CFD Markets News and Forecasts — 26-11-2020

FXStreet notes that gold (XAU/USD) has been able to stabilize and move away from the $1,800 level but the yellow metal remains under pressure as the pending appointment of a pro-stimulus Treasury Secretary and emerging clarity on the US political scene had the effect of materially steepening the yield curve. However, as economists at TD Securities expect the Fed to ease and while fiscal stimulus and a vaccine driven economic normalization should boost inflationary expectations, gold maintains a positive outlook with a surge above $2,000 still on the cards.

“The downward adjustment may well bring the yellow metal below technical support at around $1,795/oz, as the current rate and macro expectations drive physical metal to London to make available for lending and as ETF material from dispositions pushes out GOFO rates higher.”

“Once the metal from recent dispositions gets absorbed, the big picture is still very conducive to $2,000+ gold. Even if the planned vaccination programs go without a hitch, it will take well into H2-2021 before herd immunity is achieved and the economy normalizes.

“The second wave of covid infections will ravage the economy, assuring that US and indeed global economic activity is below potential for a prolonged period. This implies that the Fed will be forced to continue very simulative policies for a prolonged period. As other economies around the world also start to do better in absolute terms and relative to the US, USD will likely trend lower should trend lower. A weaker USD has traditionally been gold positive.”

“Based on the proposition that Janet Yellen will be Treasury Secretary of the US, it is likely that the Biden Administration policies should be quite skewed to robust fiscal stimulus. Janet Yellen's stated economic policy goals ranging from financial help for municipalities, states, business and individuals will require money, which will likely be borrowed. This should continue to maintain currency debasement concerns, one of the key reasons investors buy gold as protection.”

• We recognize that UK has red lines too
• Talks are very difficult right now
• Hopeful of positive outcome on Brexit talks

FXStreet reports that in the opinion of FX Strategists at UOB Group, USD/JPY is seen between 103.70 and 105.30 in the short-term horizon.

24-hour view: “USD traded between 104.24 and 104.59 yesterday before closing little changed at 104.45 (+0.02%). The range was narrower than our expected range of 104.20/104.80. The price actions offer no fresh clues and further sideway trading would not be surprising. Expected range for today, 104.15/104.60.”

Next 1-3 weeks: “...the current movement is viewed as the early stages of a consolidation phase and USD is likely to trade between 103.70 and 105.30 for now.”

• Will make the market play a decisive role in yuan exchange rate mechanism
• Will keep liquidity reasonable ample

• PEPP purchases worked, helped to lower spreads
• Lower deposit rates wouldn't have effect
• Sees asset bubble risk, no actual bubbles yet
• Cannot rule out possibility that ECB could implement new policy tools

• Finance minister Sunak's latest spending plans are "very sensible"
• Need to plan our way out of this level of borrowing over time

The ECB’s report on the monetary developments in the euro area revealed that the annual growth rate of broad monetary aggregate M3 accelerated to 10.5 percent in October from an unrevised 10.4 percent in September. Economists had forecast M3 annual growth rate to stay at 10.4 percent in October.

Among the components of M3, the annual growth rate of narrower monetary aggregate M1, comprising currency in circulation and overnight deposits, stood at 13.8 percent in October, unchanged from the previous month. The annual growth rate of short-term deposits other than overnight deposits (M2-M1) was at 1.4 percent in October, also unchanged from the previous month. In the meantime, the annual growth rate of marketable instruments (M3-M2) accelerated to 14.0 percent from 11.9 percent in September.

The report also revealed that the annual growth rate of adjusted loans to households was 3.1 percent in October unchanged from September, while the annual growth rate of adjusted loans to non-financial corporations stood at 6.8 percent, down from 7.1 percent in the previous month.

FXStreet reports that analysts at Westpac suggest that the EUR/USD 1.15-1.20 range resistance is at risk as hopes for 2021 recovery outweigh the grip of COVID-19 restrictions on the region and likelihood of the European Central Bank (ECB) Pandemic Emergency Purchase Programme (PEPP) and Targeted Longer-Term Refinancing Operations (TLTRO) easing. 

“Last week’s block of the EC’s vaunted Recovery Fund, and its 7yr Budget, by Poland and Hungary may be seen as more of a frustration than risking any failure to implement the Fund and Budget. However, it places further pressure on ECB to enact larger-scale policy easing through its highlighted recalibration of their PEPP and TLTRO facilities. Guidance on the scale of recalibration will no doubt be provided into the Dec 10th ECB meeting.”

“At least the harsh lockdowns do appear to be effective as case counts are trending off their recent peaks and hopes have increased for festive easing of restrictions.” 

“ECB’s key staff update and expected easing coincide with EC’s last summit of 2020 on December 10. Although EUR/USD is threatening a test of 1.20, a surge above that is unlikely before the key issues on 10th Dec.”

