CFD Markets News and Forecasts — 18-06-2020

FXStreet notes that the yellow metal has been unable to surpass the $1750 level, currently trades at $1725, but strategists at TD Securities expect gold prices to break higher after this stabilization as this is a pattern already seen in the gold chart.

“Gold once again failed to break through $1750/oz resistance, but taking a step back, it is still clear that prices remain range-bound near multi-year highs.”

“We believe the market is coiling ahead of a breakout to higher prices – a historical pattern that we have observed several times over the course of the last few years.” 

“Ultimately, the key question for gold bugs is whether we are on the cusp of a regime shift in inflation, as the combination of world-war era fiscal and central bank stimulus, along with a change in the central bank template (symmetric inflation target) and unwinding globalization could lead to a world where inflation is once again very relevant. In this context, a continued growth normalization should be welcomed by gold bugs as a reversal in safe-haven flows should be offset by investment demand, with real rates significantly suppressed.”

FXStreet notes that the BoE left rates on hold and announced an additional £100bn of QE, as had been expected, but with a hawkish tilt. Despite a brief flirtation with post-announcement gains, cable has turned lower in the aftermath of today’s MPC decision and economists at TD Securities think the pound may underperform its peers further from here.

“The Bank of England left its policy rate on hold today at 0.10%, as had been unanimously expected. On QE, it delivered the additional £100bn that markets had been looking for, though in a surprise 8-1 decision that had Haldane, the Chief Economist, dissenting in favour of no further QE.”

“Given the steeper slowdown in the pace of QE, we now look for the BoE to wait until November before announcing an additional £50bn of QE, likely to run though H1 2021. Although if the unemployment rate does creep toward 15%, a risk that we've highlighted, that could see the BoE speeding up the pace of QE instead.” 

“GBP's knee-jerk reaction was to rally in response to the more-hawkish tone seen at today's MPC meeting. However, cable's push higher ran out of steam around the 1.2550 mark. Selling pressure has intensified since, sending spot sharply lower toward support around 1.2450.”

“Below significant support at 1.2450, we think the next attractor lower would arise around the 1.2375 mark. Below that, we think markets would set their sights on a test of 1.2295.”

FXStreet reports that UOB Group’s Heng Koon How, Ho Woei Chen, CFA, Alvin Liew and Suan Teck Kin, CFA, assessed the potential effects for Hong Kong of a change in US policy.

“In this report, we look at the implications if the US were to revoke policy privileges for Hong Kong, in response to mainland China’s proposed national security law on Hong Kong. We focus on the prospects of US withdrawing the special trade priviledges for Hong Kong (including policy areas that US could consider) and the impact on US, mainland China and Hong Kong.”

“Impact on US businesses could be larger than on Hong Kong’s given that US exports significantly more in both merchandise goods and services to Hong Kong. Furthermore, trade relations with China is definitely a key consideration given that China is one of US’ largest trade partner.”

“Hong Kong is still important to China as an international financial centre as well as an export and trade hub. Hong Kong's importance to China as a financial centre is likely to remain for some time despite competition from fellow cities such as Shanghai and Shenzhen.”

“It is conceivable that with tightened scrutiny of US-listed mainland Chinese companies by the US government, Hong Kong’s role as a financial centre will become even more important to the mainland.”

“There is unlikely any impact on free flow of capital in Hong Kong with the new national security law.”

“The HKD peg is unlikely to be undermined given that it is under the purview of Hong Kong government and backed by the substantial foreign reserves in Hong Kong. We expect HKD to stay strong despite elevated political risk. Overall, we expect USD/HKD at 7.76 in 3Q20, 7.78 in 4Q20 and 7.80 in 1Q21 and 2Q21.”

