CFD Markets News and Forecasts — 19-08-2021

eFXdata reports that analysts at Credit Agricole CIB Research see a scope for a tactical rebound in EUR/USD from the current levels.

"Our FX valuation analysis still suggests that EUR/USD is looking cheap relative to a fair value estimate based on rate spread and box yield spread as well as other drivers. In turn, this could limit the downside risks for the pair in the near-term."

"Moreover, evidence today that the Governing Council is far from unanimous in its commitment to a more dovish policy stance from here helped the EUR recoup some lost ground across the board."

FXStreet reports that Lee Sue Ann, Economist at UOB Group, reviews the latest UK inflation and jobs data vs. expectations of rate hikes by the BoE.

“UK’s inflation eased in July, as CPI rose 2.0% y/y. This compares with a 2.5% y/y increase in June, and below expectations for a 2.3% y/y reading. It was the first weaker-than-expected print for inflation in at least three months.”

“Meanwhile, UK’s wage growth hit a record as companies posted more than 1 million new job vacancies for the first time in an unprecedented scramble for staff following the loosening of lockdown rules. Average earnings in the three months through June surged a record 8.8% y/y."

“But the real test of the labour market will come when the government withdraws its furlough program at the end of September. This will be central to the Bank of England (BOE)’s thinking as far as monetary policy is concerned. Still, the latest inflation figures should provide some relief for policymakers, who have come under intense pressure to tweak its ultra-loose monetary policy stance in a bid to tame inflation.”

“Earlier this month, the BOE voted unanimously to keep rates unchanged... Policymakers will probably want more time to see how the labour market adjusts to the expiration of the furlough scheme before withdrawing stimulus. It was notable that the MPC abandoned its guidance that it would not look to tighten policy until “there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably”. Instead, it now thinks that if “the economy evolve broadly in line with the central projections in the August Monetary Policy Report, some modest tightening of monetary policy over the forecast period is likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term”. While we certainly would not rule out an earlier move, our base case, for now, is still for the first rate hike to come in 2023."

The Conference Board announced on Thursday its Leading Economic Index (LEI) for the U.S. rose 0.9 percent m-o-m in July to 116.0 (2016 = 100), following a revised 0.5 percent m-o-m gain in June (originally a 0.7 percent m-o-m advance).

Economists had forecast an increase of 0.8 percent m-o-m.

“The U.S. LEI registered another large gain in July, with all components contributing positively,” noted Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “The Leading Index’s overall upward trend, which started with the end of the pandemic-induced recession in April 2020, is consistent with strong economic growth in the second half of the year. While the Delta variant and/or rising inflation fears could create headwinds for the US economy in the near term, we expect real GDP growth for 2021 to reach 6.0 percent year-over-year, before easing to a still robust 4.0 percent growth rate for 2022.”

The report also revealed the Conference Board Coincident Economic Index (CEI) for the U.S. went up 0.6 percent m-o-m in July to 105.6, following a 0.4 percent m-o-m growth in June. Meanwhile, its Lagging Economic Index (LAG) for the U.S. rose 106.5 percent m-o-m in July to 103.0, following a flat m-o-m performance in June.

The Manufacturing Business Outlook Survey, released by the Federal Reserve Bank of Philadelphia on Thursday, revealed the region's manufacturing activity continued to expand in early August, albeit at a slower pace than in July.

According to the survey, the diffusion index for current general activity fell from 21.9 in July to 19.4 this month. This was the lowest reading since December 2020.

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 new orders index rose 5.8 points to 22.8 this month, while the current shipments index fell 5.7 points to 18.9. Elsewhere, the current employment index increased 3.4 points to 32.6. On the price front, the prices paid diffusion index went up 1.5 points to 71.2, while the current prices received index jumped 7.1 points to 53.9, its highest reading since May 1974. 

U.S. stock-index futures declined on Thursday, as investors’ sentiment was pressured by the Federal Reserve’s signals that tapering could begin later this year.

Global Stocks:

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

FXStreet reports that the Credit Suisse analyst team suggests that below 4373, the S&P 500 index can see a price top established for a test of the 63-day average at 4315.

