CFD Markets News and Forecasts — 17-07-2020

On Monday, at 04:30 GMT, Japan will present the index of activity in all sectors of the economy for May. At 06:00 GMT, Germany will release the producer price index for June. At 08:00 GMT, the Euro zone will announce a change in the balance of payments for May. At 10:00 GMT in Germany, the Bundesbank's monthly report will be released. At 23:30 GMT, Japan will publish the consumer price index for June.

On Tuesday, at 01:30 GMT, Australia will present the RBA meeting's minutes. At 02:30 GMT, in Australia, RBA's Governor Philip Lowe will speak. At 06:00 GMT, Britain will announce changes in net public sector debt for June. Also at 06:00 GMT, Switzerland will report changes in the foreign trade balance for June. At 12:30 GMT, Canada will announce changes in retail sales for May, and the US will release the index of economic activity from the Federal reserve of Chicago for June.

On Wednesday, at 00:30 GMT, Australia will release the index of leading economic indicators from MI for June. Also at 00:30 GMT, Japan will present the manufacturing PMI and the service sector PMI for July. At 01:30 GMT, Australia will announce the change in retail trade volume for June. At 12:30 GMT, Canada will release the consumer price index for June. At 13:00 GMT, the US will publish the house price index for May. At 14:00 GMT, US will report changes in the volume of housing sales in the secondary market for June. At 14:30 GMT, the US will announce changes in oil reserves according to the Ministry of energy.

On Thursday, at 06:00 GMT, Germany will publish the GfK consumer climate index for August. At 10:00 GMT, Britain will present the balance of industrial orders according to the Confederation of British Industrialists for July. At 12: 30 GMT, the US will report a change in the number of initial applications for unemployment benefits for July. At 14:00 GMT, the Euro zone will release a consumer confidence indicator for July, and the US will publish an index of leading indicators for June. At 22:45 GMT, New Zealand will announce a change in the foreign trade balance for June.

On Friday, at 06:00 GMT Britain will report on the change of volume of retail trade for June. Then the focus will be on business activity indices in the manufacturing sector and services sector for July: at 07:15 GMT, France will report, at 07:30 GMT - Germany, at 08: 00 GMT - eurozone, at 08:30 GMT - Britain, and at 13:45 GMT - United States. At 14:00 GMT, the US will announce a change in the new home sales for June. At 17:00 GMT in the US, the Baker Hughes report on the number of active oil drilling rigs will be released.

According to ActionForex, analysts at TD Bank Financial Group note that U.S. housing starts increased by 17.3% month-on-month to 1.19 million units in June. 

"The June print came slightly below market expectations, which called for a 22.2% increase. Today’s release also came with revisions to the May 2020 reading (+37k)."

"The improvement was broad-based and spanned all segments of the market, with multi-family starts rising by 17.5% to 355k units, while single-family starts advanced by 17.2% to 831k units."

"By contrast, building permits rose by a much more modest 2.1% to 1.24 million. The increase was concentrated in single-family permits, which surged by 11.8%, while permits in the more volatile multi-family segment declined by 13.4% following a 17.5% jump in the month prior."

"Following a steep contraction in March and April, housing starts have improved for two consecutive months and are now sitting at about 24% below their pre-crisis levels. While today’s report was weaker than the consensus forecast, it is still a solid turnaround in construction activity. On the whole, the housing sector is showcasing a recovery that appears to be stronger than other areas of the economy."

"While recent housing data have been encouraging, significant downside risks remain. The surge in new coronavirus cases has already prompted a number of states to roll-back or suspend reopening plans and, in some instances, reintroduce restrictive measures on business activity. Thus far, these measures are limited to specific industries, including food and personal care services. However, a continued rise in infections could ultimately result in a broader setback and spill over to other areas of the economy."

• I have been of the view that the economy probably bottomed in Apri; we were starting to grow in May;  we were going to grow in June, July, and from here for the rest of the year; and we would have  rebound from the second quarter
• And then we had the resurgence in cases, and  we started to see a change in high-frequency data, particularly the mobility data we track
• We started to see a stall out around the middle of June
• Conversations with businesses and high-frequency data show that we're growing at slower rate than I had hoped
• Small businesses that I talked to now are seeing their businesses slow again, and for some - depending on what they do - slow substantially; they're much more concerned whether they are in fact going to make it

Statistics Canada reported on Friday the wholesale sales rose 5.7 percent m-o-m to CAD52.57 million in May, following a revised 21.4 percent m-o-m plunge in April (originally a 21.6 percent m-o-m tumble).

