CFD Markets News and Forecasts — 12-07-2021

• We are on track to beat our vaccination targets
• We do not believe infection rates will put unsustainable pressure on British healthcare system
• We will move to the next stage of the roadmap

eFXdata reports that analysts at Citi discuss the current market conditions and the USD outlook. 

"We think that the latest risk-off episode has probably mostly run its course, as we expect 1) the impact of the Delta variant on markets to be limited, 2) the global recovery to remain in place, and 3) central bank policy to be data-dependent and able to pivot if needed, but of course some risks remain."

"CitiFX Strategy continues to believe that the path of least resistance remains for a lower USD; however, that path will be tested by plenty in the week ahead by way of central bank events and top-tier data."

• Thanks to widespread vaccinations and robust support from fiscal policy, economy is reopening more quickly and more strongly than expected
• After sharp declines in employment, production, and prices last year, the opposite is now occurring. As a result, we are seeing a record number of job openings, supply bottlenecks in sectors such as autos, and sharp increases in prices for some high-in-demand goods and services
• I expect inflation-adjusted, or real, GDP to increase 7% this year; if that forecast comes true, that would be the fastest y-o-y growth rate since 1984
• I cannot stress enough that we still have long way to go to get back to full strength; there are still over seven million fewer jobs today than before the pandemic
• Recent inflation data have moved up sharply, which has garnered a great deal of attention; my view is that spike in inflation mostly reflects temporary effects of surprisingly rapid opening of the economy
• I expect that as price reversals and short-run imbalances from the economy reopening play out, inflation will come down from around 3% this year to close to 2% next year and in 2023. It goes without saying that there is a great deal of uncertainty about the inflation outlook, and I will be watching the data closely
• It’s clear that the economy is improving at rapid rate, and the medium-term outlook is very good. But the data and conditions have not progressed enough for FOMC to shift its monetary policy stance of strong support for economic recovery

FXStreet reports that economists at the Bank of Montreal (BMO) believe that oil market participants are likely to remain on pins and needles given that there are a number of feasible scenarios for the outcome of the OPEC+ output dispute that could unfold. They would categorize the three key ones as follows:

1) “The cartel comes to an agreement before the end of the month that essentially sticks with the framework that members had reportedly agreed to on July 2, which was to lower the current production cut of 5.8 mb/d by 400 kb/d per month until the end of the year. In tandem, the United Arab Emirates (UAE), which had vetoed the initial agreement, is somehow appeased and allowed to marginally increase its production. Such an outcome would likely entail, at least for now, dropping reported plans to extend the current agreement from April to December 2022. This compromise would likely support crude oil prices at current levels.”

2) “Members maintain the status quo and the current production cut of 5.8 mb/d remains in place until April 2022. This would likely provide a temporary lift to crude oil prices but could eventually result in heavy downward pressure if it appears that there will be no extension of the cartel’s production cut strategy.”

3) “The oil cartel effectively breaks down or dissolves. Members will no longer comply with mandated quotas and raise production to grab as much market share as soon as possible. This would likely lead to a rapid escalation in global supply and place heavy downside pressure on crude oil prices.”

U.S. stock-index futures traded mixed on Monday, as investors prepared for a busy week of important economic data, the big U.S. banks' Q2 earnings, and the U.S. Federal Reserve Chair Jerome Powell’s semi-annual testimony to Congress, while assessing the worrying global coronavirus situation.

Global Stocks:

FXStreet reports that according to FX Strategists at UOB Group, USD/CNH now seems to have moved into a consolidative phase, likely between 6.4600 and 6.5000.

24-hour view: “Our view for USD last Friday was that ‘there is room for USD to move above 6.5000 but the next resistance at 6.5060 is likely out of reach’. Our view was not wrong as USD subsequently rose to 6.5000 before pulling back. Upward pressure has waned and the current movement is viewed as part of a consolidation. For today, USD is likely to trade between 6.4670 and 6.4900.”

Next 1-3 weeks: “The failure to break clearly above 6.5000 coupled with waning shorter-term upward momentum suggests that USD is unlikely to strengthen further. In other words, the upside risk in USD that started in the middle of last week has ended sooner than expected. The current movement is viewed as part of a consolidation phase and USD could trade within a 6.4600/6.5000 range for a period of time.”