• Decision on negative rates is not in-any-sense imminent
• Trying to work out implications for UK and other countries' experiences with negative rates
• There would be important issues around implementation and communication if BoE takes rates negative
  
• Evidence suggests economic downturn has not been as severe as in May scenario but let's not get carried away
• Labour data has been mixed but I think the news was on downside
  
• Labour market is probably more relevant for judging inflation risks
• Now expecting 20% fall in GDP in Q1 and Q2 combined vs 27% in May forecast
• BoE does not have specific triggers for further increases in QE
• MPC has not spent any time talking about targeting the yield curve
  
• Slowing of QE pace reflects recent signs from economy and calming of markets since March
• We are slowing from warp speed QE to something which is still fast by historical standards
• Trajectory on inflation is for it to fall to very low levels

The Conference Board announced on Thursday its Leading Economic Index (LEI) for the U.S. rose 2.8 percent m-o-m in May to 99.8 (2016 = 100), following a revised 6.1 percent m-o-m plunge in April (originally a 4.4 percent m-o-m decline). That was the first increase in the LEI since January.

Economists had forecast a gain of 2.3 percent m-o-m.

Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board, noted that the U.S. LEI showed a partial recovery in May from its sharp decline over the previous three months, as economic activity began to pick up again. “The relative improvement in unemployment insurance claims is responsible for about two-thirds of the gain in the index. The improvements in labor markets, housing permits, and stock prices also buoyed the LEI, but new orders in manufacturing, consumers’ outlook on the economy, and the Leading Credit Index still point to weak economic conditions. The breadth and depth of the decline in the LEI between February and April suggest the economy at large will remain in recession territory in the near term,” he said.

The report also revealed the Conference Board Coincident Economic Index (CEI) for the U.S. went up 1.1 percent m-o-m in May to 95.3, following a 10.4 percent m-o-m tumble in April. Meanwhile, its Lagging Economic Index (LAG) for the U.S. decreased 1.9 percent m-o-m in May to 111.4, following a 1.7 percent m-o-m advance in April.

Statistics Canada reported on Thursday the New Housing Price Index (NHPI) edged up 0.1 percent m-o-m in May, following a flat m-o-m reading in the previous month.

Economists had forecast the NHPI to increase 0.2 percent m-o-m in May.

According to the report, new home prices showed little or no change in 21 out of the 27 census metropolitan areas (CMAs) surveyed in May as both the builder and buyer continued adjusting to new COVID-19 reality. Meanwhile, Ottawa (+1.0 percent m-o-m) reported the largest increase in new home prices in May, as builders continued to report strong demand for new homes in the region despite COVID-19. In contrast, new home prices dropped in Québec and Winnipeg (both down 0.1 percent m-o-m) in May.

In y-o-y terms, NHPI rose 1.1 percent in May, following a 0.9 percent gain in the previous month.

Statistics Canada reported on Thursday the wholesale sales tumbled 21.6 percent m-o-m to CAD49.82 million in April (the lowest level since July 2013), following a revised 2.7 percent m-o-m decline in March (originally a 2.2 percent m-o-m decrease). That was the biggest decrease in wholesale sales on record.

Economists had forecast a 12.6 percent m-o-m drop for April.

According to the report, all seven subsectors recorded lower sales for the first time since November 2008. The motor vehicle and motor vehicle parts and accessories subsector (-64.7 percent m-o-m) contributed the most to the April plunge. Excluding this subsector, wholesale sales fell 14.2 percent m-o-m.

In y-o-y terms, wholesale sales decreased 23.4 percent in April.

Meanwhile, wholesale inventories rose 1.2 percent m-o-m in April. Inventories increased in five of seven subsectors, accounting for more than half of total wholesale inventories. The inventory-to-sales ratio climbed from 1.45 in March to 1.87 in April, the highest value on record. In y-o-y terms, wholesale inventories rose 2.6 percent in April. 

U.S. stock-index futures fell on Thursday, as investors weighed the increasing number of coronavirus cases in the U.S. and around the world, as well as higher-than-expected initial jobless claims figures. 