Economists had forecast an 8.5 percent m-o-m advance for May.

According to the report, six of seven subsectors recorded higher sales, accounting for about 78 percent of total wholesale sales. The building material and supplies (+16.1 percent m-o-m) and the motor vehicle and motor vehicle parts and accessories (+33.4 percent m-o-m) subsectors contributed the most to the May advance. At the same time, the machinery equipment and supply subsector was the sole decliner (-4.7 percent m-o-m).

In y-o-y terms, wholesale sales decreased 17.7 percent in May.

Meanwhile, wholesale inventories dropped 1.0 percent m-o-m in May. Inventories decreased in five of seven subsectors, accounting for about 73 percent of total wholesale inventories. The inventory-to-sales ratio declined from a record 1.87 in April to 1.75 in May. In y-o-y terms, wholesale inventories edged up 0.1 percent in May.

A report from the University of Michigan revealed on Friday the preliminary reading for the Reuters/Michigan index of consumer sentiment fell 6.3 percent m-o-m to 73.2 in early July.

Economists had expected the index would increase to 79.0 this month from June’s final reading of 78.1.

According to the report, the index of current U.S. economic conditions decreased 3.3 percent m-o-m to 84.2 in July from 87.1 in the previous month. Meanwhile, the index of consumer expectations declined 8.4 percent m-o-m to 66.2 this month from 72.3 in June.

The report noted: “Consumer sentiment retreated in the first half of July due to the widespread resurgence of the coronavirus… Unfortunately, declines are more likely in the months ahead as the coronavirus spreads and causes continued economic harm, social disruptions, and permanent scarring. Another aggressive fiscal response is urgently needed that focuses on financial relief for households as well as state and local governments.“

FXStreet notes that AUD/JPY has rebounded from the 59.905 March low and now faces tough resistance at 76.55 as the pair maintains an upside bias while above 73. What’s more, Piotr Matys from Rabobank highlights the possible formation of an inverted head & shoulders pattern.

“A sharp rebound from the March low at 59.905 has run into solid resistance formed by previous highs around 76.55. This must be cleared to improve the mid-term outlook for AUD/JPY.” 

“The support area around 73 must hold to keep the short-term upside bias intact. A break lower would indicate that the bears are taking advantage, although this could be short-lived and in fact a pullback could prove a bullish mid-term signal as explained below.” 

“The price action since 2019 implies that an inverted head & shoulders chart pattern could be in the making. The right shoulder is still missing, but it could form if risk aversion escalates in the coming months and AUD/JPY falls to around or lower than the 2019 low at 69.967.” 

“A pullback in AUD/JPY in Q3/Q4 could be a bullish mid-term signal given that an inverted head & shoulders implies that the downside trend is likely to be reversed. If this bullish reversal pattern does form in the coming months and AUD/JPY breaks above the neckline, it would be a major constructive signal for AUD.”

U.S. stock-index futures rose on Friday as the U.S. set another daily record for new coronavirus cases and investors bet on the fresh round of government support for the country’s economy, hit by the COVID-19 pandemic.

Global Stocks:

FXStreet reports that analysts at Natixis note that the first fall in production in the Eurozone was due to a very specific cause in the form of the lockdowns. But the second fall in production, in 2021, will be a recession of the usual kind, brought about by a fall in employment, corporate bankruptcies and a drive among companies to deleverage and restore their profitability.

“Job losses will happen with a lag, as is usual in the Eurozone, relative to the loss of activity. In our scenario, unemployment rises until the end of the first half of 2021.”

“Several economic sectors will face long-term problems and will lay off staff in late 2020 and 2021: the automotive sector, air transport, aerospace, tourism, traditional retail.”

“Companies have become highly indebted during the crisis , which will drive up bankruptcies in late 2020 and 2021.”

“Companies will try to shore up the structure of their balance sheets after running up a lot of debt, so they will reduce their investment, like in the wake of the subprime crisis.”

