CFD Markets News and Forecasts — 17-06-2020

• We are not half-way through the work to reach a Brexit deal with UK
• We will not put into question our principles and EU's integrity
• There will be no deal without level playing field, fisheries and governance accord
• No one can say with certainty where these negotiations will be at the end of the year

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories rose by 1.215 million barrels in the week ended June 12. Economists had forecast an increase of 0.500 million barrels.

At the same time, gasoline stocks fell by 1.667 million barrels, while analysts had expected a drop of 0.017 million barrels. Distillate stocks declined by 1.358 million barrels, while analysts had forecast a build of 2.429 million barrels.

Meanwhile, oil production in the U.S. decreased by 600,000 barrels a day to 10.500 million barrels a day.

U.S. crude oil imports averaged 6.6 million barrels per day last week, down by 222,000 thousand barrels per day from the previous week.

• Producers' compliance with OPEC+ oil output-cut deal currently stands at 89%
• Russia's compliance with OPEC+ deal is almost 100%
• Russia plans to fulfill the deal in full
• Optimistic on global oil demand recovery
• We need to monitor how the situation is changing in the oil market

FXStreet reports that Georgette Boele, Senior FX and precious metals strategist at ABN Amro, expects a lower silver price in the near-term due to a risk-off environment and a downshift in expectations in demand for silver. On the longer-term, however, when the global economy recovers again, it is likely that silver prices will outperform gold prices again.

“There are two situations when it is more attractive to invest in silver compared to gold. First, industrial demand is larger for silver than for gold. If global growth recovers, there is more industrial demand for silver, and this supports the silver price. It is likely that in this environment silver prices outperform gold prices. Currently investors expect that the economy will recover considerably as lockdown measures are eased. Therefore, silver prices have outperformed gold prices. Second, silver prices are at relatively attractive levels compared to gold prices. In March, gold was 127 times more expensive than silver. At the start of June gold was 95 times more expensive than silver. The long-term average of the gold/silver ratio is around 60. So, there is more room for silver prices to outperform gold prices but this will take time.”

“In the near-term, we think that there are several factors that could spoil the party for silver prices. For a start, investors do not seem to be pricing in the scale of the earnings and macro weakness we are seeing and the likelihood of a slow rather than V-shaped recovery. A downward adjustment in demand expectations for silver will weigh on silver prices. Moreover, we expect another risk off wave between now and three months. It is likely that investors will close part of their positions. Speculators are net-long on the futures market. The positions that investors hold at exchange traded funds are at a new record high. Another factor that can dampen demand for silver are the tensions between the US and China.”

FXStreet reports that Senior Economist at UOB Group Alvin Liew reviewed the latest BoJ event.

“In its scheduled Monetary Policy Meeting (MPM) on Tuesday (16 Jun), the Bank of Japan (BOJ) as widely expected, kept all of its existing monetary policy easing measures (policy interest rate at -0.1% and yield curve control of the 10-year JGB yield at 0%) unchanged. Like the previous meeting, this was not a unanimous decision (8-1) as BOJ policy board member Goshi Kataoka dissented again.”

“In the previous unscheduled 22 May 2020 MPM, the BOJ introduced a new fund-provisioning measure to further support financing mainly of small and medium-sized firms/enterprises (SME). Under its Special Program to Support Financing in Response to the Novel Coronavirus (COVID19) (i.e. the Special Program), the BOJ had three measures.”

“The purchases of commercial paper (CP) and corporate bonds (measure 1) remains unchanged at JPY20 trillion while measures 2 and 3 (collectively called special operation) are now expected to be worth JPY90 trillion (from previous estimate of JPY55 trillion). So collectively, the three measures under the Special Program will amount to JPY 110 trillion (US$1 trillion) to the economy via its market operations and lending facilities.”

“The central bank remains cautious about the outlook as it expects Japan to “remain in a severe situation for the time being due to the impact of COVID-19 at home and abroad, although economic activity is expected to resume gradually.”

U.S. stock-index futures rose slightly on Wednesday, as growing hopes of a V-shaped economic recovery offset geopolitical tensions in Asia and worries over a spike in coronavirus infections in China.

