CFD Markets News and Forecasts — 15-02-2021

USD/CNH: The 6.40 level emerges on the horizon - UOB

FXStreet reports that FX Strategists at UOB Group note there is still room for USD/CNH to drop further and test the 6.40 level in the next weeks.

24-hour view: “USD traded between 6.4191 and 6.4377 last Friday before closing little changed at 6.4218 (-0.03%). The underlying tone has weakened but any decline is likely limited to a test of the major support near 6.4130. The next major support at 6.4000 is not expected to come into the picture for now. Resistance is at 6.4330 followed by 6.4400.”

Next 1-3 weeks: “USD subsequently dropped to 6.4131 before rebounding slightly. The outlook remains weak and we continue to see chance for USD to break 6.4130 and move lower to 6.4000. Only a breach of 6.4600 (no change in ‘strong resistance’ level) would indicate that the downside risk has dissipated.”

• Extension and tightening of COVID-19 restriction measures will continue to weigh on economy in Q1
• Industry will continue to be less affected by coronavirus restriction measures compared to spring 2020
• Prospects for German exports are cautiously positive given lower impact of lockdown on industry

FXStreet reports that the positive outlook for the global economy is set to continue driving investor sentiment this week. Risk-on momentum should favour high-beta G10 currencies and EM against the yen and the dollar, in the view of economists at MUFG Bank. 

“We believe there is plenty yet to go in the so-called ‘reflation trade’ with market participants under-estimating the willingness of global policymakers to let the economy run hot and fuel stronger than expected global growth through the remainder of the year.”

“Helping to maintain this momentum in investor optimism is the continued progress in relation to COVID-19 infections and vaccinations. The US and the UK continue to stand out on the vaccination front.”

“With yields in the US higher, this risk-on momentum could well favour high-beta G10 currencies versus the yen, the currency clearly under-performing so far. The backdrop is also favourable for EM versus the US dollar.” 

“Assuming the nominal yield move in the US is relatively contained, positive global equity momentum and higher crude oil and commodity prices should play the more important role of supporting EM currencies generally.”

FXStreet notes that the price of oil has now risen by over 50% since November 1, 2020. Recent market moves have led strategists at Capital Economics to revise up the end-2021 oil price forecast and expect oil prices to make further gains.

“Given the lacklustre state of current oil demand and risks to vaccination programmes, we think that there is a high risk that oil prices could drop back in the near-term. That said, in light of the recent price performance and the story we are telling, our forecast of $60 per barrel by year-end now looks conservative and we are raising it to $70.”

“We are upbeat on the outlook for demand this year, premised on the view that mass vaccination will enable the opening up of the hospitality and travel sectors in many advanced economies. In particular, we expect a release of pent-up demand in the second half of the year.”

“Supply looks set to remain constrained, at least for a while yet. US production has flatlined in recent months, despite the rally in prices. And while we still expect US output to increase this year, we have revised down our forecast. OPEC+ is also broadly sticking to output quotas and Saudi Arabia is going it alone with chunky voluntary production cuts in February and March.”

“We are retaining our forecast that the price of Brent will fall back to $55 by end-2022, not least because there is considerable oil production capacity that can be brought back online if the price is right.”

• PM Johnson will take call this week on how fast and safely England can exit the COVID-19 lockdown
• We’ve got to watch the data
• Everybody wants to get out of this as quickly as we safely can, and both as quickly, but also as safely, are important
• Death toll and hospital admission numbers are still too high
• 2/3 of care workers have been vaccinated
• 4/5 of NHS staff have been vaccinated
• Government hopes that the current lockdown is the last one

FXStreet reports that Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley, believes that inflation will rise, but that the gold price will fall.

“Morgan Stanley's economists forecast US inflation to rise a little over 2% over the next two years. So this is hardly the runaway type of scenario for inflation that gold would seem best suited for.”

“Gold is an asset where the narrative matters. In 2021, the pandemic looks set to get better. Economic data is improving. Politics have become calmer. And interest rates are starting to rise.”

“As for gold, we forecast a price a little under $1,800/oz. by year-end; implying further declines from current levels even as inflation rises.”

During today's Asian trading, the US dollar declined against the euro, but rose against the yen.

The ICE Dollar index, which shows the value of the US dollar against six major world currencies, fell by 0.16%.

In the absence of significant fundamental drivers, hopes for increased state support for the economy and continued vaccination in the world reduce investor interest in the dollar. In this regard, as well as against the background of expectations that the soft monetary policy of the US Federal Reserve System will continue in the near future, any trend towards the strengthening of the dollar can only be temporary.