“Given the sharp fall in the profitability of euro-zone companies in 2020, they will try to restore their profitability, leading to a wage freeze and to offshoring to low-labour-cost countries (for example Eastern Europe, Morocco, etc.) despite the talk of reshoring. Given rising unemployment, job losses in troubled sectors, rising bankruptcies and contracting investment, a wage freeze and offshoring to low-wage countries, it is unlikely that 2021 will be a good year for the euro zone.”

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

Netflix (NFLX) downgraded to Neutral from Outperform at Credit Suisse; target lowered to $525

Citigroup (C) downgraded to Hold from Buy at Odeon

The Commerce Department reported on Friday the housing starts jumped by 17.3 percent m-o-m in June to a seasonally adjusted annual pace of 1.186 million, while building permits rose by 2.1 percent m-o-m to an annual rate of 1.241 million.

Economists had forecast housing starts increasing to a pace of 1.169 million units last month and building permits rising to a pace of 1.290 million units.

Data for May was revised to show homebuilding growing to a pace of 1.011 million units, instead of increasing at a rate of 0.974 million units as previously reported.

According to the report, permits for single-family homes, the largest segment of the market, increased 11.8 percent m-o-m to a rate of 834,000 million units in June, while approvals for the multi-family homes segment slumped 13.4 percent m-o-m to a 407,000 unit-rate.

In the meantime, groundbreaking on single-family homes surged 17.2 percent m-o-m to a rate of 709,000 units in June, while housing starts for the multi-family jumped 18.6 percent m-o-m.

USD traded lower against most major rivals in the European session on Friday after the U.S. set another single-day record of coronavirus infections. The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, dropped 0.29% to 96.06.

The New York Times estimated that the U.S. reported 75,600 new coronavirus cases on Thursday, which marked the 11th time in the past month that the country's daily record had been broken. Overall, the U.S. has 3,576,430 cases of COVID-19, the most in the world, according to the Johns Hopkins Center for Systems Science and Engineering. Deaths in the country increased to 138,359, also the most in the world. The total number of confirmed global coronavirus cases rose to 13,810,534 and deaths grew to 590,004.

Growing coronavirus infections forced many businesses and states to reimpose lockdowns. This raised concerns about the pace of U.S. economic recovery. 

Meanwhile, intensifying U.S.-China tensions underpinned demand for the U.S. currency, limiting its further decline against rivals. The administration of U.S. President Donald Trump is considering a travel ban for all members of the Chinese Communist Party and their families, Reuters reported, citing a person familiar with the matter. Deteriorating U.S.-China relations mitigate overall risk appetite. 

In addition, market participants remained cautious ahead of the summit of the EU leaders later today in Brussels, at which they will discuss both a EUR750 billion regional coronavirus recovery fund and the EUR1.1 trillion budget proposal for the next six years. EUR strengthened ahead of the summit.

The European Central Bank’s (ECB) President Christine Lagarde urged the EU leaders to act quickly on the "ambitious package" given the uncertain economic outlook.

FXStreet reports that according to analysts at Credit Suisse, S&P 500 can maintain an immediate upside bias while support at 3166/64 holds with key resistance still seen at 3233/38. Key today is how the tech sector performs.

“We remain of the view critical for US equity markets is whether the Nasdaq 100 completes or avoids an important bearish ‘reversal week’ . If a ‘reversal week’ for tech is established, we believe this would see the market as a whole see a more concerted phase of (still) corrective weakness.”

“Near-term support for the S&P 500 remains seen at the price gap from Wednesday morning at 3201/3198, below which can see weakness extend back to the 13-day average at 3166/64. This needs to hold to suggest the overall risk can stay higher in the range. A closing break though can reinforce the broader sideways range, but with removal of 3116/13 needed to mark a top to warn of a more concerted correction lower within this range.”

“Above 3233/38 remains needed to resolve the range higher to clear the way for a challenge on the bottom of the February ‘pandemic’ gap at 3260. Above here and we see resistance next at 3288.”

FXStreet notes that not only does the outcome of the Presidency matter for the market, but also who controls the House and Senate. Economists at TD Securities analyze four scenarios and its implications for financial markets.

