CFD Markets News and Forecasts — 13-03-2020

FXStreet notes that coronavirus panic overwhelmed market sentiment at the end of February. Strategists at Rabobank assess the effects of the Covid-19 in the FX market. 

“The USD is likely to remain a favoured store of value for many investors through the duration of the coronavirus crisis.”

“We may also see increased dollarization of weaker economies.” 

“Economies like Australia and the UK can use MMT too without weakening their currency too far and/or too rapidly.”

When volatility comes down then the hunt for yield will then re-emerge, and with rates at zero or below across the G10, emerging markets will come back into play.”

According to Reuters, Spain's Prime Minister Pedro Sanchez said on Friday the country would be in a state of emergency for the next 15 days to better fight the coronavirus.

"The government of Spain will protect all its citizens and will guarantee the right life conditions to slow the pandemic with as little inconvenience as possible," Sanchez stated.

The state of emergency will formally be decided by the cabinet meeting on Saturday.

FXStreet reports that Strategists at Credit Suisse analyze the USD/JPY pair, which is trading at 107.135, from a technical perspective.

“USD/JPY has broken below major long term support at 104.55/46, the bottom of the range for the past two years, after an aggressive fall over the past two weeks.” 

“The break below this level completes a large multi-year bear ‘triangle’, which suggests we are likely to see further weakness.”

“Next supports are seen at 100.75/71, which is the 50% retracement of the 2011/2015 move, then more importantly at 100.10/00, a corrective low and psychological barrier, before 99.01.”

FXStreet reports that FX Strategists at UOB Group noted USD/CNH could advance further and re-visit February highs at 7.0567.

24-hour view: “We expected USD to ‘strengthen towards 7.0000’ yesterday. However, it surged to an overnight high of 7.0412 (before extending its gain early this morning). The rapid rise appears to be running ahead of itself and for today, USD is likely to trade within a broad 7.0000/7.0600 range.”

Next 1-3 weeks: “We indicated two days (11 Mar, spot at 6.9600) that ‘a short-term bottom is in place’. We added yesterday (12 Mar) that ‘looking forward, if USD register a daily closing above 7.0000, it would indicate the start of a stronger rebound to 7.0250’. The scenario is supposed to take at least a few days to evolve but USD rocketed to 7.0412 yesterday in one breath. From here, further USD strength would not be surprising and a break of last month’s 7.0567 peak could lead to a move towards 7.0865 (high in Dec last year). On the downside, ‘strong support’ level is at 6.9500.”

• 20 to 30 year sector at 10:30 - 10:45 am and 2:15 to 2:45 pm for around $4 billion each
• 7 to 20 year sector at 11:15 - 11:30 am for around $5 billion
• 4.5 to 7 year sector at 12:00 - 12:15 pm for around $8 billion
• 2.25 to 4.5 year sector at 12:45 - 1:00 pm for around $8 billion
• 0 to 2.25 year sector at 1:30 - 1:45 pm for around $8 billion

He dined with U.S. president Trump on Saturday

A report from the University of Michigan revealed on Friday the preliminary reading for the Reuters/Michigan index of consumer sentiment fell to 95.9 in early March. That was the lowest reading since October 2019.

Economists had expected the index would decrease to 95.0 this month from February's final reading of 101.0.

According to the report, the index of current U.S. economic conditions declined to 112.5 in March from 114.8 in the previous month. Meanwhile, the index of consumer expectations fell to 85.3 this month from 92.1 in February.

The report noted that consumer sentiment fell in early March due to the spreading coronavirus and the steep declines in stock prices. However, it stressed that "the initial response to the pandemic has not generated the type of economic panic among consumers that was present in the runup to the Great Recession. Nonetheless, the data suggest that additional declines in confidence are still likely to occur as the spread of the virus continues to accelerate."

FXStreet notes that FX markets have been confused, to say the least. A return to zero for the Fed would, in normal circumstances, be a major depreciatory force for the USD. Obviously, these are not normal circumstances, economists at TD Securities report.

“We prefer to emphasize the USD's appeal in the short-term even though the strategic outlook has very quickly turned sour.” 