Global Stocks:

The Commerce Department reported on Wednesday the housing starts surged by 4.3 percent m-o-m in May to a seasonally adjusted annual pace of 0.974 million, while building permits climbed by 14.4 percent m-o-m to an annual rate of 1.220 million.

Economists had forecast housing starts increasing to a pace of 1.095 million units last month and building permits rising to a pace of 0.891 million units.

Data for April was revised to show homebuilding growing to a pace of 0.934 million units, instead of increasing at a rate of 1.216 million units as previously reported.

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

Amazon (AMZN) initiated with a Buy at Needham; target $3200

McDonald's (MCD) target raised to $220 from $208 at Jefferies

Apple (AAPL) target raised to $390 from $345 at RBC Capital Mkts

Statistics Canada reported on Wednesday the country’s consumer price index (CPI) rose 0.3 percent m-o-m in May, following a 0.7 percent m-o-m drop in the previous month.

On the y-o-y basis, Canada’s inflation rate decreased 0.4 percent last month after declining 0.2 percent m-o-m in April. That marked the biggest y-o-y decline in consumer prices since September 2009.

Economists had predicted inflation would increase 0.7 percent m-o-m but be unchanged y-o-y in May.

According to the report, prices fell in four of the eight major components on a y-o-y basis, with transportation prices (-3.0 percent y-o-y) contributing the most to the all-items decline. At the same time, food prices (+3.1 percent y-o-y) remained high in May, recording the largest y-o-y gain among the major components.

GBP fell slightly against most of its major rivals in the European session on Wednesday, pressured by weak UK consumer and producer price data for May and re-emerged fears of a no-deal Brexit.

The Office for National Statistics (ONS) reported that the UK's consumer price inflation decelerated to 0.5 percent y/y in May from 0.8 percent y/y in the previous month, matching economists' expectations. That was the lowest rate since June 2016. According to the report, the largest downward contributors for the annual inflation were transport, recreation and cultural goods, and clothing and footwear. Another report from the ONS revealed that output prices fell 1.4 percent y/y in May after a 0.7 percent y/y decrease in April, while input prices declined 10.0 percent y/y after a 10.2 percent y/y drop in the previous month.

Poor inflation data added to the anticipation that the Bank of England's (BoE) policymakers would increase the stimulus program at their policy meeting on Thursday.

No-deal Brexit fears also weighed on the pound. On Monday, the EU and UK leaders agreed that the negotiations on their post-Brexit trade relations should be intensified. In addition, British Prime Minister Boris Johnson stated that he saw no reason both sides couldn't reach an agreement by July. Today, however, Reuters reported, citing an internal document from Germany's government, dated June 15, that Berlin saw the negotiations to take longer. “From September, the negotiations enter a hot phase,” the document read. “Britain is already escalating threats in Brussels, wants to settle as much as possible in the shortest possible time and hopes to achieve last-minute success in the negotiations.”

S&P 500: Resistance at 3190 to cap the recovery, lengthier consolidation phase – Credit Suisse

FXStreet notes that S&P 500 has extended the recovery from the 200-day average at 3016 but analysts at Credit Suisse look for the top of the price gap from last week at 3190 to cap further strength near-term and for a consolidation/corrective phase to unfold.

“The S&P 500 has extended its recovery from its rising 200-day average, now at 3016, as well as the 23.6% retracement of the March/June rally and this leaves the market testing resistance from the price gap from last week, seen starting at 3124 and stretching up to 3190.” 

“With daily MACD momentum still holding a bearish cross, we look for this latter 3190 resistance to then ideally cap for the unfolding of a broader consolidation range. Above 3190 can see the risk stay higher for a test of the potential downtrend from the February peak, today seen at 3219.” 

“Support is seen at 3104 initially then the price gap from yesterday at 3076/66. Beneath here is needed to ease the immediate upside to reinforce the broader ranging scenario, with support then seen next at 3044 ahead of the 200-day average at 3016.”

FXStreet reports that in the opinion of FX Strategists at UOB Group that USD/JPY’s stance remains tilted to the offered side, while losses could pick up pace iif 106.70 is cleared.