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

Chevron (CVX) initiated with an Outperform at BMO Capital Markets; target $123

3M (MMM) downgraded to Underperform from Peer Perform at Wolfe Research; target lowered to $215

Travelers (TRV) upgraded to Equal-Weight from Underweight at Morgan Stanley; target $166

FXStreet reports that analysts at ING suggest that the NZD/USD pair could retest its cycle highs later this year.

“Markets have likely turned a blind eye to domestic factors for many pro-cyclical currencies over the past few weeks, with global risk dynamics driving most losses. This was the case for NZD too.” 

“Markets are almost fully pricing in a rate hike by year-end from the RBNZ, which is now looking increasingly likely.”

“We think the chances of a late-2021 hike are 50/50, but surely the reasons to keep the stimulus going in other forms are lacking, so some material tapering should be on the way. This should keep the rate profile of NZD significantly more attractive than AUD and support a move to 0.75 in NZD/USD by year-end.”

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

“China’s Producer Price Index (PPI) and Consumer Price Index (CPI) inflation moderated in June.”

“Domestic measures to contain commodity price gains may have helped to stabilize the PPI but elevated global crude prices and higher freight costs as a pick-up in seasonal demand towards year-end exacerbates the tight supply chain which in turn may further contribute to the price pressure. The PPI inflation is likely to stay elevated in 2H21 and we maintain our full-year forecast of 7.5% (2020: -1.8%).”

“The pass-through to CPI may continue to stay muted due to a more gradual recovery in demand. The headline inflation may slip slightly below 1.0% y/y in 3Q21 before rebounding in 4Q21. With 1H21 CPI inflation averaging just 0.5%, we have revised down our full-year 2021 CPI forecast to 1.1% from 1.9% (2020: 2.5%).”

“We see scope for a targeted reduction in RRR in 3Q21 while we maintain our expectation for the Loan Prime Rate (LPR) to be kept unchanged this year with the 1Y LPR and the 5Y & above LPR at 3.85% and 4.65% respectively.”

USD advanced against most of its major rivals in the European session on Monday as market participants prepared for a busy week of important economic data and the U.S. Federal Reserve Chair Jerome Powell’s semi-annual testimony to Congress.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, rose 0.29% to 92.40.

This week's economic calendar includes data on consumer prices, producer prices, industrial production and retail sales for June. In addition, the U.S. Federal Reserve Chair Jerome Powell is set to appear before Congress on Wednesday and Thursday.

Investors will be scrutinizing the data, particularly the June inflation readings, and Powell's testimony for more clues on whether the Fed officials will move with tapering the QE program in the near future.

Meanwhile, the investors’ sentiment remained pressured by a worrying coronavirus situation. The media reported that Australia is to extend its COVID lockdown for Sydney, while South Korea plans to adopt stricter social distancing measures for two weeks due to a spike of coronavirus infections. The data from the U.S. have recently shown an uptick in coronavirus cases.

FXStreet reports that according to the economists at ING, the CAD could retest its cycle highs against the USD later this year.

“The loonie has been caught in the crossfire of unstable risk appetite and the impasse at the OPEC+, but is still counting on a solid set of fundamentals.” 

“The worst of the data-flow affected by the spring flare-up in COVID-19 cases in Canada is likely past us, and the fast vaccination roll-out is offering hope for a summer of robust data.” 

“The Bank of Canada will taper asset purchases again in 3Q, keeping the policy message firmly on the hawkish side. The main risks for the loonie are related to a slowdown in the US recovery or a sharp drop in oil prices. Neither of these are our base case, and we still expect sub-1.20 levels in USD/CAD in 4Q21.”

NFXStreet notes that EUR/USD’s rebound from 1.1782 low last week fizzles out. Nonetheless, economists at Société Générale expect the pair to surpass the 1.1900 level towards the 200-day moving average.

“EUR/USD has embarked on a rebound after forming a bullish engulfing near a multi-month line at 1.1770.”

“Overcoming 1.1900 can lead to a larger bounce towards 200-DMA at 1.1980/1.2010."