“With daily and weekly RSI momentum divergences in place and a bearish ‘reversal week’ threatening (seen confirmed on a close below 4225 on Friday) bearish pressures look to be increasing. Further reflecting this remains see the broader ‘risk-off’ moves emerging in EM equity markets and China as well as now strength in the USD and weakness in commodities.” 

“We continue to look for further weakness with key price support seen at the August lows at 4381/73. Below here can see a top complete to further increase bearish pressure to expose the 63-day average, currently at 4315.”

“Resistance is seen at 4418 initially, with 4424/26 ideally capping to keep the immediate risk lower. We shall though maintain an immediate tactical bearish bias whilst below 4462.”

The data from the Labor Department showed on Thursday the number of applications for unemployment decreased more than expected last week, hitting a new pandemic-era low.

This was the lowest reading since mid-March of 2020 when the COVID-19 pandemic struck.

Economists had expected 363,000 new claims last week.

Claims for the prior week were revised upwardly to 377,000 from the initial estimate of 375,000.

Meanwhile, the four-week moving average of jobless claims dropped to 377,750 from an upwardly revised 396,750 in the previous week.

As for continuing claims, they declined to 2,820,000 from an upwardly revised 2,899,000 in the previous week.

FXStreet reports that economists at Rabobank expect the USD, JPY and CHF to remain well supported versus a broad basket of other G10 currencies.

“Expectations regarding global growth are still far from clear of the risk of negative covid related surprises and this factor suggests safe haven currencies could remain in favour.”

“While the USD in recent years have been sensitive to global growth fears and to the broad performance of EM, the JPY often has a heightened sensitivity regarding regional geopolitical factors. This may test the current forecast that USD/JPY could push moderately higher on a 3- to 6-month view.”

“We have revised lower our EUR/CHF forecasts and see the 1.07/1,08 area been maintained on a 1- to 3-month view.”

“We retain our EUR/USD target of 1.16.”

FXStreet reports that USD/CAD has topped 1.27 and economists at Credit Suisse look for strength back to the 1.2807 July high.

“USD/CAD maintains its impulsive move higher after the break above its 200-day average and importantly its 1.2608 recent high to mark the completion of a near-term base. With the market also maintaining a much larger multi-month base this should confirm that the uptrend is resuming.”

“We stay biased higher for a retest of the 1.2807 high. Beyond this latter level can reinforce a basing story with resistance seen next at the highs for the year at 1.2870/81. The ‘measured base objective’ still projects a move to 1.3024, also the 38.2% retracement of the 2020/2021 collapse where we would look for a firmer ceiling.” 

USD rose against most of its major rivals in the European session on Thursday, amid heightened concerns that the U.S. Federal Reserve could start scaling back its stimulus later this year. 

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, went up 0.24% to 93.36.

The minutes from July’s Fed policy meeting revealed on Wednesday that “most” participants “judged that it could be appropriate to start reducing the pace of asset purchases this year because they saw the Committee's "substantial further progress" criterion as satisfied with respect to the price-stability goal and as close to being satisfied with respect to the maximum-employment goal”. 

Investors are now looking for the Fed’s Jackson Hole conference next week, hoping to get a more definitive timeline on tapering.

FXStreet reports that AUD/USD has dropped below 0.72 as the US dollar powered ahead and Australia’s coronavirus woes sparked another round of growth forecast downgrades. Economists at Westpac suggest the Aussie is set to remain under pressure and may test the 0.7000-handle.

“It is hard to see much of a reversal near-term. Most attention will be on the daily covid updates, with NSW warning of new record high daily cases ahead and VIC struggling to extinguish its relatively small cluster.” 

“The July labour force survey showed a rise in Australia underemployment from 7.9% to 8.3%. This is a much better guide to the current job market than the 4.6% headline unemployment rate.” 

“In the week ahead, the fortnightly payrolls series could be brutal, while Q2 construction and CAPEX will be seen as very old news.”

“The steady drip of grim local news and a firm USD should keep AUD/USD under pressure, eyeing 0.7100 then a test of 0.7000 multi-day/week."