“Market functioning has been impaired and the USD will be in demand. While we do not want to ascribe too much weight to this week's risk asset rout, it is clear that ‘traditional’ correlations or rational expectations are being challenged.”

"After benefiting from a positioning/carry unwind in previous weeks, it is very difficult to see what the EUR has to offer right now." 

“Unless you believe that Europe is the new Japan, the outlook is truly bleak. The region's economy was already teetering on a recession prior to the pandemic anyway. The US travel ban just added insult to injury.”

U.S. stock-index futures surged on Friday, as hopes of the U.S. stimulus package to cushion the coronavirus hit supported a rebound in the stock market, which suffered its worst losses since the "Black Monday" market crash in 1987 in the previous session.

Global Stocks:

Says this is the "second inning" of the baseball game regarding congressional action

He will address issues with the airline industry next

Negotiations are going very well with House Speaker Nancy Pelosi

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

The Labor Department reported on Friday the import-price index, measuring the cost of goods ranging from Canadian oil to Chinese electronics, fell 0.5 percent m-o-m in February, following a revised 0.1 percent m-o-m gain in January (originally flat m-o-m). Economists had expected prices to drop 0.8 percent m-o-m last month.

According to the report, in February, falling import fuel prices (-7.7 percent m-o-m, the largest monthly decline since June 2019) more than offset higher prices for nonfuel imports (+0.3 percent m-o-m).

Over the 12-month period ended in February, import prices decreased 1.2 percent, driven by declines in both fuel (-5.8 percent) and nonfuel (-0.7 percent) prices.

Meanwhile, the price index for U.S. exports tumbled 1.1 percent m-o-m in February, following a revised 0.6 percent m-o-m gain in the previous month (originally a 0.7 percent m-o-m climb). That was the largest monthly drop since December 2015.

Falling prices for both agricultural (-2.7 percent m-o-m) and nonagricultural (-1.0 percent m-o-m) exports contributed to the February plunge.

Over the past 12 months, the price index for exports declined 1.3 percent, as a drop in prices for nonagricultural exports (-1.6 percent) more than offset an advance in prices for agricultural (+0.2 percent).

NIKE (NKE) downgraded to Hold from Buy at Deutsche Bank; target $80

Apple (AAPL) upgraded to Overweight from Equal Weight at Wells Fargo; target $315

Barrick (GOLD) upgraded to Buy from Neutral at UBS; target $22

Morgan Stanley (MS) upgraded to Buy from Neutral at Goldman; target lowered to $43

USD rose against its most major counterparts in the European session on Friday as investors rushed to buy the currency amid mounting coronavirus fears. The U.S. Dollar Index (DXY), measuring the value of USD against a basket of currencies, rose by 0.60% to 98.05.

Market participants continued to digest the Fed's promise of a potential injection of more than $1.5 trillion into the financial system in an effort to calm market turmoil amid the coronavirus meltdown.

The U.S. central bank stated yesterday it would significantly increase the scale of its repo agreements, during which it buys Treasury bonds and other securities from banks and traders with an agreement to sell the product back with interest the following day or soon after. It is to offer $500 billion in repo operations on Thursday followed by $1 trillion in repo agreements Friday “to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak.”

FXStreet reports that according to Craig Wright from the Royal Bank of Canada (RBC), Canada will experience a technical recession in 2020, as economic activity contracts in the second and third quarters of the year. 

“We’ve made significant downward revisions to our fore-cast and now look for real GDP to increase at a modest 0.8% pace in Q1 followed by two quarterly declines of 2.5% and 0.8% in Q2 and Q3 respectively.”

“We expect the bank will increase policy support at upcoming meetings and forecast the overnight rate will fall to match the  record low of 0.25%.”

“We see further downside for Canada’s dollar in the current anxiety-ridden environment and the persistence of low oil prices and are forecasting the currency will continue to weaken into mid-year before recovering modestly.”

FXStreet notes that Japan is scheduled to release January core machinery orders data on 16 March, February trade data on 18 March while The Bank of Japan (BoJ) is scheduled to announce its monetary policy decision on 19 March. Economists at Standard Chartered Bank forecast the data.

