline inflation eased sharply to 11-year low in October as food prices came off further. However, the core inflation has remained steady while services inflation edged higher, supporting a more positive outlook as demand recovers. With a high base of comparison, the headline inflation will remain subdued in 4Q20 and we now expect full-year 2020 inflation at 2.6% vs. 3.0% previously. We maintain our outlook for inflation to pick up to 3.0% in 2021 on stronger global economic recovery next year.”

Reuters reports that sources on both sides told that Britain and the European Union are likely to miss their mid-November deadline to clinch a post-Brexit trade because talks in London to break a deadlock are expected to run through the end of this week.

Ambassadors of the 27 EU member states in Brussels will not be updated on the talks at a regular meeting on Wednesday and the issue is now pencilled in for their meeting on Nov. 18, a senior diplomat of the bloc said.

However, in a sign that the estranged allies are still pushing for an agreement, EU sources said they now expected negotiators to come up with an agreed text in the middle of next week, unless talks collapse or there is a breakthrough earlier.

eFXdata reports that MUFG Research discusses the impact of the vaccine news on the FX market. 

"Admittedly, there are still many uncertainties at this stage. According to vaccine experts, questions about production, distribution and, most importantly, the performance and capability of the shot itself still need to be answered including how long will it provide protection for and is it as effective for all age ranges. Nevertheless, it is still an important step forward to exit the COVID crisis and provides a reminder not to bet against human ingenuity," MUFG notes.

"Further positive progress on vaccines will allow currencies which have been hit hard by the COVID crisis to continue to rebound," MUFG adds.

CNBC reports that UBS Chairman Axel Weber cautioned that even with a vaccine, it will take time for the global economy to get back to pre-crisis levels.

“Going forward, I’m not pessimistic. I mean, eventually we’ll get through this. But we should not be under the illusion that it will happen fast, it will take some time,” Weber told CNBC.

“It would be at least a year to go back to pre-crisis levels of GDP (gross domestic product). It’ll take another year or two to be anywhere near getting unemployment and pre-crisis growth back and so it would be quite a long recovery that we’re facing,” he said.

Asked about his reaction to the vaccine, Weber said while “it was definitely good news,” it would take time to roll out vaccination programs at a domestic and global level. The expectation is that Covid-19 vaccines will be given to those in health and service occupations first, as well as the most vulnerable members of society, before it’s rolled out to the rest of the population.

“We’ve been waiting for some good news for some time now ... And the latest news has been really taken well by the market. But you know, you have to take this with a grain of salt,” Weber cautioned.

FXStreet reports that while the fundamental backdrop may suggest less reason to buy the safe-haven USD, the market is still long of the EURs and going into next month’s ECB meeting, economists at Rabobank expect that confidence in that position will be tested.

“The combination of cheap money and vaccine hopes is likely to allow for decent levels of risk appetite and, while there are still risks on the horizon, we have curtailed our expectations for another round of USD strength and revised up our three-month EUR/USD forecast to 1.17 from 1.16 and our 6 mth forecast to 1.18 from 1.14.”

“On September 1 comments from ECB Chief economists made it clear that he was concerned about the summer’s rise in the value of the EUR and the rally in EUR/USD stopped short at 1.20. We still see this area as marking strong psychological resistance for EUR/USD and would expect the currency pair to trade mostly in the 1.20 to 1.16 range in the months ahead.” 

During today's Asian trading, the US dollar fell slightly against the euro, traded steadily against the Japanese yen and rose against the pound.

The dollar's decline is expected to continue, market watchers say. Positive news regarding the development of a coronavirus vaccine is likely to stimulate demand for riskier assets and the abandonment of traditional safe-haven assets.

The fact that Democrats are unlikely to gain control of the Senate means that the size of the stimulus package that may be passed in the future will be reduced, and this will force the Federal reserve to act more decisively to support the economy. Experts note that the dollar will continue to fall in price in the long term due to less favorable than in the past, interest rates in the United States relative to other G10 currencies.

Meanwhile, the US dollar fell 0.9% against the New Zealand dollar after the Reserve Bank of New Zealand expanded its monetary stimulus and retained its interest rate as the economic shock caused by the pandemic is set to remain for a prolonged period.