FXStreet notes that strategists at Danske Bank expect the price of Brent oil to average $70bbl in Q3 and Q4, as the ongoing vaccine roll out, reopening of economies and growing inflationary pressure have brightened the outlook for oil prices.

“Vaccine roll out, albeit with some bumps on the road, reopening of economies, strong support from monetary and fiscal policy and a relatively weak dollar have created a sound backdrop for global oil demand.”

“Spread of the virus in China and other parts of Asia will likely weigh on demand in short-term.” 

“OPEC+ has started normalising its oil output, which will ease the upside potential for oil prices from the sound demand backdrop.”

“We expect Brent to average $70bbl in Q3 and Q4 and $72.5bbl in 2022."

FXStreet notes that the inflation data released on Wednesday in Canada were on the strong side for sure but there has been limited reaction to the upside surprise. According to economists at MUFG Bank, there is little reason for panic.

“The scale of upside surprise being relatively modest helps explain the limited reaction as does the fact that the Bank of Canada has already positioned itself as one of the central banks more willing to shift to a more hawkish stance.”

“The positive case for CAD remains compelling but in circumstances of broader USD strength, the scope for USD/CAD declines is limited.”

“Our combined Oil/Spread model has turned a little higher but the spot rate remains well within 2 std deviations and the model suggests scope for some USD/CAD decline.”

“Yesterday’s inflation data, while not moving the dial on rate expectations, was still supportive for our positive CAD outlook.”

NVIDIA (NVDA) reported Q2 FY 2021 earnings of $1.04 per share (versus $2.18 per share in Q2 FY 2020), beating analysts’ consensus estimate of $1.02 per share.

The company’s quarterly revenues amounted to $6.507 bln (+68.3% y/y), beating analysts’ consensus estimate of $6.338 bln.

The company also issued upside guidance for Q3 FY 2021, projecting revenues of $6.66-$6.94 bln versus analysts’ consensus estimate of $6.53 bln.

NVDA rose to $194.15 (+1.97%) in pre-market trading.

FXStreet reports that UOB Group’s FX Strategists note that a move to 6.5000 in USD/CNH still remains on the cards.

24-hour view: “USD traded between 6.4800 and 6.4930 yesterday, narrower than our expected consolidation range of 6.4780/6.4980. The underlying tone has firmed and the bias is tilted to the upside. That said, any advance is unlikely to break the major resistance at 6.5000. Support is at 6.4820 followed by 6.4780.”

Next 1-3 weeks: “There is no change in our view from yesterday (18 Aug, spot at 6.4885). As highlighted, upward momentum has improved slightly and the chance for USD to close above 6.5000 has increased. The next resistance above 6.5000 is at 6.5180 followed by 6.5300.”

Cisco (CSCO) reported Q4 FY 2021 earnings of $0.84 per share (versus $0.80 per share in Q4 FY 2020), beating analysts’ consensus estimate of $0.83 per share.

The company’s quarterly revenues amounted to $13.126 bln (+8.0% y/y), roughly in line with analysts’ consensus estimate of $13.039 bln.

The company also issued guidance for Q1 FY 2022, projecting EPS of $0.79-0.81 versus analysts’ consensus estimate of $0.81 and revenues of $12.82-13.06 bln versus analysts’ consensus estimate of $12.81 bln.

For the full FY 2022, it forecast EPS of $3.38-3.45 versus analysts’ consensus estimate of $3.41 and revenues of $52.309-53.305 bln versus analysts’ consensus estimate of $51.89 bln.

CSCO fell to $54.43 (-1.31%) in pre-market trading.

Bloomberg reports that according to Moody’s Investors Service, China’s digital yuan will help banks become more competitive in the payments sector after steadily losing out to popular technology platforms over the years.

“We expect adoption of e-CNY to help reinforce banks’ position in the payments system because it will enhance their data collection ability and broaden their user bases,” analysts said.

The e-CNY -- developed by the central bank and now under trial in a dozen cities -- adopts a two-tier structure, where the central bank issues the digital currency to authorized commercial banks, which then exchanges and circulates it to the public. 

The effort to develop a digital yuan “reflects the authorities’ concerns about data concentration among technology companies”, the Moody’s analysts said. PBOC officials have previously said the e-CNY offers better protection of privacy and the capability to combat crimes.