• Says he is not ready to call for end to Fed's bond-buying stimulus given where labor market stands today
• If labor market can clear relatively quickly, then maybe it can happen sooner, but if it takes longer for labor market to reopen, it goes little later
• Says that employment-to-population ratio is important to him in determining when Fed can dial back on stimulus; says he would like to see something just north of 59% before he believes it would be time to start reducing bond buying
• Says inflation could cool more than expected once economic reopening process is complete
• Once supply-chain-driven surge in inflation is through, there will be a reversion

• Risks to growth are seen as broadly balanced
• The spread of mutations show we should not be complacent
• We expect inflation to be on rise until the year-end
• Inflation allowed to overshoot depending on circumstances
• We will discuss new forward guidance next week; that includes new definition of price stability
• We will decide on PEPP transition in near future

July 13

Before the Open:

Goldman Sachs (GS). Consensus EPS $9.84, Consensus Revenues $12172.42 mln

JPMorgan Chase (JPM). Consensus EPS $3.12, Consensus Revenues $29737.60 mln

PepsiCo (PEP). Consensus EPS $1.53, Consensus Revenues $17975.24 mln

July 14

Before the Open:

Bank of America (BAC). Consensus EPS $0.76, Consensus Revenues $21803.23 mln

Citigroup (C). Consensus EPS $1.91, Consensus Revenues $17303.94 mln

Delta Air Lines (DAL). Consensus EPS -$1.40, Consensus Revenues $6243.74 mln

Wells Fargo (WFC). Consensus EPS $0.92, Consensus Revenues $17673.80 mln

July 15

Before the Open:

Morgan Stanley (MS). Consensus EPS $1.64, Consensus Revenues $13955.90 mln

UnitedHealth (UNH). Consensus EPS $4.45, Consensus Revenues $69512.96 mln

After the Close:

Alcoa (AA). Consensus EPS $1.28, Consensus Revenues $2623.55 mln

FXStreet reports that economists at ING expect the Chinese yuan to suffer in the coming weeks.

“We have revised our USD/CNY forecasts to 6.55 and 6.45 for the end of 3Q21 and 4Q21, respectively. The pair ranged between 6.46 and 6.48 since late June. But this is likely to change as we expect a softening of the yuan in 3Q21 that will stem from more hawkish talk by the Fed but a ‘balanced’ tone by PBoC, which means no hike for this year.”

“Market sentiment on the yuan could change from appreciation to depreciation against the dollar.”

CNBC reports that Singapore’s Senior Minister Tharman Shanmugaratnam said that the next global pandemic could happen at any time and the world must start preparing for it now.

“We don’t have the luxury of waiting for Covid to be over before we start preparing for the next pandemic, because the next pandemic can come any time,” Tharman said.

“So we’ve got to use our current effort to tackle Covid, to also build up the capacities required to head off the next pandemic,” he added.

A G-20 panel of global experts on Friday released a report proposing measures to prevent outbreaks and quickly respond to any future pandemic. Tharman co-chairs the panel with former U.S. Treasury Secretary Larry Summers and World Trade Organization Director-General Ngozi Okonjo-Iweala.

The measures include “better and more reliable funding” for the World Health Organization, as well as tapping multilateral institutions such as the World Bank and International Monetary Fund to help fund the fight against a pandemic, said Tharman.

He added that the current international system to respond to a global pandemic is “fragmented” and “under-funded.” To plug that gap, the panel proposed setting up a new global fund with a minimum $10 billion a year, said the Singapore minister.

Reuters reports that a source with knowledge of Bank of Japan thinking said that the Bank of Japan will consider buying green bonds as part of a joint effort among Asian central banks to promote the region's bond market.

The BOJ will make the purchases through the "Asia bond fund," which was created in 2005. The move will be among measures the BOJ will take to combat climate change, to be released as early as this month, the source said on condition of anonymity due to the sensitivity of the matter.

FXStreet reports that ING economists discuss EUR/USD prospects.

“This month we are revising our EUR/USD profile to adjust for a Fed seemingly ready to hike rates in late 2022. That is much earlier than the 2024 initially envisaged under its new inflation targeting framework. That window for our forecast EUR/USD move as high as 1.28 looks to be closed on a more hawkish Fed. Yet the big, broad turn higher in the dollar should really start in 2Q22 – six months before the Fed starts tightening. Before then, EUR/USD should be able to trace out a 1.17-1.23 range. We still think 1.23 is possible because of strong growth momentum into 2H21 and an ECB that may too have to reconsider its ultra-dovish settings when it meets in September.”