Global Stocks:

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

Tesla (TSLA) target raised to $1200 from $650 at Jefferies

Netflix (NFLX) target raised to $489 from $485 at Imperial Capital

American Express (AXP) downgraded to Hold from Buy at DZ Bank; target $108

Philadelphia-area manufacturing activity unexpectedly expands in June

The Manufacturing Business Outlook Survey, released by the Federal Reserve Bank of Philadelphia on Thursday, revealed the region's manufacturing activity expanded in June.

According to the survey, the diffusion index for current general activity rose from -43.1 in May to 27.5 this month, its first positive reading since February.

Economists had forecast the index to increase to -23.0.

A reading above 0 signals expansion, while a reading below 0 indicates contraction.

According to the report, the current new orders index increased 42 points to 16.7, while the shipments index rose 56 points to 25.3. The employment index increased 11 points to -4.3, remaining in contraction territory. On the price front, the prices paid index increased 8 points to 11.1, while prices received index rose 14 points to a reading of 11.0, its first positive reading since March.

The data from the Labor Department revealed on Thursday the number of applications for unemployment reduced last week to the lowest level since the U.S. economy went into lockdown made to fight the COVID-19 pandemic, but still remained evaluated even as all states had reopened to various extents.

According to the report, the initial claims for unemployment benefits totaled 1,508,000 for the week ended June 13. That brings the number of job losses over the past thirteen weeks (since the U.S. went into coronavirus lockdown in mid-March) to more than 45.7 million.

Economists had expected 1,300,000 new claims last week.

Claims for the prior week were revised upwardly to 1,566,000 from the initial estimate of 1,542,000.

Meanwhile, the four-week moving average of claims fell to 1,773,500 from a revised 2,008,000 in the previous week.

Continuing claims decreased to 20,544,000 million from 20,606,000 in the previous week.

GBP erased some of the early losses against its major rivals in the European session on Thursday after the Bank of England (BOE) announced its latest monetary policy decision, which was in line with the market expectations.

The BoE’s Monetary Policy Committee (MPC) voted 9-0 to maintain Bank Rate at 0.1 percent at its June meeting and voted by a majority of 8-1 to increase the target stock of purchased UK government bonds by an additional GBP100 billion. The Committee also said that it expected that its QE programme to be completed, and the total stock of asset purchases to reach GBP745 billion, around the turn of the year.

The BoE’s policymakers also noted that the outlook for the UK and global economies was unusually uncertain but added that emerging evidence suggests that the fall in global and UK economy in Q2 would be less severe than set out in the May Report.

The pound continued to be weighed down by persistent uncertainty around the UK-EU post-Brexit trade deal. 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 that both sides couldn't reach an agreement by July. On Wednesday, 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.”

FXStreet reports that analysts at Credit Suisse note that EUR/JPY has removed support at 120.60 on a closing basis and with daily MACD momentum having turned lower, the risk is seen lower with next key support seen at the 200-day average at 119.55.

“EUR/JPY has finally seen a decisive break of key support at 120.60/56 on a closing basis – the 38.2% retracement of the entire May/June rally – and this has seen a small bearish continuation pattern complete and with daily MACD momentum having turned lower, further weakness is expected.” 

“Support is seen at 120.04 initially ahead of 119.82 and then 119.55/41 – the 55-day average and 50% retracement of the rally from May – with a fresh hold here expected. Should weakness directly extend this can expose the 55 -day average and 61.8% retracement at 118.22/14, potentially the top of the April/May base at 117.78.” 

“Resistance moves to 120.85 initially, with a break above 121.24 needed to ease the immediate downside bias. Beyond 122.13 though is needed to suggest the correction is over and broader uptrend resumed, with resistance next at 122.51/62.”

FXStreet reports that according to analysts at Credit Suisse, S&P 500 is expected to remain in a high-level consolidation range for now, with resistance at 3190 expected to cap after the index closed yesterday at 3113.49.

“A neutral ‘inside range’ session for the S&P 500 leaves our immediate outlook unchanged and we continue to look for the unfolding of a broad consolidation phase following the impressive March/June recovery.”

