CFD Markets News and Forecasts — 18-06-2021

FXStreet reports that UOB Group’s Economist Lee Sue Ann assesses the recently published Australia's labour market report.

“Australia's seasonally adjusted unemployment rate fell to 5.1% in May, from 5.5% in the previous month, and back to the level in February 2020. The latest fall in the unemployment rate coincided with a strong increase in employment between April and May.”

“Australia’s second-largest state, Victoria, was locked down during May to contain a virus outbreak after a quarantine breach. Hence, the two-week lockdown is likely to weigh on June employment data. That said, we expect solid jobs growth to resume in the second half of the year as the market shakes off the impact of Victoria lockdown. We look for Australia’s unemployment rate to continue declining, reaching 4.8% by end 2021, and falling to 3.2% by the end of 2022.”

eFXdata reports that analysts at Credit Agricole CIB Research discuss CAD outlook.

"The CAD outlook has continued to deteriorate recently, in an interesting turn of events for hitherto one of the preeminent carry investment currencies in the G10 space. Indeed, it seems that the latest rebound n USD/CAD correlates well with the latest widening of the USD-CAD short-term rate differentials. It further seems that resilient oil prices have not been that supportive for the CAD, suggesting that the market focus remains on the currency’s loss of rate advantage at the moment." 

"Next week, FX markets could focus on the release of Canadian retail sales for May."

• EU will not accept delicate balance being unilaterally changed
• EU has no interest in interfering in UK's internal affairs
• The clock is again well and truly ticking
• It is unrealistic to think that all EU-UK barriers can be lifted
• EU will not be shy of acting resolutely if required over Northern Ireland

FXStreet reports that Ned Rumpeltin, European Head of FX Strategy at TD Securities, notes that EUR/USD has managed to find some support around 1.19 as the pair ranks as one of the most oversold in the G10 right now. This suggests one might need a high level of conviction to enter fresh shorts at current levels.

“EUR/USD managed to find some support around the 1.19 level late and has largely been rangebound since.”  

“While the 200-DMA (1.1998) is likely to provide a near-term cap, the next main support zone should be found in the 1.1835/60 area.” 

“EUR/USD is among the most oversold G10 currencies right now - at least as measured by the daily RSI. All else equal, that suggests one might need a high level of conviction to enter fresh shorts at current levels.”

FXStreet reports that economist at UOB Group Lee Sue Ann comments on the latest release of the UK inflation figures.

“UK inflation jumped to 2.1% y/y in May, breaching the Bank of England (BOE)’s target for the first time in two years. The reading was above April’s reading of 1.5% y/y, and exceeded expectations of 1.8% y/y. In its May forecast, the BOE also projected a reading of 1.8% y/y. On a monthly basis, the CPI rose by 0.6% m/m in May, unchanged from April. Much of the inflationary pressures in May was due to price fluctuations caused by the COVID-19 pandemic.”

“Going forward, the path of inflation will likely remain volatile for some time. A recovery in oil prices will continue to boost inflation over the summer. The withdrawal of the VAT cut for hospitality businesses will also temporarily lift inflation. However, a strengthening pound and adequate labour supply are likely to keep inflation under control. While an eventual re-opened economy could see rapid economic growth over the next two years, there is still a significant level of slack which would prevent higher inflation from taking hold. As such, we see inflation peaking at around 2.5% later this year before price pressures are expected to ease back below the BOE’s 2% target.”

U.S. stock-index futures fell on Friday, as investors digested hawkish-sounding comments from St. Louis Fed president James Bullard, who told CNBC that the Fed had already begun discussions about near-term tapering of bond purchases and he expected a rate hike in late 2022 amid accelerating inflation pressures.

Global Stocks:

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FXStreet reports that AUD/USD is testing below its 2021 lows and 200-day average at 0.7552/31. Below this area, the aussie would complete a major top to turn the medium-term risks lower, analysts at Credit Suisse suggest.

“A weekly closing beak below the key band of support at the year to date lows at 0.7551/31 and the 200-day average would complete a large top to reverse us into a medium-term bearish view, with the next initial support seen at 0.7461, then the 23.6% retracement of the entire upmove from 2020 at 0.7418. It is worth noting that there is a dearth of meaningful support below here, whilst the potential ‘measured top objective’ coincides at 0.7053/43.” 

“First short-term resistance moves to the broken 200-day average at 0.7553.”