24-hour view: “While our expectation for USD ‘to continue to trade sideways’ was not the wrong, USD traded within a narrower range than anticipated (between 107.20 and 107.63). The price action offers no fresh clues and further consolidation would not be surprising. That said, the slightly weakened underlying tone suggests a lower trading range of 107.00/107.55.”

Next 1-3 weeks: “Last Thursday (11 Jun, spot at 107.05), we held the view that the outlook for USD ‘is mildly negative’. We indicated that USD has to ‘close below 106.70 before a sustained decline can be expected’. While USD subsequently dropped to 106.56, it did not close below 106.70. Despite the strong rebound last Friday, the risk for further USD weakness is still intact. Only a move above 108.00 (no change in ‘strong resistance’ level) would indicate the current mild downward pressure has eased. In other words, we continue to hold the same view from last Thursday.”

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. climbed 8.0 percent in the week ended June 12, following a 9.3 percent surge in the previous week.

According to the report, refinance applications jumped 10.3 percent, while applications to purchase a home increased 3.5 percent.

Meanwhile, the average fixed 30-year mortgage rate fell to a record low 3.30 percent from 3.38 percent.

“The housing market continues to experience the release of unrealized pent-up demand from earlier this spring, as well as a gradual improvement in consumer confidence,” noted MBA economist Joel Kan. “Refinancing continues to support households’ finances, as homeowners who refinance are able to gain savings on their monthly mortgage payments in a still-uncertain period of the economic recovery,” Kan added.

• Don't expect a massive lockdown even if second virus wave comes

FXStreet notes that GBP/USD strength has been capped at the 1.2693 200-day average and analysts at Credit Suisse look for a test of key support from its 55-day average and uptrend at 1.2434/18.

“GBP/USD strength has been capped at the 200-day average, currently at 1.2693 and the sharp rejection from here reasserts a downward bias again within the broader sideways range.” 

“Support is seen at 1.2505 initially, beneath which should clear the way for a fall back to 1.2455, then what we see as more important support at 1.2434 and 1.2418 – the confirmed uptrend from March and rising 55-day average respectively. We look for an attempt to establish a floor here. A break would raise the prospect of a more concerning break to the downside, with support then seen next at 1.2278 – the 38.2% retracement of the entire rally from March.” 

“Resistance moves 1.2611 initially, above which can see a fresh look at the 200-day average and yesterday’s high at 1.2681/93. Beyond here can clear the way for a fresh look at the high of last week and 78.6% retracement of the decline from December at 1.2813/17, but with fresh sellers expected here.”

FXStreet reports that FX Strategists at UOB Group believe USD/CNH should stick to the rangebound stance for the time being.

24-hour view: “Yesterday, we held the view that USD ‘could test the 7.0600 support first before a more sustained recovery can be expected’. USD subsequently dropped to 7.0608 before staging a strong rebound to an overnight high of 7.0900. Despite the rapid rebound, upward momentum has not improved by much. However, there is scope for USD to edge higher towards 7.0960. For today, a sustained rise above this level is unlikely. Support is at 7.0720 followed by 7.0660.”

Next 1-3 weeks: “Last Monday (08 Jun, spot at 7.0570), we indicated that USD ‘could weaken to 7.0400’. After USD dropped to 7.0400, we highlighted on Thursday (11 Jun) that ‘the negative phase in USD is still intact and noted that the next support below 7.0400 is at 7.0200 followed 7.0000’. We added, ‘oversold short-term conditions could lead to a few days of consolidation first’. The subsequent consolidation has resulted in a rapid loss in momentum and while our 7.0950 ‘strong resistance’ is still intact, the prospect for USD to move below 7.0400 from here has dissipated. In other words, USD has likely moved into a consolidation phase and is expected to trade between 7.0500 and 7.1250 for a period.”

FXStreet reports that the kiwi has been able to hold above 0.6418 and is entering a consolidation phase which should end with a test of the 0.6562 June high, according to economists at Credit Suisse.

“NZD/USD remains in a consolidation phase as expected after holding at the 13-day exponential average, currently at 0.6418. We look for the current rangebound environment to continue, which should eventually result in a fresh test of the pivotal 2014 downtrend and current June high at 0.6562/84.” 