“Immediate resistance is seen at 3153 ahead of the top of the price gap from last week at 3181/90. With daily MACD momentum still holding a bearish cross we continue to look for this to then ideally cap for a move lower in the looked-for range. Above 3190 can see the risk stay higher for a test of the potential downtrend from the February peak, today seen at 3213/17.” 

“Support stays seen at 3104 initially then the price gap from Tuesday 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 3017.”

The Bank of England (BoE) announced its Monetary Policy Committee (MPC) voted 9-0 to maintain Bank Rate at 0.1 percent at its June meeting, as widely expected.

The MPC also voted unanimously to continue with the existing programme of GBP200 billion of UK government bond and sterling non-financial investment-grade corporate bond purchases and voted by a majority of 8-1 to increase the target stock of purchased UK government bonds by an additional GBP100 billion, to take the total stock of asset purchases to GBP745 billion..

In its statement, the BoE notes:

• Risky asset prices have recovered further from their March lows, although they have remained sensitive to news on evolution of pandemic;
• Recent data outturns suggest that fall in global GDP in 2020 Q2 will be less severe than expected at time of the May Monetary Policy Report;
• Downside risks to global outlook remain, however, including from the spread of Covid-19 within emerging market economies and from return to higher rate of infection in advanced economies;
• UK GDP contracted by around 20% in April, following a 6% fall in March. Evidence from more timely indicators suggests that GDP started to recover thereafter;
• Current below-target rates of CPI inflation can in large part be accounted for by effects of pandemic;
• Unprecedented situation means that outlook for UK and global economies is unusually uncertain. It will depend critically on evolution of the pandemic, measures taken to protect public health, and how governments, households and businesses respond to these factors;
• Emerging evidence suggests that fall in global and UK GDP in 2020 Q2 will be less severe than set out in the May Report;
• There is a risk of higher and more persistent unemployment in UK;
• CPI inflation is well below the 2% target and is expected to fall further below it in coming quarters, largely reflecting the weakness of demand;
• MPC judges that further easing of monetary policy is warranted to meet its statutory objectives;
• Committee agreed to increase target stock of purchased UK government bonds by an additional GBP100 billion in order to meet inflation target in medium term; expects that programme to be completed, and the total stock of asset purchases to reach GBP745 billion, around the turn of the year.
• MPC will continue to monitor situation closely and, consistent with its remit, stands ready to take further action as necessary to support the economy and ensure a sustained return of inflation to 2% target
• Committee will keep the asset purchase programme under review.

FXStreet notes that lousy Australian jobs data is offset by internal developments such as a good management of coronavirus pandemic and a positive trade surplus. The AUD/USD pair is expected to trade between 0.6750-0.6930 in the short-term but analysts at Westpac forecast the aussie at 0.70 by the end of the third quarter.

“Australia’s May labour force survey was a sour note in what has been a fairly hopeful economic story in recent weeks. Around 835k jobs are estimated to have been shed in two months and the unemployment rate jumped to 7.1%, a high since Oct 2001. While the JobKeeper package has provided vital support, it seems that Australia is likely to avoid a 10% unemployment rate in large part due to a 20-year low in labour force participation.”

“The A$ domestic story remains supportive, with states loosening restrictions despite an uptick of Covid-19 cases in Victoria and the trade balance firmly in surplus.”

“We have raised our end-Sep forecast to 0.70, but near-term the risks are sideways to lower, with US ‘second wave’ headlines likely to continue and geopolitics chipping away. Most trade likely to be within the 0.6750-0.6930 range.”

Petr Krpata, an FX strategist at ING, notes that the Bank of England (BoE) is expected to expand its QE programme today.

"We expect the Bank of England to expand its QE programme by £150bn today."

"An extension of QE is expected by markets (albeit smaller, around £100bn) and should have a limited impact on GBP."

"Still, uncertainty around a UK-EU trade deal should prevent markets from pricing out the possibility of negative rates in the UK."