• FOMC's hawkish tilt was due to the fact that economy has been performing better than expected this year
  
• It is natural to be more hawkish with higher inflation
  
• Recent data is very good news; says he expects to see lots of continued improvement
• Inflation more intense than expected
• Some upside risk remains with some reopening still to occur
• Upside risk of inflation is okay since that is what Fed was hoping to achieve
• Says he thinks inflation forecast will be achieved in 2021 or 2022
• Fed must remain nimble on its policy
• Upcoming fiscal debates on infrastructure are not likely to influence Fed's policy
• Fed's Chair Powell opened taper debate at last meeting; more in-depth discussion to follow
• Fed has eye on equity market valuations but different members have different opinions on how that influences policy
• I'm personally leaning toward the idea that the Fed does not need to be involved in mortgage-backed securities (MBS)
• Volatile data this time means taper may need to more state-contingent, less automatic, than the last time
• U.S. does not want to get into a housing bubble
• Fed has to be ready to adjust taper as necessary
• Says he supports the idea that month to month taper should be more dependent on conditions, the path of inflation and reopening
• Reveals that his dot reflects rate increase in late 2022

• Says he is very confident that they will be able to further ease coronavirus restrictions on July 19
• Data continues to indicate we will be able to proceed on July 19
• Says he has complete confidence in UK's health minister Hancock

• Protracted economic uncertainty means that case for monetary and fiscal expansion remains compelling
• With higher levels of economic activity than before pandemic, rise in debt can be compensated
• Investors must be reassured that fiscal prudence will return as soon as recovery is self-sustained

FXStreet reports that USD/CAD has closed clearly above the 55-day average at 1.2265, which hadn’t been sustainably breached previously this year. As the Credit Suisse analyst team notes, this signals a 1-2 month trend change, particularly given that daily MACD has also turned bullish.

“USD/CAD has surged higher again, breaking above 1.2203/05 as well as above 1.2264, which includes the important 55-day average, the 38.2% retracement of the fall from April and the ‘measured base objective’. The 55-day average has essentially capped the market all year and so the sustained move above here marks an important change of trend for the next 1-2 months, reinforced by the cross higher in daily MACD.”

“Next resistance is seen at 1.2405/19, then 1.2500/14, with the potential for a move back to the major cluster of resistances at 1.2639/53.” 

“Near-term support moves to 1.2264/61, which now ideally holds to keep the risks directly higher.”

• Confirms that exceptional circumstances continue to justify the leverage ratio relief for banks in the region

GBP weakened against most of its major counterparts in the European session on Friday after the data revealed an unexpected drop in the UK’s retail sales for May.

The Office for National Statistics (ONS) reported that the UK's retail sales declined 1.4% m/m in May, following a 9.2% m/m surge in April, when retail restrictions were eased. This was the first monthly drop in retail sales since January. Economists had forecast a 1.6% m/m gain. Lower retail sales at food stores (-5.7% m/m) were the largest contribution to the monthly decline in May, as the easing of hospitality restrictions had had an impact on sales as people returned to eating and drinking at locations such as restaurants and bars. On a yearly basis, the retail sales rose by 24.6% last month, following a 42.4% jump in April and also missing economists' expectations of a 29.0% climb.

Market participants also received the Bank of England's (BoE) quarterly survey of public attitudes to inflation, which showed that median expectations of the rate of inflation over the coming year were 2.4% in May, down from 2.7% in February 2021. Expectations of inflation in the longer term also fell - to 2.7% in May from 2.9% in February 2021.

Investors’ focus is now shifting towards BoE’s policy meeting, which is due on June 24. Markets do not expect any changes to the Bank’s policy settings.

FXStreet reports that the EIA natural gas storage report showed an injection of 16 Bcf (67 Bcf when adjusting for the PG&E accounting measure). While tighter than the expected 71 Bcf and compared to the five-year average injection of 85 Bcf for the week, the market may interpret the latest numbers as marginally loose given the recent perfect storm of idiosyncratic factors, Ryan McKay, Commodity Strategist at TD Securities, suggests.

“News that the issue in the TETCO pipeline may not be resolved until September fueled the recent overshoot to north of $3.30/MMBtu, while nuclear outages, less hyrdo power amid a drought in California and one of the hottest Junes on record all combined to provide a bullish near-term outlook. Given the combination of all these bullish factors, the 67 Bcf injection appears less impressive.”