“Status Quo – President Trump, Republican Senate, Democrat House: This may be a small positive for risk assets since the election uncertainty will be over and there may not be big policy changes ahead. We can see an infrastructure plan taking form under this scenario and a bear steepening reaction in rates due to supply pressures on the long end. We believe that the Fed will prevent long end rates from rising too much beyond that with their recent pivot of asset purchases from market functioning to term premium. For FX, we think the USD would lack leadership. We would expect to see a continuation of friction with global international trade (China in particular) and that might be a source of greater uncertainty with Trump no longer up for re-election.” 

“Split Government – President Biden, Republican Senate, Democrat House: The Senate remaining Republican suggests that significant policy action is unlikely. We believe that the risk market reaction might be marginally positive with the election uncertainty over and a blue sweep avoided. For FX, we think markets might take a shine to President Biden and revive or inspire confidence in a global recovery. We think the pro-cyclical nature of EUR/USD might be the bigger beneficiary here and affirm confidence in global equity outperformance that leaves the USD vulnerable to closing its longstanding valuation gap.”

“Blue Wave – President Biden and Democrat Senate and House: This should be a significant negative for risk assets since the Democrats will have a clear mandate, prompting fears of unfriendly business policies, higher corporate taxes, and higher personal taxes. We can see a risk-off move driving a bull flattening in the Treasury curve. With front-end yields pricing in no hikes until the end of 2024, long end yields could decline to historical lows of 30bp. However, we don't see 10s declining below 30bp since the Fed is highly unlikely to take policy rates negative. For FX, we would look for the USD to reassert itself with risk dynamics.”

“Red Wave – President Trump and Republican Senate and House: This scenario could actually prove modestly negative for risk despite the perception that Republicans are more business friendly. Trade tensions may escalate further and the focus on Tax Cuts 2.0 may take the focus away from an infrastructure plan. We can see a small bull flattening reaction in rates. For FX, we think more trade disruption could be particularly problematic for global trade order. If anything, we think we could see more destabilization on this front. That could be more disruptive over time and accelerate diversification efforts away from the USD as a reserve currency as US exceptionalism could be confronted in a material way. That is more of a long-term prognostication however. Before then, the USD might be more linked with the performance of US risk assets.”

FXStreet reports that UOB Group’s Economist Lee Sue Ann reviewed the recently published labour market report in the Australian economy.

“Australia's jobless rate climbed to 7.4%, the highest level since November 1998 as the number of people without a job is now almost one million, rising from 923,000 to 992,300 in June, even as COVID-19 restrictions were eased. That said, a record 210,800 jobs were added to the economy in June, more than doubled the 100,000 jobs gains consensus was expecting, after May’s figures were revised higher to 264,100 losses (from 227,700 losses previously). The participation rate rose to 64.0% in June, from 62.7% in May, as more people were counted as looking for work.”

“Treasurer Josh Frydenberg said earlier this week, that the effective rate of unemployment is closer 13% when all those displaced from the job market by the COVID-19 pandemic are counted.”

“The government is also expected to lay out its plans for further stimulus measures, as most will be due to expire in September. It plans to spend AUD1bn to substantially extend the program that pays 50% of the wages of apprentices employed by small businesses from 80,000 workers to cover 180,000 workers across all industries.”

“We see peak unemployment rate at around 8% before ending the year around 7.6%. Nominal wages growth is still expected to be around 1% next year and inflation subdued at around 0.8%-1.2% over this year and next.”

FXStreet reports that analysts at Credit Suisse note that USD/CAD has not managed to follow through on Thursday’s aggressive sell-off, keeping the market in a short-term consolidation as the loonie remains trapped between 1.3619/32 and the 200-day average at 1.3509.

“Although further rangebound trading should be allowed for at this stage, we remain biased to the downside and look for a fresh test of the 200-day average at 1.3509. Below in due course would see next support at the June low at 1.3486. With a large bearish ‘descending triangle’ continuation pattern still in place and MACD close to crossing lower, we look for a break beneath here in due course as well, which would then complete a bear ‘wedge’ continuation pattern.”

“Resistance is seen initially at 1.3607, ahead of 1.3619/32, which ideally caps once more. A close above here though would see a small base complete to see further corrective strength unfold, with resistance seen next at 1.3686.”

FXStreet reports that UOB Group’s Head of Research Suan Teck Kin, CFA, and Economist Ho Woei Chen, CFA, gave their views on the latest GDP figures in China.