Reuters reports that British Prime Minister Boris Johnson will urge caution on Monday as he is expected to confirm plans to remove nearly all remaining COVID-19 restrictions in England from July 19, despite a surge of cases to levels unseen for months.

"The global pandemic is not over yet," he said in a statement released late on Sunday.

"Cases will rise as we unlock, so as we confirm our plans today, our message will be clear. Caution is absolutely vital, and we must all take responsibility so we don’t undo our progress."

Britain has implemented one of the world's fastest vaccination programmes, with more than 87% of adults having received at least one dose of a COVID-19 vaccine and 66% having received two.

Nevertheless, recent weeks have seen a striking surge of infections, to rates unseen since the winter.

The government argues that even though cases have surged, deaths and hospitalisations remain far lower than before, proof that the vaccines are saving lives and it is safer to open up.

CNBC reports that according to investment bank UBS, China’s move to cut the amount of funds banks need to hold in reserve could boost market sentiment — and that could be good news for stocks in certain sectors, 

The People’s Bank of China said Friday it would cut the reserve requirement ratio (RRR) by 50 basis points for all banks, effective from July 15. The move is expected to release around 1 trillion yuan (or $154 billion) in long-term liquidity into the economy.

“We think this broad-based RRR cut could boost market sentiment in the short term and improve stock market liquidity,” UBS analysts Lei Meng and Eric Lin said in a note on Monday.

In the short term, the move could boost liquidity-sensitive sectors, such as aerospace and defense, electronics, IT and media, according to UBS.

Companies with strong earnings expectations could also outperform, UBS said, citing sectors such as electric vehicles and batteries, and the new energy sector.

However, the market rally may be short-lived given concerns over China’s slowing economic growth, the bank indicated.

FXStreet reports that Natixis said that given the large share of US debt in the hands of foreign investors, the risk of a sell-off has direct implications on the dollar reserve currency status.

“The dollar remains the world’s largest reserve currency, but it is facing both domestic and external risks. The domestic risk is really about the need to finance a huge debt fed by monetary and fiscal stimuli, particularly after COVID-19. The jury is still out as to whether the U.S. will remain productive enough, and thus grow enough, to repay the debt.”

“On the external front, it is really all about China and its quest to elevate the RMB to the podium of reserve currencies but also to bypass the dollar. To that end, the current plan is to step up the cross-border use of China’s digital currency. China’s huge economic size will help, but as long as the currency is not fully convertible, it will take time for the currency to be fully accepted beyond its borders.”

RTTNews reports that data from Destatis showed that Germany's wholesale prices increased at the fastest pace since 1981.

Wholesale prices grew 10.7 percent year-on-year in June, following May's 9.7 percent increase. The annual growth was the biggest since October 1981, when prices were up 11 percent amid oil crisis.

The high rates partly reflect the low base effect as prices were low in the same period of previous year in connection with the coronavirus crisis.

On a monthly basis, wholesale price growth eased to 1.5 percent in June from 1.7 percent in May.

During today's Asian trading, the US dollar rose against major currencies, ahead of the release of some key US data this week, including retail sales and inflation data for June. Investors also continue to monitor the situation with the spread of new strains of coronavirus amid concerns about the forecast of global economic growth.

The European Central Bank (ECB) will outline new guidelines for the future direction of monetary policy at a meeting on July 22, ECB Head Christine Lagarde said. She also made it clear that the European Central Bank may introduce new measures to support the economy next year, when the Pandemic Emergency Purchase Program (PEPP) expires.

Earlier today the yen showed growth against most currencies of the G-10 countries and Asia amid weakening risk appetite and worries about the growth of the Chinese economy. The decision of the People's Bank of China (PBOC) to reduce mandatory reserve ratios for banks, which was announced last week, surprised the markets with its scale, pointing to a slowdown in the growth of the world's second largest economy.

Less than two weeks before the opening of the Olympics in the Japanese capital, an emergency situation has been maintained since Monday in order to prevent the spread of the coronavirus, local authorities said.

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 0.13%.

CNBC reports that Italian Central Bank Governor Ignazio Visco said that despite gradually recovering economies and summer tourism reopening in many parts of the euro zone, it’s not time to end emergency stimulus measures yet.

Visco was referring specifically to the pandemic emergency bond purchases, or PEPP, deployed in spring 2020 to shore up the economy as the pandemic-induced economic crisis engulfed Europe and much of the world. 