“We estimate core machinery orders drops of 2.9% m/m (from -12.5% m/m in the previous month) and 2.6% y/y (-3.5% y/y) on improved sentiment and a better prevailing outlook for 2020 in January versus December.”

“We expect exports in JPY terms to have dropped by 3.0% y/y due to the coronavirus impact. We expect Japan’s overall imports to have decreased by 13.5% y/y as private investment shrank on virus concerns.”

“We expect BoJ to keep yield targets unchanged. The central bank is likely to expand its ETF purchase programme and continue to offer liquidity support.”

• Will do credit programmes for companies, that will not have a limit
• Will use all means we have to ensure we tackle coronavirus
• Says tax aid will cost Germany "billions"

Gold: Target is $1782 – Commerzbank

FXStreet reports that analysts at Commerzbank have held at the 1690/1704 target for some time. The market went there and basically collapsed. XAU/USD trades at 1587.95.

“Given that the market has reacted straight back to the 2019-2020 uptrend at 1544, we expect it to recover.”

“Target is 1782 (measurement high from the flag).”

“The long term outlook for gold is that it is heading to the top of its channel and the top of the 48 year channel is 1980.”

• Says ECB still has room to act, not at lower-bound
• ECB could buy more Italian debt if necessary
• Yesterday's decision not to cut rates was the right one as shock is considered temporary
  
• Does not rule out rate cuts if situation worsens

The decision was made by the soccer’s executives at the emergency meeting today after two high-profile figures in the game (Mikel Arteta and Callum Hudson-Odoi) tested positive for COVID-19.

A joint statement of the soccer’s governing bodies said: "Following a meeting of Shareholders today, it was unanimously decided to suspend the Premier League with the intention of returning on 4 April, subject to medical advice and conditions at the time."

Meanwhile, Premier League's Chief Executive Richard Masters noted: "In this unprecedented situation, we are working closely with our clubs, Government, The FA and EFL and can reassure everyone the health and welfare of players, staff and supporters are our priority."

FXStreet notes that the Australian Bureau of Statistics (ABS) will release February labour-market data on 19 March. Chidu Narayanan, an economist at Standard Chartered Bank, shares his forecast. 

“We expect the unemployment rate to have remained at 5.3% and the participation rate at 66.1%. We estimate moderate job creation of 13,000 jobs, despite full-time job losses.”

“We continue to expect the unemployment rate to rise above 5.5% in the medium term as construction jobs are lost.”

“We see the central bank cutting the rate by a further 25bps in April, taking the policy cash rate to its floor of 0.25%; we expect to see unconventional easing measures in H2.”

• We can front load bond purchases if needed

• ECB will do more if needed

• Widening of spreads makes transmission of policy more difficult

FXStreet reports that strategists at Standard Chartered Bank have changed their Fed call and are now expecting a bigger rate cut at the next FOMC meeting on 18 March.

"We now expect a 100bps cut at the March FOMC (versus our previous call of 25bps). We are sceptical that such deep rate cuts are necessary or sufficient as a policy response, but we doubt that the Fed will risk under-delivering."

"We suspect that along with conventional monetary easing, the FOMC will sketch out policies aimed specifically at providing a credit buffer to the private sector."

FXStreet reports that the Aussie is suffering downside pressure due to its relationship with Asia. Economists at ANZ Research analyze the AUD/USD pair which is trading at 0.63.

"Shifting risk dynamics around the outbreak of COVID19 have created downside pressure for the AUD, which is closely linked to activity in Asia via tourism and export of raw materials."

"The near-term prospects for the AUD are therefore likely to hinge on transmission rates and scale of activity slowdown."

FXStreet reports that analysts at ANZ Research see significant upside for the gold price, despite it having rallied more than 8% this year on the weakening macro backdrop. XAU/USD is trading at 1585.80.

"Even with inflation expectations likely to drop sharply in coming months, lower bond yields and a weaker USD should see gold's valuation push higher. In fact, we see significant upside to gold prices if the economic turmoil continues to increase."