“When taking into account the extreme heat seen during the reporting period, and the forecasts for one of the hottest Junes on record, the latest injection is neutral to marginally bearish. At the same time, while power burns were up roughly 7 Bcf/d compared to the previous week, and in line with seasonal levels, they are also less impressive when taking into account the weather factor and nuke/hydro outages. This suggests tightening fundamentals have not been the prominent driver of the recent strength, and that weather has been in the driver's seat.” 

“The global recovery and vaccine rollout bodes well for LNG, industrial and commercial demand, while favorable weather and a higher portion of the energy mix can still add an additional bullish layer to power demand moving forward. Inventories are on track to finish the summer season in line with the five-year average or potentially tighter which remains price supportive.”

FXStreet notes that GBP/USD is struggling to hold onto 1.39. According to the Credit Suisse analyst team, cable should see weakness extend further, with next support seen at 1.3802/01.

“We continue to look for a more significant turn lower within the broader range from late February. Support is seen next at 1.3878/59 – the 23.6% retracement of the rally from last September – which we look to hold at first. Below in due course though should see support next at the May lows at 1.3802/01.” 

“Whilst we would look for the 1.3802/01 level to hold at first, below in due course can see weakness extend further to 1.3717, potentially even the more important April low and 38.2% retracement of the rally from last September at 1.3669/48.” 

“Resistance moves to 1.3971 initially, with 1.4000/10 ideally capping."

FXStreet reports that Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, notes that EUR/USD slips to the 2020-21 uptrend line and 55-week moving average at 1.1907/1.1877. This zone is expected to hold on Friday.

“EUR/USD fell out of bed to below the 61.8% Fibonacci retracement of the March-to-May advance and close to the 2020-2021 uptrend line at 1.1907 which together with the 55-week moving average at 1.1877 is expected to hold the cross today. If not, we would have to allow for the March 9 low and the 78.6% Fibonacci retracement at 1.1836/24 to be reached as well.” 

“Minor resistance above the 200-day moving average at 1.1996 comes in at the 1.2052 mid-May low."

Reuters reports that Japan's government pledged to keep its goal of achieving a primary budget surplus by fiscal 2025, with a caveat that the target will be reassessed this fiscal year due to COVID-19 pandemic.

The annual economic policy blueprint underscored the need to strike a delicate balance between spurring post-pandemic growth and curbing the industrial world's heaviest public debt burden. There was no change in the blueprint to its wording on the fiscal target from an earlier draft.

"However, we will reassess the timeframe by the end of the current fiscal year, while considering the still unstable economic and fiscal situation due to the pandemic's impact," read the blueprint, which was approved by the cabinet on Friday.

FXStreet reports that senior Economist Alvin Liew at UOB Group assesses the latest FOMC event.

“The Fed Reserve, as widely expected, kept its policy rates and asset purchase program unchanged in its June FOMC. But Fed’s 2021 inflation forecast was adjusted much higher to 3.4% (from 2.4%) while its growth outlook continued to turn more bullish (7% in 2021 from 6.5% previously) and unemployment rate stayed at 4.5% in 2021 and remains on track to head below long term rate by 2022.”

“Further in his news conference, Powell shifted from his previous position of “it is not time yet” to begin talking about QE taper, to acknowledging that officials discussed the cutting back on its bond-buying program at the meeting, characterizing it as “talking about talking about” meeting.  The beginning of the “talk about the talk” could now set in motion for taper discussion which will lead to the fleshing out of the tapering of its asset purchase program. The first indicative hint could be released during the Jackson Hole Symposium (26 Aug) and further articulated into a pledge of the taper timeline in the 21/22 September 2021 FOMC. We now expect the first taper to be carried out in December 2021 and the tapering process will last for nearly 1.5 years until May 2023. Thereafter, we project two 25bps rate hikes in 2023, first to 0.25%-0.50% in June and then to 0.50%-0.75% in December.”

Reuters reports that according to a Bank of England survey that may give its officials confidence that rising price pressures are not becoming engrained in the popular psyche, the British public's expectations for inflation cooled last month.

Inflation expectations for the year ahead fell to 2.4% from 2.7% in its February survey. Expectations for inflation in the long term also eased, to 2.7% from 2.9%.

FXStreet reports that economists at Credit Suisse.discuss EUR/USD prospects.

“Assuming we do not see a close back above the 200-DMA at 1.1196 today, which we do not look for, we look for further weakness within the broader range that has been in place all year. Indeed, support from the 61.8% retracement of the rally from late March has already been removed and we look for further weakness to 1.1867/60 next, then the 78.6% retracement at 1.1823. Whilst we would also look for this to hold at first, below can see weakness extend to potential trend support from the lower end of the converging range, now at 1.1758.” 