"We expect little progress in UK-EU trade negotiations in the weeks to come, suggesting further downside to GBP and the currency to be one of the underperformers in the G10 FX space."

"EUR/GBP to test 0.91 this summer."

“Implementation is critical. COVID-19 has unquestionably slowed progress for both governments, and it will be critical for the pace of implementation of purchases to accelerate markedly,” the Chamber said in a statement after a virtual meeting of top U.S. and Chinese business leaders on Wednesday.

FXStreet reports that investors are increasingly taking their cues from the macro data and as the economic  figures are improving, the S&P 500 rally, which trades 37.1% higher from the March 23 bottom, makes more sense. Economists at JP Morgan believe a pullback will be triggered by a second wave of coronavirus or a obliteration of policy support but this is unlikely to happen in the short-term. 

“Investors seem focused on three things: the rate of COVID-19 case growth, the policy response and the potential for a strong rebound in corporate profits over the coming 18 months. When viewed through this lens, the equity rally that we have seen begins to make a bit more sense.”

“The data is getting better, policy on all fronts is accommodative and case growth remains under control. While a second wave of infection or removal of policy supports would cause markets to pull back, it is unclear whether either of those will materialize in the near-term. As such, we remain focused on the ability of the economic data to continue surprising to the upside, and would expect that as things cool off in the coming months, markets will begin to focus on the challenges facing the economy going forward. While we do not think this would precipitate a re-test of the March lows, we do believe that volatility will persist through year-end.”

FXStreet reports that the kiwi is trading in the 0.64-0.65 range, and needs to break any of that levels to find direction. With next week's RBNZ meeting unexpected to surprise, NZD course will be driven by equity markets, according to economists at Westpac.

“NZD/USD has been in consolidation mode around 0.6450 over the past week and looks neutral for the week ahead. Technically, a break of either 0.6400 (bearish) or 0.6500 (bullish) is required to signal multi-week direction.”

“Absent a surprise from the RBNZ next week (and we don’t expect one), the catalyst for a breakout will probably be global, with equity markets continuing to lead currencies.”

“Today’s NZ GDP data showed a fall of -1.6% in the March quarter, reflecting the impact of the Covid-19 lockdown. The result was weaker than the -1.0% we and the market had expected, but the difference most likely reflects temporary adjustments to account for the lockdown period. The June quarter will be of greater interest to markets, our forecast for that being a 14% fall.”

FXStreet reports that GBP/USD remains capped by the 200-day average at 1.2693 and the Credit Suisse analyst team stays biased lower for a test of key support from the 55-day average and uptrend at 1.246/21.

“Support is seen at 1.2505 initially, beneath which should clear the way for a fall back to more important support at 1.2446 and 1.2421 – 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 1.2583/89 initially, then 1.2609/11, above which can ease the immediate downside bias for a fresh look at the 200 -day average and recent 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.”

Reuters reports that the coronavirus pandemic has exposed the weakness of the European Union and Germany will use its presidency of the bloc to promote solidarity and economic prosperity among its 27 member states, Chancellor Angela Merkel said on Thursday.

In a speech to parliament, Merkel said the most immediate challenge facing the bloc reeling from more than 100,000 deaths linked to COVID-19 and facing its worst recession since World War Two was to agree on a multi-year budget and a recovery fund.

“The pandemic has revealed how fragile the European project still is,” said Merkel, lamenting the “rather national and not European” initial response to the pandemic by EU governments, including her own. “Cohesion and solidarity have never been more important than today.”

Germany takes over the EU presidency for six months on July 1 and Merkel said member states have high expectations of the bloc’s largest economy, which is also its paymaster.

EU leaders will debate the European Commission’s 750 billion euro ($842.93 billion) recovery plan for the first time on Friday, together with a 1.1 trillion euro proposal for the next EU budget for 2021-2027. The plan will need the approval of all member states.