Asked whether he felt the calls by some European officials for lowering the bond purchases were premature, Visco replied, “We have not discussed this.” But he added, “The effects of the pandemic are not only on the volatility of markets, but also on the ability to go back to the 2% aim,” referring to the euro zone’s inflation target.

“Therefore until we are not, well, somehow moving towards that target, I think we have to maintain all our instruments, and we will discuss them in our meetings,” Visco said, stressing the ECB’s reliance on incoming economic data. 

“Obviously this is something that is both data-driven and it’s not path-dependent, it is state-dependent, so this is really what we have to do — observe, understand and then decide,” Visco added.

FXStreet reports that FX Strategists at UOB Group said that GBP/USD could reach the 1.3960 level in the next weeks.

Next 1-3 weeks: “We highlighted last Wednesday that ‘downward momentum is beginning to build but GBP has to close below 1.3735 before a sustained decline can be expected’. As GBP struggled to move lower, we highlighted on Friday that ‘while there is still chance for GBP to close below 1.3735, the odds for such a move have diminished’. That said, we did not expect the subsequent strong surge in GBP that sent it a high of 1.3909. The rapid rise has shifted the risk to the upside and GBP could advance to 1.3960. At this stage, prospect for a sustained rise above this level is not high. The upside risk is deemed intact as long as GBP does not move below the ‘strong support’ level at 1.3800.”

Reuters reports that U.S. Treasury Secretary Janet Yellen said that a new mechanism to allow more countries to tax large, highly profitable multinational firms may not be ready for consideration by lawmakers until the spring of 2022.

Yellen said that the OECD “Pillar 1” re-allocation of taxing rights was on a “slightly slower track” than a global corporate minimum tax of at least 15% as part of a major tax deal among 132 countries.

G20 finance ministers and central bank governors endorsed the deal over the weekend, but questions remain over the ability of U.S. President Joe Biden’s administration to persuade a deeply divided Congress to ratify the changes.

Yellen said she hoped to include provisions to implement the so-called “Pillar 2” global minimum tax into a budget “reconciliation” bill this year that Congress could approve with a simple majority.

The “Pillar 1” portion of the agreement would end unilateral taxes on digital services in exchange for a new mechanism that would allow large profitable companies to be taxed in part based on where they sell products and services, rather than where their headquarters and intellectual property reside.

This will require a multilateral tax agreement that will take time to negotiate, a Treasury official said.

RTTNews reports that the Cabinet Office said that the total value of core machine orders in Japan climbed a seasonally adjusted 7.8 percent on month in May, standing at 865.7 billion yen. That exceeded expectations for an increase of 2.6 percent following the 0.6 percent increase in April.

On a yearly basis, core machine orders jumped 12.2 percent - again beating forecasts for 6.3 percent after rising 6.5 percent in the previous month.

Manufacturing orders were up 2.8 percent on month and 37.9 percent on year at 390.1 billion yen, while non-manufacturing orders jumped 10.0 percent on month but fell 4.7 percent on year to 453.2 billion yen.

Also on Monday, the Bank of Japan said that producer prices in Japan were up 0.6 percent on month in June, following the upwardly revised 0.8 percent increase in May (originally 0.7 percent).

On a yearly basis, producer prices climbed 5.0 percent - easing slightly from 5.1 percent in the previous month.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2027 (2209)

$1.1992 (2867)

$1.1964 (1213)

Price at time of writing this review: $1.1866

Support levels (open interest**, contracts):

$1.1828 (701)

$1.1801 (1689)

$1.1768 (1924)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date August, 6 is 57408 contracts (according to data from July, 9) with the maximum number of contracts with strike price $1,1700 (10526);

GBP/USD

$1.4017 (636)

$1.3990 (1028)

$1.3968 (665)

Price at time of writing this review: $1.3885

Support levels (open interest**, contracts):

$1.3844 (1300)

$1.3825 (1537)

$1.3802 (814)

Comments:

- Overall open interest on the CALL options with the expiration date August, 6 is 9259 contracts, with the maximum number of contracts with strike price $1,4000 (1284);

- Overall open interest on the PUT options with the expiration date August, 6 is 13345 contracts, with the maximum number of contracts with strike price $1,3950 (1537);

- The ratio of PUT/CALL was 1.44 versus 0.88 from the previous trading day according to data from July, 9

* - 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.