“China’s economy returns to growth in 2Q20 at stronger-than-expected 3.2% y/y… from an unprecedented contraction of -6.8% y/y in 1Q20. The recovery was seen across the three key industries: primary (+3.3%), secondary (+4.7%) and tertiary (+1.9%). On the seasonally-adjusted basis, GDP rebounded sharply by 11.5%q/q from -10.0% in 1Q20.”

“While 2Q20 growth recovery was mainly supported by the resumption in domestic production and consumption, we expect this to broaden out in the second half of the year on the back of a recovery in global demand as the major economies such as the US and EU begin their reopening from the COVID-19 pandemic. We maintain our forecast for China’s full-year GDP at 1.8% with 3Q20 growth likely to accelerate to 4.9% y/y and around 5.7% in 4Q20. The key risks remain centered on the pandemic recovery globally, US-China relations as well as the impact from floods in China.”

Netflix (NFLX) reported Q2 FY 2020 earnings of $1.59 per share (versus $0.60 per share in Q2 FY 2019), missing analysts’ consensus estimate of $1.83 per share.

The company’s quarterly revenues amounted to $6.148 bln (+24.9% y/y), beating analysts’ consensus estimate of $6.083 bln.

Netflix also reported global streaming net adds of 10.09 mln versus its prior guidance of 7.50 mln.

The company issued mixed guidance for Q3 FY2020, projecting EPS of $2.09 versus analysts’ consensus estimate of $1.99 and revenues of $6.327 bln versus analysts’ consensus estimate of $6.4 bln. It also guided Q3 global streaming net adds of only 2.5 mln.

NFLX fell to $491.77 (-6.75%) in pre-market trading.

• We are committed to keep markets stable via QE
• Government, BoE committed to minimizing damage from coronavirus
• Important that fiscal and monetary policies are coordinated

• We can now control the virus through targeted local lockdowns
• We are publishing framework for containing future virus outbreaks
• Ministers will be able to close whole sectors in an area
• Ministers can order people to stay at home in specified areas
• Local approach relies on an effective testing system
• As we approach winter, we need to go further in COVID response
• Possible the virus will be more virulent in winter
• We're planning for the worst, we should also hope for the best
• National lockdown was undoubtedly the right thing to do
• We will look for more significant return to normality from November
  
• From October, we intend to bring audiences back into stadiums
• We will look to allow more close contact between friends and family where possible
• Hopes that by November it may be possible to drop social distancing rules

FXStreet reports that economist at UOB Group Lee Sue Ann assessed the latest inflation figures in New Zealand and prospects for the next months.

“Consumer prices in New Zealand were down 0.5% q/q in the second quarter of 2020, as the COVID-19 global pandemic saw cheaper petrol and falling hotel and motel prices. The latest reading was a tad better than the -0.6% q/q expected, but way below the 0.8% q/q print in the three months prior. This was the first fall in quarterly inflation since the December 2015 quarter when a drop of 0.5% was also registered.”

“Annual inflation was at 1.5% y/y compared to 2.5% y/y in the first quarter of 2020, but beating estimates for an annual rise of 1.3% y/y. Still, this is a setback for the Reserve Bank of New Zealand (RBNZ), which has spent almost a decade trying to get inflation above the middle of its 1%-3% target band. Increased prices for rent, and cigarettes and tobacco were partly offset by lower petrol prices. Meanwhile, consumer prices excluding food, fuel and energy rose 1.9% y/y, slowing from 2.3% y/y in the first quarter, whilst other measures of underlying inflation were softer.”

“The month of June was a period of high uncertainty due to COVID-19. At the same time, a rent freeze was introduced in New Zealand for existing tenancies, but not new tenancies. This made estimating rent change more difficult than usual. The RBNZ has already responded to the COVID-19 pandemic by slashing interest rates to a record low of 0.25% and launching a massive NZD60bn bond-buying campaign. Growth has clearly rebounded in the last month as the country all but eliminated the virus allowing a re-opening of the economy. But with unemployment set to rise and wages soft, the outlook is a subdued one. We expect overall headline CPI to remain comfortably in the lower end of the 1-3% target band, at 1.5% and 1.6% for 2020 and 2021, respectively.”