Merkel said she expects an agreement on the spending plans at a physical meeting of EU leaders later this year, playing down the chances of a breakthrough at a videoconference summit on Friday.

• There has been an abrupt drop in economic activity as a result of the coronavirus (COVID-19) pandemic and the measures to contain it. 

• Severe job and income losses and exceptionally elevated uncertainty about the economic outlook have led to a significant fall in consumer spending and investment. 

• While survey data and real-time indicators for economic activity have shown some signs of a bottoming-out alongside the gradual easing of the containment measures, the improvement has so far been tepid compared with the speed at which the indicators plummeted in the preceding two months. 

• The June 2020 Eurosystem staff macroeconomic projections for the euro area see growth declining at an unprecedented pace in the second quarter of this year, before rebounding again in the second half, crucially helped by the sizeable support from fiscal and monetary policy. 

• Euro area real GDP decreased by 3.8%, quarter on quarter, in the first quarter of 2020, and incoming data point to a further significant contraction of real GDP in the second quarter. 

• This assessment is also broadly reflected in the June 2020 Eurosystem staff macroeconomic projections for the euro area. In the baseline scenario of the projections, annual real GDP is expected to fall by 8.7% in 2020 and to rebound by 5.2% in 2021 and 3.3% in 2022. Compared with the March 2020 ECB staff macroeconomic projections, the outlook for real GDP growth has been revised substantially downwards by 9.5 percentage points in 2020 and revised upwards by 3.9 percentage points in 2021 and 1.9 percentage points in 2022. 

• According to Eurostat’s flash estimate, euro area annual HICP inflation decreased to 0.1% in May, down from 0.3% in April, mainly on account of lower energy price inflation. On the basis of current and futures prices for oil, headline inflation is likely to decline somewhat further over the coming months and to remain subdued until the end of the year. 

• This assessment is also reflected in the June 2020 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation in the baseline scenario at 0.3% in 2020, 0.8% in 2021 and 1.3% in 2022. Compared with the March 2020 ECB staff macroeconomic projections, the outlook for HICP inflation has been revised downwards by 0.8 percentage points in 2020, 0.6 percentage points in 2021 and 0.3 percentage points in 2022. Annual HICP inflation excluding energy and food is expected to be 0.8% in 2020, 0.7% in 2021 and 0.9% in 2022.

• Will remove restrictions on domestic travel

FXStreet reports that USD/CNH is seen trading within a side-lined pattern in the next weeks, suggested FX Strategists at UOB Group.

24-hour view: “Our expectation for USD to ‘edge higher to 7.0960’ did not materialize as it traded in a relatively quiet manner between 7.0701 and 7.0905 before ending the day largely unchanged at 7.0760 (-0.06%). The quiet price action offers no fresh clues and USD could continue to trade sideways. Expected range for today, 7.0650/7.0920.”

Next 1-3 weeks: “USD traded in a quiet manner for the past few days and there is not much to add to our update from Monday (15 Jun, spot at 7.0880). As highlighted, the current movement in USD is deemed as part of consolidation phase and USD is expected to trade between 7.0500 and 7.1250 for a period.”

FXStreet reports that much optimism has been priced in the EU meeting to discuss the virus recovery fund on Friday and any signs of stalling may see the common currency pare back on gains. Terence Wu, an FX strategists at OCBC Bank, prefers to sell EUR/USD on rallies prior to the event. 

“The European Union leaders' discussion on the virus recovery fund is scheduled for Friday. Merkel is optimistic that it will be agreed by July, but the discussions should reveal how much support it really has. Recent EUR positivity is, in part, stemmed from optimism that this recovery fund can be pushed through. Any sign of delay should lead the market to pare back on recent EUR gains.”

“Expect the EUR/USD pair to be implicitly heavy into the event risk, with 1.1300 potentially capping. Prefer to sell on rallies, with 1.1200 expected to attract.”