FXStreet reports that economists at Westpac said that Jackson Hole could disappoint, but fresh DXY highs beyond that are still on the cards.

“Admittedly the minutes from the FOMC’s July meeting show ‘some’ favour holding back until early 2022, but ‘most’ members agreed that they could start reducing the pace of asset purchases in coming months. That leaves the USD in a commanding position.”

“Risk appetite is likely to remain checked by the ongoing spread of the delta variant, generating safe haven flows into the USD. Yet at the same time, the Fed is continuing their slow march toward tapering, providing crucial ongoing support for the USD.”

“Jackson Hole disappointment could prompt some USD sales, but with Q4 taper prospects overall intact, DXY retracements are likely limited to the 92 region. Fresh DXY highs beyond 93.5 still on the cards into Q4.”

CNBC reports that U.S. Treasury yields fell, despite the Fed's latest policy meeting minutes showing that the central bank was preparing to taper bond purchases this year.

The yield on the benchmark 10-year Treasury note fell nearly 5 basis points to 1.223%. The yield on the 30-year Treasury bond gave up 6 basis points, falling to 1.856%.

Minutes from the Federal Open Market Committee’s July policy meeting, released on Wednesday, showed that central bankers were making plans to pull back bond purchases before the end of 2021. However, FOMC members stressed that employment had not met the “substantial further progress” benchmark the Fed set before it would consider raising interest rates.

In terms of data due out on Thursday, the Labor Department is due to release weekly jobless claims data at 12:30 GMT. Economists expect a total of 365,000 claims were filed in the week ended Aug. 14, slightly below the total of 375,000 the prior week.

Reuters reports that the ECB's chief economist Philip Lane said that the European Central Bank's new policy guidance can boost inflation expectations, paving the ground to higher interest rates down the line.

"The systematic approach to monetary policy embedded in rate forward guidance has the capacity to boost inflation expectations and thereby strengthen inflation dynamics. In turn, stronger inflation dynamics are the key to eventual normalisation of policy rates," Lane said.

FXStreet reports that economists at Danske Bank maintain their forecast for lower AUD/USD.

“The Reserve Bank of Australia expects higher vaccine coverage to ease the situation towards the year-end, but in the near-term outlook remains uncertain. RBA’s August minutes signalled a willingness to react if the situation continues to worsen.”

“Despite the delta variant, we still expect Fed to move forward with the monetary tightening, and the outlook for stronger broad USD will be a key driver of lower AUD/USD as well.”

According to the report from the European Central Bank, the current account of the euro area recorded a surplus of €22 billion in June 2021, an increase of €8 billion from the previous month. Surpluses were recorded for goods (€22 billion), services (€11 billion) and primary income (€3 billion). These were partly offset by a deficit for secondary income (€14 billion).

In the 12 months to June 2021, the current account recorded a surplus of €316 billion (2.8% of euro area GDP), compared with a surplus of €235 billion (2.0% of euro area GDP) in the 12 months to June 2020. This increase was driven by larger surpluses for goods (up from €309 billion to €372 billion) and for services (up from €44 billion to €83 billion). These developments were partly offset by a reduction in the surplus for primary income (down from €38 billion to €31 billion) and by a larger deficit for secondary income (up from €155 billion to €170 billion).

In financial account, euro area residents’ net acquisitions of non-euro area portfolio investment securities totalled €953 billion and non-residents’ net acquisitions of euro area portfolio investment securities totalled €54 billion in 12 months to June 2021

Reuters reports that a survey by Germany's DIHK Chambers of Industry and Commerce showed that material shortages and higher costs are creating headwinds for the majority of German companies, potentially complicating their recovery from the coronavirus crisis.

The survey of 3,000 firms across all sectors found 83% of companies were complaining about price increases or supply chain bottlenecks for raw materials, intermediate products and goods.

"The current development may noticeably complicate the economic recovery process after the crisis," Volker Treier, DIHK's head of foreign trade, said, adding the pre-crisis level of gross domestic product might not be reached before mid-2022.