“With major price and retracement support not far below at 1.1717/1.1695, we look for a fresh floor here.”

According to the report from Istat, in April 2021, estimates for construction output decreased by 2.2% in the month-on-month series, recording the first monthly fall in 2021.

In the three months to April 2021, the seasonally adjusted index of production in construction was up 5.8% when compared with the previous three months.

Year on year, the unadjusted index for construction output grew by 262.7%, while the calendar adjusted index (21 calendar working days as in April 2020) rose by 260.2%. This is the highest annual growth in construction output since the series began and it is strictly connected to the closures imposed in April 2020 to limit the spread of Covid-19.

In the first four months of 2021, construction output rose by 46.0% in the unadjusted series and increased by 46.6% in the calendar adjusted series.

According to the report from European Central Bank, the current account of the euro area recorded a surplus of €23 billion in April 2021, an increase of €5 billion from the previous month. Surpluses were recorded for goods (€27 billion), services (€8 billion) and primary income (€1 billion). These were partly offset by a deficit for secondary income (€13 billion).

In the 12 months to April 2021, the current account recorded a surplus of €288 billion (2.5% of euro area GDP), compared with a surplus of €239 billion (2.0% of euro area GDP) in the 12 months to April 2020. This increase was driven by a larger surplus for services (up from €27 billion to €82 billion) and, to a lesser extent, for goods (up from €321 billion to €359 billion). These developments were partly offset by a reduction in the surplus for primary income (down from €41 billion to €16 billion) and an increase in the deficit for secondary income (up from €151 billion to €168 billion).

In financial account, euro area residents’ net acquisitions of non-euro area portfolio investment securities totalled €1 trillion and non-residents’ net acquisitions of euro area portfolio investment securities totalled €159 billion in 12 months to April 2021

FXStreet reports that economists at JP Morgan continue to expect yields will grind higher through the end of the year and strong economic growth accompanied by still relatively accommodative monetary policy will provide support to equity markets.

“The statement and committee projections reflect the FOMC view that fiscal support and continued vaccination efforts will provide a strong boost to growth and strengthen the recovery in the labor market, while potentially causing more persistently higher inflation than originally forecasted. The median dot plot now reflects two rate hikes sometime in 2023, up from no rate hikes just three months ago. While Chairman Powell suggested the median dot plot should not be viewed as a definitive path forward to short-term rates, it’s clear the committee has shifted to a more hawkish stance, reflecting its more optimistic outlook on the economy.”

“Interestingly, when asked about the timing of the reduction in asset purchases, Chairman Powell shied away from providing new details but did say the committee was discussing tapering. We continue to expect yields will grind higher through the end of the year and strong economic growth accompanied by still relatively accommodative monetary policy will provide support to equity markets.” 

During today's Asian trading, the US dollar rose against the pound, Australian and New Zealand dollars, but was almost unchanged against the euro and yen.

According to the results of the June meeting, the Bank of Japan kept unchanged the key parameters of monetary policy - the short-term interest rate on deposits of commercial banks in the Central Bank at -0.1% per annum, the target yield of ten-year government bonds of Japan - about zero.

At the same time, the regulator extended a special program to support businesses in the context of the pandemic, which was supposed to end in September, for six months - until the end of March 2022, amid concerns about another outbreak of coronavirus.

The pound fell 0.35% against the US dollar on the back of the UK data. According to the report from Office for National Statistics, retail sales volumes declined by 1.4% between April and May 2021 following a sharp increase in April when retail restrictions were eased; despite the monthly decline, over April and May combined. Economists had expected a 1.6% increase. Average total retail sales volumes were still 7.7% higher than in March 2021, and were 9.1% higher than in February 2020 before the impact of the coronavirus (COVID-19) pandemic. Retail sales volumes in May 2021 were 24.6% higher than in May 2020, which was affected by the first national lockdown when the tightest restrictions were in place; however, these growth rates are distorted by base effects and are not a reliable guide.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose 0.13% to 92.01.

Reuters reports that the Treasury said in a statement that U.S. Treasury Secretary Janet Yellen met with Mexican finance minister Arturo Herrera, stressing the importance of securing support from the Group of 20 major economies for a proposed global minimum tax .

Yellen, whose proposal for a global minimum tax of at least 15% has won the backing of the Group of Seven advanced economies, is now urging G20 countries - including Mexico and China - to support the plan when they meet in Venice in July.