Swiss National Bank said that the coronavirus pandemic and the measures implemented to contain it have led to a severe downturn in economic activity and a decline in inflation both in Switzerland and abroad. The SNB’s expansionary monetary policy remains necessary to ensure appropriate monetary conditions in Switzerland.

The SNB is keeping the SNB policy rate and interest on sight deposits at the SNB at −0.75%, and in light of the highly valued Swiss franc it remains willing to intervene more strongly in the foreign exchange market. In so doing, it takes the overall exchange rate situation into account. Furthermore, under the SNB COVID-19 refinancing facility (CRF), it is providing the banking system with additional liquidity and thus supporting the supply of credit to the economy at favourable terms. The SNB’s expansionary monetary policy helps stabilise economic activity and price developments in Switzerland.

In the current situation, inflation and growth forecasts are subject to unusually high uncertainty. The new conditional inflation forecast is lower than in March. This is primarily due to the significantly weaker growth prospects and lower oil prices. The forecast for the current year is negative (−0.7%). The inflation rate is likely to rise in 2021, but still be slightly negative (−0.2%), before returning to positive territory in 2022 (0.2%). The conditional inflation forecast is based on the assumption that the SNB policy rate remains at –0.75% over the entire forecast horizon.

The coronavirus pandemic has pushed the global economy into a sharp recession. The measures to contain the virus have massively restricted both production and consumption, which already led to a severe economic downturn in many countries in the first quarter of 2020. The decline in global GDP is likely to be even more pronounced in the second quarter. Unemployment has increased in many countries, with short-time work schemes having prevented a stronger rise in Europe.

FXStreet reports that investors are appreciating easing measures, therefore, the pound is set to strengthen on a dovish Bank of England enlarging the QE program while an expansion of QE in line with expectations or a hawkish stance would hit sterling, per TD Securities. 

“Hawkish (10%): Unchanged rates. BoE votes for an additional £100 billion of QE, but suggests more explicitly that the pace of QE to slow as market dislocations have eased. GBP/USD 1.2455 EUR/GBP 0.9060.”

“Base Case (60%): BoE votes 9-0 for an additional £100 billion of QE, remaining vague on the pace and open to doing more QE later on if needed. Minutes show no discussion of negative rates in monetary policy debate. Balance of risks to the 'illustrative' scenario from May MPR still lies to the downside. Stands ready to take further action as necessary. GBP/USD 1.2505 EUR/GBP 0.9025.”

“Dovish (30%): Unchanged rates, QE of £150 billion. BoE announces £150 billion+ of QE, but likely to be a dissent or two in favour of smaller QE announcement. MPC signals it wants to provide more certainty around QE into the year-end. GBP/USD 1.2690 EUR/GBP 0.8905.”

The US dollar fell against the euro and yen, while the Australian and New Zealand national currencies declined against the dollar on data on unemployment in Australia and New Zealand GDP.

Federal reserve Chairman Jerome Powell on Wednesday urged Congress not to scale back too quickly temporary programs to support homeowners and small businesses that were adopted to support the economy in the crisis caused by the coronavirus pandemic.

On Thursday, traders expect the publication of data from the US Department of labor on the number of new applications for unemployment benefits.

The Bank of England will meet today. Analysts expect that the regulator will increase the volume of the asset repurchase program by at least 100 billion pounds to ensure the stability of the financial market.

The New Zealand dollar fell. New Zealand's GDP in the first quarter fell by 1.6% compared to the previous three months - to 310 billion New Zealand dollars ($200 billion), according to official data . Compared to January-March last year, the economy declined by 0.2% and was the first since the third quarter of 2009.

The Australian national currency is also declining. Australia's seasonally adjusted unemployment rate rose to 7.1% in May from 6.4% in the previous month, the Australian Bureau of Statistics said. This is the highest figure since October 2001. Analysts on average predicted an increase in unemployment to 7%.

The ICE Dollar index, which shows the value of the dollar against six major world currencies, fell by 0.17% relative to the previous trading day.