• Easing virus curbs would not be responsible
• Virus curbs have prevented worst-case scenario
• But more still needs to be done to rein in virus spread

According to the report from the Society of Motor Manufacturers and Traders (SMMT), UK car manufacturing output fell -18.2% in October, with 110,179 units leaving factory gates. This represented 24,490 fewer cars made than in the same month in 2019 with the impact of coronavirus and fresh lockdowns at home and overseas subduing demand in many key markets.

October’s decline was driven largely by falling exports, particularly to the EU and US, down -19.1% overall and equivalent to a loss of 21,569 vehicles. Shipments to the US fell by -26.0% and to the EU by -25.7%. Major Asian markets fared better, with exports to Japan and China up 57.1% and 9.7% respectively, reflecting less stringent lockdown measures, but this was not enough to offset losses elsewhere. Production for the domestic market also fell, by -13.6% to 18,629 units, with 2,921 fewer cars made for buyers in the UK than a year earlier.

October’s performance rounds off an extremely tough 10 months for UK car makers and suppliers, and production is now down -33.8% since January to 743,003 units – a year on year shortfall of 379,308 units worth some £10.4 billion.

During today's Asian trading, the US dollar continued to decline against the euro and the yen on signals that the Federal reserve is considering further monetary easing.

The minutes of the Federal reserve meeting from November 4-5, published on Wednesday, showed that the leaders of the US Central Bank discussed during the last meeting the possibility of more specific designation of their plans for the program of repurchasing government bonds and mortgage securities.

"The minutes of the November Fed meeting, which showed the mood for further easing, do not contradict the trend towards a weakening of the us dollar," IG analysts note.

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

The dollar has fallen since early November on news of the development of COVID-19 vaccines, as well as on the background of reduced uncertainty related to the US presidential election.

According to the report from Insee, in November 2020, households’ confidence in the economic situation has decreased sharply: the synthetic index has lost four points compared to October. At 90, it has hit its lowest level since December 2018 and remains below its long term average (100). Economists had expected a decrease to 92.

In November, households have been much more less optimistic concerning their future financial situation: the corresponding balance has lost five points and moves even further away its long-term average. Conversely, households' balance of opinions about their past financial situation has been stable above its average.

Furthermore, the share of households considering it is a suitable time to make major purchases has decreased markedly. The corresponding balance has lost eight points and remains below its long-term average. It hits its lowest level since last May.

In November, households’ opinion balance related to their current saving capacity has declined by three points but remains well above its average. Households' balance of opinion on their future saving capacity has been stable and stays well above its long-term average.

eFXdata reports that Credit Suisse discusses GBP/USD technical outlook and maintains a bullish bias.

"Near -term bullish “triangle” continuation pattern remains in place. This should add weight to our core bullish view from September that we are in the process of forming the potential “right -hand shoulder” to a major basing process for a move back to long -term price and “neckline” resistance at 1.3472/1.3514," CS notes. 

"We continue to look for an eventual break to see a major base secured, clearing the way for a move above 1.4300," CS adds. 

According to the report from GfK Group, consumer sentiment in November was significantly dampened by the partial lockdown. As was already the case in the previous month, both economic and income expectations as well as propensity to buy have declined. As a result, GfK has forecast a figure of -6.7 for December 2020, 3.5 points down from October this year (revised to -3.2 points). 

A rapid increase in infection rates has prompted a second lockdown by the German government, albeit with less stringent restrictions than faced during the lockdown earlier this year. 

"Though stores will remain open, the renewed shutdown of the hotel, restaurant and events industry – as well as the already struggling tourism industry – has had a serious impact on the consumer climate," explains Rolf Bürkl, consumer expert at GfK. "As a result, any hope we still had in early summer of a rapid recovery is now lost. Growing uncertainty has once again led to an increase in propensity to save, another factor which has contributed to the decline in the consumer climate."

EUR/USD

Resistance levels (open interest**, contracts)

$1.2020 (5202)

$1.1985 (1412)

$1.1958 (4229)

Price at time of writing this review: $1.1935

Support levels (open interest**, contracts):

$1.1863 (181)

$1.1830 (1096)

$1.1790 (2470)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date December, 4 is 103826 contracts (according to data from November, 25) with the maximum number of contracts with strike price $1,1200 (6560);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3476 (1355)

$1.3453 (1251)

$1.3422 (1635)

Price at time of writing this review: $1.3392

Support levels (open interest**, contracts):

$1.3308 (479)

$1.3281 (1021)

$1.3212 (736)

Comments:

- Overall open interest on the CALL options with the expiration date December, 4 is 23903 contracts, with the maximum number of contracts with strike price $1,3500 (2752);

- Overall open interest on the PUT options with the expiration date December, 4 is 41367 contracts, with the maximum number of contracts with strike price $1,2700 (11992);

- The ratio of PUT/CALL was 1.73 versus 1.70 from the previous trading day according to data from November, 25

* - 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.