The ICE index, which tracks the dynamics of the US dollar against six currencies (Euro, Swiss franc, yen, canadian dollar, pound sterling and Swedish Krona), rose by 0.02%

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, expects the GBP/USD to fail in the 1.3310-1.3422 band.

“GBP/USD has maintained upside pressure following the break above the late January, February and March highs at 1.3201/10. However, we believe this is only an a-b-c pattern and we are at the top of a short-term channel and we have the 78.6% retracement at 1.3310. Directly above here lies key resistance offered by the 1.3422 multi-year downtrend and, if seen, we would expect this to again cap and provoke failure. This is reinforced by the 1.3515 December 2019 high.”

CNBC reports that an economist said that a Covid-19 vaccine will not result in an “instant stimulus” to the U.S. economy, which still needs greater fiscal support as its recovery loses momentum.

The vaccine news and better-than-expected U.S. jobs growth in October are “encouraging” developments for the world’s largest economy — but that doesn’t reduce the need for further economic stimulus, said Carl Tannenbaum, chief economist at Northern Trust.

“On the employment front, we still have 10 million Americans that were working in January that are not working today. And those that remain unemployed are seeing a much longer track back to full employment, so they will continue to need a certain amount of support,” he told CNBC.”

“And the other element that I think is a headwind here in the United States ... is state and local governments whose budgets are in terrible disarray at the moment for loss of revenue, they’re laying people off, cutting services and that’s bad for economic activity.”

That’s why the U.S. can’t depend on a vaccine to “solve all our problems,” said Tannenbaum. 

Economist said the U.S. is not likely to get an economic relief package before the presidential inauguration in January, given deep divisions in Congress.

Reuters reports that vehicle sales in China rose 12.5% in October from the same month a year earlier, the seventh straight monthly rise as the world's biggest vehicle market leads the global industry in recovering from lows hit during the COVID-19 pandemic.

Sales reached 2.57 million vehicles last month, data from the China Association of Automobile Manufacturers (CAAM) showed.

This time of year, known as "Golden September, Silver October", is typically a high point in sales for the industry, a time when consumers make purchases after staying away from showrooms during the stifling summer months.

Passenger vehicle sales rose 9%, with some automakers including Toyota booking double-digit growth. For commercial vehicles, which constitute around a quarter of the overall market, sales surged 30%, driven by government investment in infrastructure and as buyers upgraded to comply with tougher emissions rules.

Sales of new energy vehicles (NEVs) surged 105% to 160,000, their fourth consecutive month of gain. NEVs include battery-powered electric, plug-in petrol-electric hybrid and hydrogen fuel-cell vehicles.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1913 (1978)

$1.1887 (2780)

$1.1867 (830)

Price at time of writing this review: $1.1825

Support levels (open interest**, contracts):

$1.1759 (651)

$1.1735 (1640)

$1.1705 (2677)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date December, 4 is 100905 contracts (according to data from November, 10) with the maximum number of contracts with strike price $1,1200 (6147);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3486 (1355)

$1.3425 (1947)

$1.3376 (1659)

Price at time of writing this review: $1.3284

Support levels (open interest**, contracts):

$1.3153 (1121)

$1.3081 (113)

$1.3018 (646)

Comments:

- Overall open interest on the CALL options with the expiration date December, 4 is 23914 contracts, with the maximum number of contracts with strike price $1,3500 (2704);

- Overall open interest on the PUT options with the expiration date December, 4 is 26333 contracts, with the maximum number of contracts with strike price $1,2500 (4660);

- The ratio of PUT/CALL was 1.10 versus 1.10 from the previous trading day according to data from November, 10

* - 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.

RTTNews reports that the Reserve Bank of New Zealand expanded its monetary stimulus and retained its interest rate as the economic shock caused by the pandemic is set to remain for a prolonged period.

The Monetary Policy Committee decided to begin a Funding for Lending Programme in December in order to reduce banks' funding costs and lower interest rates. The committee also decided to continue with the asset purchase programme up to NZ$100 billion and to maintain the official cash rate at 0.25 percent.

Policymakers viewed that economic activity since the August monetary policy statement has proved more resilient that earlier assumed. However, the Covid-19 shock to the economy is very large and persistent, and inflation and employment will remain below the remit targets for a prolonged period.

The MPC expects an ongoing increase in unemployment as the economy adjusts. Consumer price inflation was also projected to remain at the lower-end of the remit target range for a period, and inflation expectations remain subdued.