Meanwhile, Japan's GDP in October-December increased for the second consecutive quarter, reflecting a recovery in both domestic demand and exports. The economy grew by 3% on a quarterly basis after climbing by 5.3% in the third quarter. Analysts had forecast a 2.3% rise.

The Australian dollar rose 0.33%. The first shipments of Pfizer's coronavirus vaccine arrived in Australia on Monday, Health Minister Greg Hunt said. The start of vaccination is scheduled for February 22.

eFXdata reports that Bank of America Global Research discusses the USD outlook.

"We expect that the macro policy mix of very loose fiscal and monetary policies in the US, which keeps the USD weak in the short term, combined with relatively fast vaccination, particularly compared with the Eurozone, will soon lead to a much stronger US recovery. Indeed, we expect a twice as fast recovery in the US this year, by 6%, as in the Eurozone, 2.9%. We find it hard to believe that the USD will remain weak in this case, even if the Fed remains on hold in the meantime. And we also find it hard to believe that the Fed will remain on hold in such a scenario," BofA notes.

Reuters reports that the survey of nearly 300 firms, conducted by consultants South West Manufacturing Advisory Service (SWMAS), showed that new post-Brexit trade restrictions have pushed up the cost of parts and raw materials for two thirds of small British manufacturers surveyed last month, and a majority reported some level of disruption.

“Price hikes in the supply chain have been immediate, and we are hearing tales of lead times being extended on raw materials,” said Nick Golding, managing director of SWMAS.

Some 65% of manufacturers reported higher costs, and 54% said they had greater difficulties exporting goods to the EU.

Around a fifth of manufacturers thought they might gain from customers bringing work back to Britain from the EU.

FXStreet reports that UOB Group’s FX Strategists noted that cable’s bullish prospects remain unchanged in the short-term.

Next 1-3 weeks: “In our latest narrative from last Wednesday, we highlighted that ‘upward momentum has improved considerably and GBP could extend its gains to 1.3880’. GBP is currently holding just below 1.3880 and break of this level would shift the focus to 1.3950. That said, overbought shorter-term conditions suggest that it may take a few days for 1.3950 to come into the picture. Overall, the current positive view in GBP is deemed intact as long as it does not move below 1.3780 (‘strong support’ level previously at 1.3730).”

RTTNews reports that according to the preliminary report from Cabinet Office, Japan's gross domestic product expanded a seasonally adjusted 3.0 percent on quarter in the fourth quarter of 2020. That exceeded expectations for an increase of 2.3 percent following the 5.3 percent gain in the previous three months.

On an annualized basis, GDP spiked 12.7 percent - again beating forecasts for a gain of 9.5 percent following the 22.9 percent surge in the three months prior.

Capital expenditure climbed 4.5 percent on quarter, beating forecasts for 2.6 percent following the 2.4 percent decline in Q3.

External demand gained 1.0 percent on quarter, in line with expectations and down from 2.7 percent in the third quarter.

Private consumption was up 2.2 percent on quarter, beating forecasts for 1.8 percent and down from 5.1 percent in the previous three months.

Domestic demand was up 8.1 percent on quarter, including an 8.4 increase in private demand and a 7.3 percent gain in public demand.

For all of 2020, GDP was down 4.8 percent after adding 0.3 percent in 2019 and 0.6 percent in 2018. Nominal GDP was down 3.9 percent last year.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2233 (2918)

$1.2201 (2650)

$1.2175 (3996)

Price at time of writing this review: $1.2138

Support levels (open interest**, contracts):

$1.2072 (1751)

$1.2048 (2093)

$1.2017 (2094)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 5 is 83663 contracts (according to data from February, 12) with the maximum number of contracts with strike price $1,2300 (4656);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3996 (445)

$1.3965 (596)

$1.3938 (813)

Price at time of writing this review: $1.3897

Support levels (open interest**, contracts):

$1.3663 (1079)

$1.3623 (914)

$1.3536 (840)

Comments:

- Overall open interest on the CALL options with the expiration date March, 5 is 16187 contracts, with the maximum number of contracts with strike price $1,4000 (3190);

- Overall open interest on the PUT options with the expiration date March, 5 is 13773 contracts, with the maximum number of contracts with strike price $1,3100 (1225);

- The ratio of PUT/CALL was 0.85 versus 0.84 from the previous trading day according to data from February, 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.