FXStreet reports  that the European Council comes together this Friday and Saturday to discuss the Multiannual Financial Framework (MFF) 2021-2027 and the Recovery Fund. Many member states still criticize the current shape of the Recovery Fund. Economists at ABN Amro expect the EU-summit to result in a shared communiqué including total size of the fund and proportion loans versus grants, but to leave some important questions unanswered.

“We expect the size of the Recovery Fund to remain EUR 750 billion, as a significant reduction would send a signal that Europe is unable to put in place sufficient firepower given the size of the shock. Furthermore, due to continued criticism from the Frugal Four and Finland that the proportion of grants under the current proposal is disproportionally large, we expect the split between loans versus grants to become more even.”

“The compromise proposal from European Council president Charles Michel indeed suggests allocating part of the funds based on the Covid-19 related economic shock, proving that those criticisms have been heard. We think a group of member states will push for more funds to be allocated on the basis of such a key. Finally, we expect criticism from the northern states to result in reduced transfers to the south.”

“Firstly, we expect country spreads versus Germany to widen on the back of signs that the Recovery Fund will be watered down, with most significant impact across the periphery. Secondly, a revised allocation key will see winners and losers compared to the EC proposal, with Irish and French bonds outperforming and Portuguese and Italian bonds underperforming versus peers. Thirdly, we expect extended uncertainty on the exact shape of the Recovery Fund to result in increased spread volatility over the coming months.”

According to the report from Eurostat, in May 2020, when Member States began easing the COVID-19 containment measures, the seasonally adjusted production in the construction sector rose by 27.9% in the euro area and by 21.2% in the EU, compared with April 2020. In April 2020, production in construction fell by 18.3% in the euro area and by 14.9% in the EU. In May 2020 compared with May 2019, production in construction decreased by 11.9% in the euro area and by 10.3% in the EU.

In the euro area in May 2020, compared with April 2020, civil engineering increased by 28.5% and building construction by 27.6%. In the EU, civil engineering increased by 22.4% and building construction by 20.4%

In the euro area in May 2020, compared with May 2019, building construction decreased by 13.2% and civil engineering by 5.1%. In the EU, building construction decreased by 11.6% and civil engineering by 4.1%.

According to the report from Eurostat, in June 2020, a month in which many COVID-19 containment measures have been gradually lifted, the euro area annual inflation rate was 0.3%, up from 0.1% in May. A year earlier, the rate was 1.3%. European Union annual inflation was 0.8% in June 2020, up from 0.6% in May. A year earlier, the rate was 1.6%. Meanwhile, the core figures matched market expectations and came in at 0.8% YoY during the reported month.

The lowest annual rates were registered in Cyprus (-2.2%), Greece (-1.9%) and Estonia (-1.6%). The highest annual rates were recorded in Poland (3.8%), Czechia (3.4%) and Hungary (2.9%). Compared with May, annual inflation fell in seven Member States and rose in twenty.

In June, the highest contribution to the annual euro area inflation rate came from food, alcohol & tobacco (+0.60 percentage points, pp), followed by services (+0.55 pp), non-energy industrial goods (+0.05 pp) and energy (-0.93 pp).

FXStreet reports  that USD/CNH risks a potential decline to the 6.9500 area in the next weeks, noted FX Strategists at UOB Group.

24-hour view: “Our expectation for USD to weaken yesterday was incorrect as it rebounded after touching a low of 6.9815. Downward pressure has dissipated and the current movement is viewed as part of a consolidation phase. For today, USD is expected to trade within a 6.9880/7.0080 range.”

Next 1-3 weeks: “There is not much to add to our update from Monday (13 Jul, spot at 7.0050). As highlighted, USD could weaken to 6.9650 with lower odds for extension to 6.9500. Only a break of 7.0180 (‘strong resistance’ level previously at 7.0390) would indicate that the current downward pressure has eased.”

Reuters reports that investors pumped money into riskier bonds and equity funds, BofA's weekly fund flow statistics showed on Friday, as unprecedented stimulus measures helped offset worries about rising COVID-19 case numbers in the United States.

The policy support encouraged investors to pour money into riskier debt instruments, with emerging market debt seeing inflows of $1.9 billion (£1.51 billion), the largest in five weeks, while safe-haven government bond funds saw $3 billion outflows.

The investment bank said that in the week to July 15, $9.3 billion went into bond funds while $4.8 billion was channelled into equity funds. World stocks <.MIWD00000PUS> are just 6% away from touching fresh record highs.