“A sustained and closing break above June high at 0.6562/84 would reinforce thoughts of a broader change in trend to the upside, with resistance then seen at 0.6629, ahead of 0.6665, where we might see fresh sellers at first. Removal of here in due course would the expose the 31st December 2019 high, then the 38.2% retracement of the 2014/2020 fall and the 61.8% retracement of the 2017/2020 fall at 0.6755/60.” 

“Short-term support moves initially to 0.6430, then 0.6412, ahead of 0.6382, which ideally holds once more. A close below here would now see a small top complete, with 0.6322/21 the next support.”

According to the report from Eurostat, in April 2020, the COVID-19 containment measures widely introduced by Member States continued to have a significant impact on production in construction, as the seasonally adjusted production in the construction sector decreased by 14.6% in the euro area and by 11.7% in the EU, compared with March 2020. In March 2020, production in construction fell by 15.7% in the euro area and by 13.6% in the EU. Overall, production in construction in the euro area and EU has fallen to the lowest level recorded since the start of the series in 1995. In April 2020 compared with April 2019, production in construction decreased by 28.4% in the euro area and by 24.0% in the EU.

In the euro area in April 2020, compared with March 2020, building construction decreased by 15.4% and civil engineering by 10.0%. In the EU, building construction decreased by 12.2% and civil engineering by 8.9%.

In the euro area in April 2020, compared with April 2019, building construction decreased by 29.3% and civil engineering by 24.5%. In the EU, building construction decreased by 24.6% and civil engineering by 21.4%.

According to the report from Eurostat, in May 2020, a month still marked by COVID-19 containment measures, euro area annual inflation rate was 0.1%, down from 0.3% in April. A year earlier, the rate was 1.2%. Meanwhile, the core figures rose by 0.9% y/y during the reported month. The European Union annual inflation was 0.6% in May 2020, down from 0.7% in April. A year earlier, the rate was 1.6%. 

The lowest annual rates were registered in Estonia (-1.8%), Luxembourg (-1.6%), Cyprus and Slovenia (both -1.4%). The highest annual rates were recorded in Poland (3.4%), Czechia (3.1%) and Hungary (2.2%). Compared with April, annual inflation fell in twenty Member States, remained stable in two and rose in five.

In May, the highest contribution to the annual euro area inflation rate came from food, alcohol & tobacco (+0.64 percentage points, pp), followed by services (+0.59 pp), non-energy industrial goods (+0.06 pp) and energy (-1.20 pp).

According to the report from European Automobile Manufacturers Association (ACEA), in May 2020, the European passenger car market suffered another sharp drop, with registrations falling by 52.3%

In May 2020, the European passenger car market suffered another sharp drop, with registrations falling by 52.3%. Although COVID-19 lockdown measures were eased in many countries last month, the number of new cars sold across the European Union1 fell from 1,217,259 units in May 2019 to 581,161 passenger cars in May of this year.

Double-digit declines were recorded in each of the 27 EU markets last month, even though the percentage drops were less dramatic than in April. Spain saw the biggest decline among the four major EU markets (-72.7%), while sales fell by roughly half in France (-50.3%), Italy (-49.6%) and Germany (-49.5%).

From January to May 2020, EU demand for new passenger cars contracted by 41.5%, following three months of unprecedented declines across the region. So far this year, car registrations decreased by 54.2% in Spain, 50.4% in Italy and 48.5% in France. The contraction of the German market was slightly less severe, with registrations down 35.0% over the first five months of 2020.

FXStreet reports that Brent Crude Oil remains above the 38.2% retracement of the Q1 collapse at $37.28, establishing a base, and strategists at Credit Suisse expect the black gold to trade higher.  

“Near-term, consolidation should be allowed for below the 50% retracement of the Q1 fall at $43.86. Above here in due course though should see resistance next at $45.18/50 and then more importantly at $50.50, where the 200-day average is hovering, which we expect to cap the market at least temporarily.”

“Near-term support is seen at $37.18/35.37, the May/June price gap, with $33.62 now ideally holding further weakness. Only below $28.86 would see the base negated though.”