"Technically it looks stable. The Relative Strength Index (RSI) currently sits at 54, well below overbought territory of 70."

"We believe the fundamentals should be supportive enough to limit the losses in any technically based sell-off.

"We have upgraded our price forecast, with the year-end target rising to USD1,750/oz. However, we see a high probability of USD2,000/oz in Q2. This will depend on the extent of the pandemic and its economic implications."

FXStreet reports that EUR/GBP outlook is positive as the market has recently eroded its 200-day ma at 0.8741 and the 0.8786 September 2019 low. Karen Jones, an analyst at Commerzbank, takes a look at the technical picture of the pair.

"The Elliott wave count has turned more positive and dips lower are indicated to hold over the 0.8725/0.8645 pivot and while above here it will remain relatively stable."

"The market has recently completed a base with a 0.8979 upside measured target."

"Initial resistance is the 0.8891 25th July low en route to the 0.8979 measured target."

• PBOC to cut RRR by 0.50% to 1.00% for banks under its inclusive finance scheme

• Cuts RRR by additional 1.00% for joint-stock banks

• Targeted RRR cuts to unleash ¥550 billion to the banking system

Forexlive reports that on the BOJ decision next week, the firm's senior market economist, Naomi Muguruma, argues that the ECB decision sets a precedent that the BOJ can follow:

"The implication from the ECB decision is that markets are coming to terms with the fact that what central banks is countries struggling to emerge from negative rates are required to do doesn't have to be the same as those where interest rates are positive.

What's become clear from ECB and BOE actions is that it's important to take measures to support intermediary functions of financial institutions to avoid a financial crisis.

When every market is looking like it's melting down, it's more important to stem credit insecurity from spreading wider and prevent funding squeeze by providing ample funds and indirectly support corporate financing."

• ECB clearly stands ready to do more, adjust all tools

• ECB won't tolerate risks to monetary policy transmission

• Assumes virus shock will ultimately be temporary in duration

FXStreet reports that the ECB has decided to announce a multifaceted package focusing on liquidity, a temporary increase in the QE envelope of a total EUR120bn to be implemented by year-end and leaving policy rates unchanged, analysts at Danske Bank brief.

"The package underwhelmed the market, which saw in particular risk-off, with spread widening between peripheral and core bonds."

"We believe the ECB is done with policy stimulus, unless things turn markedly worse."

"We believe EUR/USD is likely to turn its attention to potential fiscal measures being taken in the US and Europe, although little has happened as of yet."

"EUR/USD is evolving on a day-to-day basis but we believe it is likely EUR/USD is heading lower."

FXStreet reports that economists at Deutsche Bank have changed their forecast and are now expecting more rate cuts from the Fed at its next meeting. Meanwhile, the US dollar is showing off its safe-haven status.

"Our Fed call has changed and we now expect 100bps of cuts at the next meeting, bringing the fed funds rate directly to the zero bound."

"They also don't rule out an early emergency cut given the volatility. It wouldn't surprise any of us if this happens at any moment."

"If the Fed cuts rates to zero by this meeting as they expect, Chair Powell's press conference should focus on the next policy steps should the outlook deteriorate further."

eFXdata reports that Societe Generale research discusses GBP outlook and notes that Sterling looks cheap around current levels especially against the EUR.

"Brexit represents a negative productivity shock, but IF the EU and UK negotiate a sensible trade deal, the shock will not be that great and the UK's GDP growth isn't likely to be lower than the Eurozone's over time. In the next two or three years, the UK has the potential, thanks to an aggressive fiscal reaction, to grow faster than the Eurozone,"SocGen notes.

"Bold fiscal action will soften the economic impact of the Covid-19 pandemic and should support sterling. If there were a sensible UK/EU trade deal in place, this Budget might have made us think EUR/GBP would head to 0.80 or below. Even with the ongoing uncertainty, sterling's cheap at these levels," SocGen adds.

According to the report from Insee, in February 2020, the Consumer Prices Index (CPI) were stable over a month, after −0.4% in January. Manufactured product prices rebounded due to winter sales whose duration was shorter than in the previous year (+0.2% after −2.2%). Services prices rose by 0.2% after a stability in the previous month. Contrariwise, energy prices fell back by 2.0%, after a 0.5% rise in January. Finally, food and tobacco prices were stable over a month.