Investors meanwhile withdrew $77.9 billion from money market funds, BofA said, noting that the latest week included a July 15 tax deadline in the United States.

• 2020 GDP growth forecast -8.3% (previously -5.5%)

• 2021 GDP growth forecast +5.7% (previously +4.3%)

• 2022 GDP growth forecast +2.4% (previously +1.7%)

• 2020 inflation forecast +0.4% (unchanged)

• 2021 inflation forecast +1.0% (previously +1.2%)

• 2022 inflation forecast +1.3% (previously +1.4%)

FXStreet reports EUR/CHF trades with no changes at 1.0760 as is flirting with the 1.0769 mid-June high. If the pair breaks above the 1.08 level as well as the January 6 and 13 highs at 1.0832 and 1.0860, respectively, EUR/CHF would target the June high at 1.0915, per Commerzbank.

“EUR/CHF once more flirts with the 1.0769 mid-June high, having recently run out of steam slightly below the 1.0800 mark. Above it sits the January 6 and 13 highs at 1.0832 and 1.0860.” 

“A daily chart close above the next higher 1.0915 June high would target the 1.1058 October 2019 high. Above it meanders the 200 week moving average at 1.1138. Support below 1.0769 comes in at the 1.0711/09 March and June 23 highs and also at the 1.0699 June 30 high.”

“Below the current July low and the 78.6% Fibonacci retracement at 1.0607/1.0593 lies the 1.0577 May 25 low which guards the 1.0509/05 April and May lows (not favoured).”

eFXdata reports that Bank of America Global Research discusses its expectations for S&P 500 Q2 earnings season. 

"S&P 500 2Q earnings season has kicked off this week with results from the banks. We expect EPS to beat expectations, and forecast an 8% beat: $25.00 (-39% YoY, the trough in quarterly profits growth) vs analysts' $23.14 (-44% YoY).  While we expect a beat, this may not be enough to drive the market higher; outlooks will be key, and record earnings uncertainty may keep performance reactions in check," BofA notes. 

Five factors to watch: (1) alpha from results, where positive forward-looking commentary may be necessary to drive more upside, (2) earnings visibility, where guidance instances have fallen to post-Reg-FD lows, putting the S&P's transparency premium at risk, (3) margins, which began to collapse in 1Q (driven by tech), (4) cash returns, where we think S&P 500 dividend cuts are likely behind us, and (5) capex, where guidance is at post-crisis lows," BofA adds.

FXStreet reports that during recessions, the dollar is usually used as a safe-haven and appreciates against the euro. This was not the case during the COVID crisis and analysts at Natixis believe that a depreciation of the dollar is now the most likely scenario.

“Monetary policy during the COVID crisis was even more expansionary in the United States than in other OECD countries.”

“The euro zone now intends to use its savings surplus to finance investments in the euro zone, with European investment funds borrowing this surplus instead of lending it to the rest of the world, particularly the United States.”

“The new economic policies that Joe Biden would implement if elected president (increased taxation of capital gains, corporate earnings and wealth; federal minimum wage doubled to $15 per hour, restrictions on oil and gas production) could discourage non-residents from buying US equities.”

“When there are capital outflows from emerging countries, which was the case at the beginning of the COVID crisis, the dollar is supported, which can also be seen from its appreciation against emerging currencies. But since mid-May 2020, these capital outflows have stopped and emerging currencies have appreciated again, which is negative for the dollar against the euro, for example.”

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

The focus remained on the results of the July meeting of the European Central Bank (ECB), which took place the day before. The regulator did not change the volume of the emergency asset repurchase program (PEPP), leaving it at 1.350 trillion euros, as expected by experts. The ECB also kept the base interest rate on loans at 0%o, and the deposit rate at -0.5%.

ECB President Christine Lagarde said at a press conference that the situation in the eurozone economy improved in May and June, as indicated by statistics and surveys, but the pace and scope of the recovery remains extremely uncertain.

Market participants are also assessing the potential impact of an increase in the number of new coronavirus infections in the United States on the country's economy and labor market, amid increasing tensions between Washington and Beijing. Informed sources reported that the administration of US President Donald Trump is considering a complete ban on the entry of members of the Chinese Communist party and their families to the States in accordance with the law "on the autonomy of Hong Kong" signed by the President the day before.