Reuters reports that a whopping 98% of investors surveyed by Bank of America believe markets are "overvalued" after world stocks bounced back from March lows at a record pace driven by government stimulus measures.

World stocks surged 38% from March's multi-year lows, fuelled by trillions of dollars in stimulus and gradual lifting of coronavirus lockdowns.

The euphoria led to investor cash levels dropping to 4.7% in June from 5.7% last month, the biggest monthly drop since August 2009, BofA's survey of 212 fund managers with $598 billion (£473 billion) in assets under management showed.

The drawdown was also partly supported by easing worries about a longer economic hit -- a net 46% of participants in the survey expected a prolonged recession versus 93% in April.

BofA, however, said the recent optimism in markets was "fragile" as investors still see a second wave of novel coronavirus infections as the "biggest tail risk".

Indeed, stocks and oil briefly came under pressure on Monday after several districts of Beijing closed schools and ordered people to be tested after an unexpected rise in infections.

But those fears haven't stopped investors from joining the rally. The survey showed hedge fund net equity exposure jumping to 52% from 34%, the highest since September 2018.

A recent rally in value stocks, firms whose fundamental worth is not reflected in their share price, was driven by investors "violently" covering tactical short positions, BofA said.

U.S. tech and growth stocks remained the "most crowded trade" for a second straight month.

FXStreet reports that USD/CNY is under pressure, according to strategists at Credit Suisse as the pair is trading slightly above the key support at 7.0560, and a break below this level would mark a downturn.

“USD/CNY is under pressure in the near-term and this leaves the market crucially poised above key support at 7.0560/0470 – the late April low, low from last week, 38.2% retracement of the rally from January and the 200-day average.” 

“With daily RSI momentum already holding a top, the 7.0560 support is seen at risk and a closing break would see a price top established to warn of a more important turn lower, with next support then seen at 7.0298, ahead of 7.0091 and then the medium-term uptrend and 61.8% retracement at 6.9690.”

In today's Asian trading, the US dollar fell against the euro and was almost unchanged against the yen.

The ICE Dollar index, which shows the value of the dollar against six major world currencies, fell by 0.09% compared to the previous trading day.

Yesterday, the head of the US Federal reserve system, Jerome Powell, said during a speech to the Senate banking Committee that "the level of production and employment remain much lower than before the beginning of the pandemic, and there is a high degree of uncertainty about the time and strength of the us economic recovery." These statements contributed to increased uncertainty in the market, which supported the dollar as a safe haven asset.

Data from the US Department of Commerce showed a record increase in us retail sales in may. The index jumped 17.7% last month. Experts on average predicted a rise of 8%.

Meanwhile, Japanese exports last month fell by 28.3% compared to may last year - to 4.18 trillion yen, the country's Finance Ministry said. This is the highest rate of decline in more than 10 years. The fall of the index was recorded at the end of the 18th month in a row.

The pound changed slightly against the dollar after the publication of data on Britain. Consumer prices in the UK in may rose by 0.5% in annual terms after rising by 0.8% a month earlier, according to data from the National statistics office. The level of inflation in the country coincided with the expectations of experts. This week, investors are waiting for the results of the Bank of England meeting.

CNBC reports that another wave of coronavirus outbreak in Asia will not be as economically damaging as the first, said a Morgan Stanley economist as several countries like China and South Korea recently experienced an uptick in the number of cases.

Worries that a second wave of infections would once again derail the global economy have heightened in recent months as an increasing number of countries are easing restrictions that were imposed to contain the coronavirus outbreak. The first round of lockdown measures, which stalled much of economic activity, sent global economies into a recession.

But Deyi Tan, who is also managing director at Morgan Stanley, said that if there is a second wave, it will likely be more manageable as policymakers have learned to handle such situations.  

“A double dip is not in our base case, we do acknowledge that as economies reopen, daily new cases will rise,” Tan told CNBC. A “double dip” refers to a situation in which an economy picks up following a period of decline, but weakens again after that.

She noted that several Asian economies — such as South Korea, Taiwan and Hong Kong — have started to ease restrictions since late April. Since then, some have reported a rise in daily new cases, “but in the bigger scheme of things, the trend is still relatively manageable compared to what we’ve seen before,” she added.