Reuters reports that China will keep liquidity ample in the second half of the year, but it should consider in advance the timely withdrawal of policy measures aimed at countering the effects of the COVID-19 pandemic, the country’s central bank governor said on Thursday.

China’s economic fundamentals remain sound and its financial markets are stable overall, Yi Gang told a financial forum in Shanghai.

“The financial support during the epidemic response period is (being) phased, we should pay attention to the hangover of the policy,” Yi said.

“We should consider the timely withdrawal of policy tools in advance.”

The People’s Bank of China had guided financing costs lower this year, Yi said.

New loans are likely to hit nearly 20 trillion yuan ($2.83 trillion) this year, up from a record 16.81 trillion yuan in 2019, and total social financing could increase by more than 30 trillion yuan, the governor said.

The bank’s balance sheet remains stable around 36 trillion yuan, he added.

The PBOC has already rolled out a raft of easing steps since early February, including cuts in reserve requirements and lending rates and targeted lending support for virus-hit firms.

The economy has been recovering steadily after shrinking 6.8% in the first quarter, the first contraction on record.

Analysts expect the central bank to ease policy further to bolster economy.

eFXdata reports that Barclays Research discusses USD/JPY outlook and targets the pair at 105 in Q3,and 104 in Q4. 

"While JPY could face downward pressures in the near term amid the positive risk dynamics, especially in cross-JPY, we expect USDJPY to remain under some downward pressures in the second half of this year," Barclays notes. 

"First, risk-adjusted return of JPY improved due to its safe-haven currency status (ie, lower risk) and the global low-for-long yield environment (relatively higher return). Second, JPY is poised to attract greater safe-haven demand diverted from the USD if its perceived risk increases with US election uncertainty. Third, the increasingly cautious outward investment stance by both corporates (M&A) and investors (FX-unhedged portfolio flows) is likely to increase downside vulnerability of USDJPY," Barclays adds.

FXStreet reports that a deeper pullback to the 0.6320 region looks increasingly unlikely in the near-term, in opinion of FX Strategists at UOB Group.

24-hour view: “Our expectation for NZD ‘to test the 0.6400 support’ did not materialize as it traded in a quiet manner and within a narrow range of 0.6430/0.6474. The underlying tone still appears to be on the soft side and we continue to see chance for NZD to test 0.6400 (minor support at 0.6420). For today, a sustained drop below 0.6400 would come as a surprise. Resistance is at 0.6465 followed by 0.6485.”

Next 1-3 weeks: “Our view from last Friday (12 Jun, spot at 0.6420) was that ‘the near-term bias for NZD is on the downside but any weakness is likely limited to 0.6320 for now’. NZD dropped to 0.6381 yesterday (15 Jun) before staging a sudden and strong surge. While our 0.6510 ‘strong resistance’ level is still intact, downward pressure has been dented and the odds for NZD to move to 0.6320 have diminished considerably. From here, a break of 0.6510 would indicate that NZD could spend some time trading sideways, To look at it another way, it is premature to expect a resumption of the recent strong advance in NZD.”

EUR/USD

Resistance levels (open interest**, contracts)

$1.1352 (1578)

$1.1325 (1329)

$1.1304 (1171)

Price at time of writing this review: $1.1251

Support levels (open interest**, contracts):

$1.1202 (1987)

$1.1179 (571)

$1.1150 (661)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date July, 2 is 48849 contracts (according to data from June, 17) with the maximum number of contracts with strike price $1,1700 (2287);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2777 (1498)

$1.2739 (1499)

$1.2675 (557)

Price at time of writing this review: $1.2552

Support levels (open interest**, contracts):

$1.2471 (987)

$1.2446 (1485)

$1.2418 (894)

Comments:

- Overall open interest on the CALL options with the expiration date July, 2 is 15099 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 17441 contracts, with the maximum number of contracts with strike price $1,2550 (1485);

- The ratio of PUT/CALL was 1.16 versus 1.15 from the previous trading day according to data from June, 17

* - 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.