In turn, Chinese foreign Ministry spokeswoman Hua Chunying said at a briefing on Thursday that China will adhere to the terms of the first phase of the trade agreement with the United States, but will respond to pressure from Washington.

The ICE Dollar index, which shows the value of the dollar against six major world currencies, fell by 0.05% relative to the previous trading day.

Bloomberg reports that Wall Street economists are increasingly predicting the Bank of England will take further action to revive growth in coming months as the U.K. recovery from the coronavirus recession proves lackluster.

Economists at Goldman Sachs Group Inc. say policy makers may signal in August that interest rates could turn negative, while BofA Global Research expects them to cut the benchmark rate to zero from 0.1% as unemployment worsens and the inflation outlook weakens.

The Royal Bank of Canada says the central bank could be forced to take borrowing costs negative as early as November.

“The end of the year has the potential to become a perfect storm for the U.K. when risks of rising virus cases and the phasing out of labor market support coincide while Brexit becomes a tangible event,” RBC analysts including Peter Schaffrik and Cathal Kennedy said in a note. “The BOE will look for further stimulus measures and markets are likely to anticipate this.”

Bets on the BOE easing policy further are already picking up, with investors pricing in sub-zero rates by next spring. Money markets are pricing in a cut to zero in February.

Interest-rate futures tied to three-month sterling Libor -- the rate banks can borrow from each other -- are trading above 100, hinting at negative rates by September 2021. This funding rate is also below the BOE’s benchmark, a move that often precedes a rate cut.

FXStreet reports that cable is expected to extend the consolidative theme between 1.2470 and 1.2700 in the near-term, suggested FX Strategists at UOB Group.

24-hour view: “Yesterday, we indicated that GBP ‘is in a correction phase’ and held the view ‘there is scope to GBP to edge lower but any weakness is likely limited to a test of 1.2550’. We added, the next support is at 1.2510. While our expectation for GBP to weaken was not wrong, we did not anticipate the sharp drop to a low of 1.2520 and the subsequent strong rebound to a high of 1.2625. The rapid swings have resulted in a mixed outlook and for today, GBP could continue to trade in a choppy manner, likely within a 1.2525/1.2630 range.”

Next 1-3 weeks: “We highlighted on Tuesday (14 Jul, spot at 1.2545) that GBP ‘could edge lower but any weakness is viewed as part of a 1.2430/1.2650 range’. However, GBP rose and tested the top of the range instead (overnight high of 1.2650). Momentum indicators have turned ‘neutral’ and instead of edging lower to 1.2430, GBP is more likely to trade sideways within a broad 1.2470/1.2700 range.”

Reuters reports that China is expected to post a current account surplus for the second quarter and the first half of 2020, a deputy administrator of the country's foreign exchange regulator said on Friday.

Wang Chunying also told reporters during a briefing in Beijing that cross-border capital flows will remain stable in the second half of the year.

China posted a $33.7 billion current account deficit for the first three months of the year, with the regulator saying international payments were affected by the coronavirus outbreak.

Foreign investment in China's bond and stock markets has picked up sharply in recent months as the economy recovers from the health crisis, pushing equities into a bull market. But Wang said the impact of inflows into stocks has been acceptable so far, and the current account should remain within a reasonable range in the future.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1470 (4859)

$1.1446 (1769)

$1.1429 (1745)

Price at time of writing this review: $1.1382

Support levels (open interest**, contracts):

$1.1323 (534)

$1.1296 (275)

$1.1264 (683)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date August, 7 is 51564 contracts (according to data from July, 16) with the maximum number of contracts with strike price $1,1400 (4859);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2737 (1779)

$1.2671 (1372)

$1.2622 (654)

Price at time of writing this review: $1.2552

Support levels (open interest**, contracts):

$1.2427 (504)

$1.2395 (1147)

$1.2359 (1512)

Comments:

- Overall open interest on the CALL options with the expiration date August, 7 is 19752 contracts, with the maximum number of contracts with strike price $1,3000 (3057);

- Overall open interest on the PUT options with the expiration date August, 7 is 19247 contracts, with the maximum number of contracts with strike price $1,2400 (1512);

- The ratio of PUT/CALL was 0.97 versus 0.99 from the previous trading day according to data from July, 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.