“So at this point in time, we don’t expect a second wave to actually cause the global economy, or Asian economies, to go through a double dip,” said Tan.

FXStreet reports that in light of the recent price action, Cable could have moved to a consolidation phase, suggested FX Strategists at UOB Group.

24-hour view: “We expected GBP to strengthen yesterday and held the view that ‘a break of the strong resistance at 1.2650 would not be surprising; a move beyond 1.2710 would come as a surprise’. Our expectation was not wrong as GBP topped out at 1.2682. However, the swift decline during NY hours was not exactly expected (GBP dropped to an overnight low of 1.2553). From here, the soft underlying tone suggests GBP could drift lower towards 1.2530. Barring a sudden pick-up in momentum, the next support at 1.2500 is likely out of reach. Resistance is at 1.2615 followed by 1.2650.”

Next 1-3 weeks: “Yesterday (16 Jun, spot at 1.2625), we highlighted that ‘the odds for a deeper pull-back in GBP have diminished considerably’. The subsequent breach of the ‘strong resistance’ level at 1.2650 indicates that GBP has moved into a consolidation phase. From here, GBP is expected to trade between 1.2420 and 1.2710 for a period.”

eFXdata reports that SEB Research discusses EUR/CHF outlook and targets the cross around 1.09 this year and around 1.15 over the coming year.

"The Covid-19 crisis has put an appreciation pressure on the safe-haven currencies including the Swiss franc. But the fast rebound in risk appetite is helping the Swiss National Bank in its quest to cap the CHF from rising further. Right now, the line in the sand is drawn at 1.05 by the SNB, the ultimate question is to what extent the currency is driven by strong fundamentals and decent valuation rather than safe-haven flows. Quite much we think," SEB notes. 

"In the long term we believe the CHF will have to weaken and EUR/CHF at around 1.15 is a reasonable long-term target. The constant/continued CHF-appreciation in combination with large external surpluses holding up makes the long-term risks skewed towards stronger swiss franc for longer," SEB adds. 

According to the report from Office for National Statistics, the Consumer Prices Index (CPI) 12-month rate was 0.5% in May 2020, down from 0.8% in April.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 0.7% in May 2020, down from 0.9% in April 2020.

The largest contribution to the CPIH 12-month inflation rate in May 2020 came from recreation and culture (0.23 percentage points).

Falling prices for motor fuels and a variety of recreational and cultural goods resulted in the largest downward contributions to the change in the CPIH 12-month inflation rate between April and May 2020.

Rising prices for food and non-alcoholic drinks resulted in a partially offsetting upward contribution to change.

As a result of the ongoing coronavirus (COVID-19) pandemic, we identified 74 CPIH items (or 14.2% of the CPIH basket by weight) that were unavailable to UK consumers in May, as detailed in table 58 of the Consumer price inflation dataset; this is down from 90 unavailable items in April; compared with the February 2020 index (the most recent “normal” collection), we have collected a weighted total of 81.6% (excluding unavailable items) of the number of price quotes for the May 2020 index, although the coverage varies across the range of items.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1437 (1168)

$1.1404 (1488)

$1.1376 (1255)

Price at time of writing this review: $1.1274

Support levels (open interest**, contracts):

$1.1219 (1987)

$1.1192 (577)

$1.1159 (666)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date July, 2 is 47394 contracts (according to data from June, 16) with the maximum number of contracts with strike price $1,1700 (2339);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2826 (1707)

$1.2755 (1501)

$1.2699 (556)

Price at time of writing this review: $1.2553

Support levels (open interest**, contracts):

$1.2508 (941)

$1.2465 (189)

$1.2426 (854)

Comments:

- Overall open interest on the CALL options with the expiration date July, 2 is 14943 contracts, with the maximum number of contracts with strike price $1,2800 (1707);

- Overall open interest on the PUT options with the expiration date July, 2 is 17213 contracts, with the maximum number of contracts with strike price $1,2550 (1484);

- The ratio of PUT/CALL was 1.15 versus 1.13 from the previous trading day according to data from June, 16

* - 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.