During today's Asian trading, the US dollar rose to a nine-month high against major currencies due to expectations that the US Federal Reserve will start reducing stimulus this year.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose by 0.29%, to 93.40, having previously reached a maximum since November 5 at 93,502.

Fed officials agreed that the level of employment sufficient to reduce incentives can be achieved this year, the minutes of the July 27-28 meeting, published on Wednesday, showed.

"We maintain our forecast that the FOMC will announce a reduction in stimulus in September, followed by implementation in October or possibly November," wrote Joseph Capurso, an expert at Commonwealth Bank of Australia.

FXStreet reports that Bart Melek, Head of Commodity Strategy at TD Securities, expects WTI to edge lower in the near-term.

“The modest oil inventory draw still leaves crude vulnerable to an additional correction as traders express concerns surrounding the delta-variant's negative impact on demand, at the same time as OPEC + intends to increase supply by some 400k b/d in each of the coming months this quarter.” 

“We continue to see WTI crude fall back to its support levels modestly below $65/bbl in the near term. Positive developments in China should serve as protection against a rout and should drive prices sharply higher, should the covid outbreak be contained and concerns moderate.”

According to the provisional results from the Federal Statistical Office (FSO), secondary sector production rose by 14.2% in 2nd quarter 2021 in comparison with the same quarter a year earlier. Turnover rose by 15.5%. These sharp increases can largely be explained by the weak 2nd quarter of 2020, during which measures against the COVID-19 pandemic came into effect. This is shown by provisional results from the Federal Statistical Office (FSO).

Compared with the previous year, production in the industrial sector rose in April (+16.1%), in May (+17.4%) and in June (+13.1%). 

For the whole of 2nd quarter 2021 production increased by 15.7% in comparison with the same quarter a year earlier.

Construction production increased by 6.5% in 2nd quarter 2021 in comparison with the same quarter a year earlier. Production rose by 4.9% in building, civil engineering in contrast registered a decline (–2.1%). Lastly, specialised construction activities registered an increase of 8.8% in their production.

Turnover in the industrial sector rose in April (+18.5%), in May (+19.6%) and in June (+14.1%) compared with the previous year. For the whole of 2nd quarter 2021 in comparison with the same quarter a year earlier, turnover registered an increase of 17.4%.

Construction turnover rose by 8.1% in 2nd quarter 2021 in comparison with the same quarter a year earlier. Turnover rose by 7.5% in building, Civil engineering registered a decline of 1.0%, specialised construction activities an increase of 9.4%.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1822 (1478)

$1.1789 (727)

$1.1744 (103)

Price at time of writing this review: $1.1676

Support levels (open interest**, contracts):

$1.1655 (5086)

$1.1624 (1960)

$1.1586 (3050)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date September, 3 is 87785 contracts (according to data from August, 18) with the maximum number of contracts with strike price $1,2000 (8352);

GBP/USD

$1.3921 (786)

$1.3884 (892)

$1.3852 (222)

Price at time of writing this review: $1.3708

Support levels (open interest**, contracts):

$1.3656 (942)

$1.3621 (994)

$1.3581 (741)

Comments:

- Overall open interest on the CALL options with the expiration date September, 3 is 16415 contracts, with the maximum number of contracts with strike price $1,4300 (2171);

- Overall open interest on the PUT options with the expiration date September, 3 is 14349 contracts, with the maximum number of contracts with strike price $1,3800 (1111);

- The ratio of PUT/CALL was 0.87 versus 0.85 from the previous trading day according to data from August, 18

* - 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.

eFXdata reports that CIBC Research discusses its reaction to FOMC minutes.

"The minutes of the July FOMC shed light on the timing for the future tapering of QE. While no decisions were made, most participants noted that it could be appropriate to start reducing the pace of asset purchases this year, given that substantial further progress towards full employment was close to being met, and had already been met regarding the price-stability goal. Regarding the composition of assets, most participants saw benefits in reducing the pace of net purchases of Treasury securities and agency MBS proportionally. Overall, with participants committing to provide advanced guidance of tapering, and with the solid employment report received since this meeting, the September meeting is likely to set the stage for tapering as early as later this year," CIBC adds.