Seasonally adjusted, consumer prices fell back by 0.1% in February, after +0.3% in January.

Year on year, consumer prices increased by 1.4%, after +1.5% in January. The slowdown in the prices of energy and food was partly offset by the rebound in manufactured product prices and the acceleration in those of services and tobacco.

Year on year, core inflation rose in February: +1.3% after +1.0% in the previous month. The Harmonised Index of Consumer Prices (HICP) were stable over a month, after −0.5% in January; year on year, it slightly slowed down, to +1.6%, after +1.7% in the previous month.

The US dollar fell against the euro in Asian trading, but rose against the yen and the pound.

The Federal reserve system on Thursday announced an expansion of the government bond repurchase program. Analysts do not rule out that the Fed can quickly reduce the base interest rate to zero to support the economy and minimize the damage from the COVID-19 coronavirus pandemic.

The European Central Bank at the end of the meeting on Thursday kept the base interest rate on loans at zero, the deposit rate - at -0.5%. The regulator will increase the asset repurchase program by 120 billion euros until the end of 2020.

The yen is falling against all ten major currencies. The Bank of Japan offered to buy 500 billion yen ($4.7 billion) of bonds on Friday as part of REPO operations.

The ICE Dollar index, which shows the value of the dollar against six major world currencies, is up 0.07% compared to the previous day.

According to the report from Federal Statistical Office (Destatis), the inflation rate in Germany, he year-on-year change in the consumer price index, stood at 1.7% in February 2020. The inflation rate thus remained unchanged (January 2020: +1.7%). Destatis also reports that consumer prices rose by 0.4% compared with January 2020.

The prices of goods (total) were up 1.8% in February 2020 on the same month a year earlier. Especially food prices increased above average (+3.3%). Marked price increases were recorded for fruit (+9.0%) as well as meat and meat products (+8.0%). The increase in meat prices was also observed at upstream stages of the economic process.

The price development of food and energy had an upward effect on the inflation rate in February 2020. Excluding food and energy prices, the inflation rate would have been +1.5% in February 2020.

Prices of services (total) rose by +1.6% in February 2020 on a year earlier; this price increase was slightly smaller than that recorded for goods. Net rents exclusive of heating expenses, which are important as they account for a large part of household final consumption expenditure, rose by 1.5%. Above-average price increases were observed, for example, for services of social facilities (+4.4%) and for the maintenance and repair of vehicles (+3.8%). The price developments in education (-2.3%) and telecommunication (-0.5%) had a slight downward effect on the inflation rate.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1366 (2593)

$1.1340 (3218)

$1.1318 (2065)

Price at time of writing this review: $1.1201

Support levels (open interest**, contracts):

$1.1100 (844)

$1.1076 (2085)

$1.1048 (1586)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 3 is 77791 contracts (according to data from March, 12) with the maximum number of contracts with strike price $1,1000 (5210);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3035 (967)

$1.2992 (894)

$1.2951 (257)

Price at time of writing this review: $1.2570

Support levels (open interest**, contracts):

$1.2516 (1375)

$1.2501 (2467)

$1.2483 (1993)

Comments:

- Overall open interest on the CALL options with the expiration date April, 3 is 17480 contracts, with the maximum number of contracts with strike price $1,3200 (2564);

- Overall open interest on the PUT options with the expiration date April, 3 is 19729 contracts, with the maximum number of contracts with strike price $1,2900 (2848);

- The ratio of PUT/CALL was 1.13 versus 1.09 from the previous trading day according to data from March, 12

* - 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.

"Following medical advice, she will remain in isolation for the time being. She is feeling well, is taking all the recommended precautions and her symptoms remain mild," according to a statement tweeted by Cameron Ahmad, the prime minister's communications director.

According to the report from Dow Jones, the BOJ said to see no urgent need to join in on coordinated rate cuts as it approaches next week's policy meeting. So, it looks like it'll just be the expansion of ETF purchases then.