Yellen told U.S. lawmakers that Washington would not agree to any type of special treatment for China or other countries that would weaken a global minimum tax regime. 

G7 finance officials on June 5 agreed to support a minimum corporate tax rate of at least 15%, a move endorsed by G7 leaders on Sunday.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2039 (368)

$1.2009 (871)

$1.1986 (407)

Price at time of writing this review: $1.1892

Support levels (open interest**, contracts):

$1.1845 (1697)

$1.1812 (619)

$1.1775 (712)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 17 is 53054 contracts (according to data from July, 9) with the maximum number of contracts with strike price $1,2200 (5972);

GBP/USD

$1.4125 (315)

$1.4054 (141)

$1.3982 (127)

Price at time of writing this review: $1.3861

Support levels (open interest**, contracts):

$1.3824 (762)

$1.3793 (1320)

$1.3758 (861)

Comments:

- Overall open interest on the CALL options with the expiration date July, 9 is 13278 contracts, with the maximum number of contracts with strike price $1,4500 (3577);

- Overall open interest on the PUT options with the expiration date July, 9 is 15169 contracts, with the maximum number of contracts with strike price $1,4000 (3035);

- The ratio of PUT/CALL was 1.14 versus 1.14 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.

FXStreet reports that economists at ANZ Bank expect further dollar’s appreciation in the near-term, providing selling opportunities in NZD/USD.

“Despite strong NZ Q1 GDP, the kiwi remained under pressure as USD strength dominated across the board. A growing conviction that the Fed will move on rates soon into the expansion and cap burgeoning inflation pressures is supporting the USD. Inflation expectations have also eased back in reaction to the Fed’s updated guidance, which is an additional positive for the greenback.” 

“The USD’s rise may run further near-term. In the short-term, rallies in NZD/USD are selling opportunities.”

The Federal Statistical Office said that in May 2021, the index of producer prices for industrial products increased by 7.2% compared with May 2020. This was the highest increase compared to the corresponding month of the preceding year since October 2008 (+7.3%), when prices rose strongly before the finance crisis. Economists had expected a 6.4% increase. Compared with the preceding month April 2021 the overall index increased by 1.5% in May 2021. The last time prices rose more compared to the previous month was also in the run-up to the financial and economic crisis in July 2008 (+2.0%). Economists had expected a 0.7% increase.

Mainly responsible for the increase of producer prices compared to May 2020 were the prices of intermediate products and of energy. Prices of intermediate goods increased by 10.7% compared to May 2020. Compared to April 2021 these prices were up 2.2 %.

Energy prices as a whole increased by 14.9% compared to May 2020 and by 2.6 compared to April 2021. The price increase from May 2020 to May 2021 is mainly caused by a base effect resulting from the sharp drop in prices in spring 2020 in the course of the pandemic. National CO2-pricing that has been introduced in January 2021 on several energy products also had a great impact on the price increase of energy. 

The overall index disregarding energy was 4.9% up on May 2020.

Prices of durable consumer goods increased by 1.7% compared to May 2020 (+0.1% compared to April 2021), capital goods, such as machines and vehicles, by 1.2% (+0.2% compared to April 2021).

Prices of non-durable consumer goods increased by 0.5% compared to May 2020 but remained unchanged compared to April 2021. Food prices increased from May 2020 to May 2021 by 0.3.

According to the report from Office for National Statistics, retail sales volumes declined by 1.4% between April and May 2021 following a sharp increase in April when retail restrictions were eased; despite the monthly decline, over April and May combined. Economists had expected a 1.6% increase.

Average total retail sales volumes were still 7.7% higher than in March 2021, and were 9.1% higher than in February 2020 before the impact of the coronavirus (COVID-19) pandemic.

The largest contribution to the monthly decline in May 2021 came from food stores where sales volumes fell by 5.7%; anecdotal evidence suggests the easing of hospitality restrictions had had an impact on sales as people returned to eating and drinking at locations such as restaurants and bars.

Non-food stores reported a 2.3% increase in monthly sales volumes in May 2021 with household goods stores (for example, hardware and furniture stores) and “other” non-food stores reporting the largest growth of 9.0% and 7.7% respectively.

Retail sales volumes in May 2021 were 24.6% higher than in May 2020, which was affected by the first national lockdown when the tightest restrictions were in place; however, these growth rates are distorted by base effects and are not a reliable guide.