CFD Markets News and Forecasts — 31-05-2021

FXStreet reports that EUR/JPY is heading to the top of its channel at 134.73 though RSI has not confirmed the new high. Therefore, the pair could struggle to extend its recent advance, according to Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank.

“EUR/JPY last week closed above 133.13/48, these were the highs from April 2018 and September 2018. We note the 13 count and that the daily RSI has not confirmed the new high and suspect that it may struggle to maintain its gains.”

“Initial resistance is the top of the channel at 134.73 and initial support is offered by its 20-day ma at 132.64.”

“Our longer-term target is the 137.51 2018 high.” 

“Nearby support is an accelerated uptrend at 132.80.” 

• The change is to go into effect starting from June 15

FXStreet reports that FX Strategists at UOB Group note that the upside momentum in USD/JPY is seen meeting initial hurdle at the 110.25 level in the next weeks.

24-hour view: “USD subsequently popped to 110.19 before easing. Deeply overbought conditions suggest that USD is unlikely to strengthen further. For today, USD is more likely to consolidate and trade between 109.50 and 110.05.”

Next 1-3 weeks: “There is not much to add to our update from last Friday (28 May, spot at 109.90). As indicated, strong boost in momentum suggests further USD strength. Resistance is at 110.25 followed by 110.55. USD subsequently popped to 110.19 before pulling back. Overbought shorterterm conditions could lead to a couple of days of consolidation first. Only a break of 109.30 (‘strong support’ level was at 109.15 last Friday) would indicate that the upside risk has dissipated.”

Gold price still has legs to inch higher - OCBC

FXStreet reports that strategists at OCBC note that gold price closed above $1900 for the first time since the first week of January. With XAU/USD breaking above the $1900 level, there is a clear bullish momentum with precious metal demand right now, they suggest.

“Gold finally closed above the $1900/oz for the first time since the start of the year, and we think that may herald further bullish momentum for the precious metal.” 

“Prices have been supported by talks of yet another outsized fiscal stimulus from the Biden administration at $6tn for the 2022 fiscal year.”

“A weak Nonfarm payrolls number this Friday may jolt gold prices toward the $1975 level.”

The ECB’s report on the monetary developments in the euro area revealed that the annual growth rate of broad monetary aggregate M3 decelerated to 9.2 percent in April from an unrevised 10.1 percent in March. Economists had forecast M3 annual growth rate to slow to 9.5 percent in April.

Among the components of M3, the annual growth rate of narrower monetary aggregate M1, comprising currency in circulation and overnight deposits, fell to 12.3 percent in April from 13.6 percent in the previous month. The annual growth rate of short-term deposits other than overnight deposits (M2-M1) declined to 0.3 percent in April from 0.9 percent in the previous month. In the meantime, the annual growth rate of marketable instruments (M3-M2) accelerated to 10.6 percent from 7.0 percent in March.

The report also revealed that the annual growth rate of adjusted loans to households rose to 3.8 percent in April from 3.3 percent in March, while the annual growth rate of adjusted loans to non-financial corporations dropped to 3.2 percent down from 5.3 percent in the previous month.

FXStreet notes that oil traded a high of $69.14 last Thursday, recovering all its losses from the prior week, although it slid 0.7% on Friday. This week’s OPEC+ meeting should reaffirm the bloc’s plans to gradually ease production curbs with little probability of surprises. In the absence of any strong catalyst, strategists at OCBC bank expect crude to face stiff resistance at the psychologically important $70 level. 

“A decline in both US crude oil and gasoline inventories – the latter partially a result of the Colonial Pipeline cyber-hacking – proved to be the catalyst in sending oil prices to a new high since the pandemic began.”

“OPEC+ meeting on Tuesday should affirm the bloc’s plan to continue easing production curbs and may prove to be a non-event. Any discussion on the potential return of Iranian crude on international waters will be a bonus.”

“In the absence of any strong catalyst, we expect crude to face stiff resistance at the psychologically important $70 level, which suggests the possibility that oil may head lower this week on technical plays.”

During today's Asian trading, the US dollar rose slightly against the pound, but weakened against the yen and the australian dollar.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose 0.04%.

US President Joe Biden on Friday unveiled a budget plan to increase government spending to $6 trillion in the 2022 fiscal year, which starts on October 1, 2021.

Biden in his budget plan proposes to cancel a number of tax cuts undertaken under the previous US President Donald Trump. So, the corporate income tax rate should return to 28%, and the tax rate on capital gains for the wealthiest citizens - to the level of 39.6%.

Meanwhile, data from the Ministry of Economy, Trade and Industry of Japan showed that retail sales in Japan in April 2021 jumped by 12% compared to the same month last year. The growth rate accelerated significantly compared to March (5.2%) and was the highest since March 1997. Experts expected a more significant increase - by 15.3%.

In the meantime, data from the National Bureau of Statistics (NBS) showed that China’s factory activity growth slowed slightly in May as raw materials costs grew at their fastest pace in over a decade. The official manufacturing PMI inched lower to 51.0 in May, against analyst expectations that it would remain unchanged from April at 51.1. The official PMI has stood above the 50-point mark that separates growth from contraction for over a year. In the services sector, activity expanded for the 15th straight month, and at a faster pace, with the non-manufacturing PMI index rising to 55.2 from 54.9 the month before.

FXStreet reports that economists at Capital Economics discuss Japanese stock market prospects.

“While the combined weight of the IT and communications is bigger in the MSCI Japan Index than in the MSCI EMU and MSCI UK indices, it is considerably smaller than in the MSCI USA Index. The upshot is that the rotation trade ought to have been broadly positive for the MSCI Japan Index, at least vis-à-vis the MSCI USA Index.”

“While there may be myriad sector-specific explanations, an overarching one is the situation on the ground in Japan itself: the economy has fared worse than we had anticipated; COVID-19 cases had picked up sharply again until recently; and the vaccine rollout has been slow. Nonetheless, we still think things will turn a corner. And we are sticking to our view that the rotation trade has further to run in general, even though we expect it to become more nuanced. The upshot is that we doubt the MSCI Japan Index will keep underperforming its counterparts”.

Reuters reports that RBNZ Assistant Governor Christian Hawkesby said that the Reserve Bank of New Zealand (RBNZ) would prefer to have monetary stimulus in place for a longer period of time than take it away too quickly.

Hawkesby said the implications of the COVID-19 pandemic were not yet over so the amount of monetary stimulus needed was little changed from February.

"Our messages around having stimulus in place for a considerable period of time, being patient and our least regret is keeping stimulus in place for too long rather than taking it away too quickly, all of those messages stay in place," Hawkesby said.

Hawkesby said RBNZ felt it was the right time to re-introduce projections of the official cash rate (OCR) as the main policy signal for markets to focus on.

Hawkesby said RBNZ was aware there were risks in publishing the OCR track as the markets would tend to get ahead of the bank's bias when it came to pricing in tightening.

Hawkesby said that the resurgence of COVID-19 in Australia and other Asian countries were a reminder of the level of uncertainty that still remains.

eFXdata reports that Bank of America Global Research discusses EUR/USD outlook and sees the pair staying in a tight range in the near-term, while maintaining a year-end target at 1.15.

"Assuming risk assets remain supported, last week we argued that such monetary policy divergence is positive for the commodity currencies against the relative safe havens. We see EURUSD in a tight range for now, with US inflation and the ECB Strategy Review the main drivers for the rest of the year. We remain bearish EURUSD in our end-year forecast, subject to these risks," BofA notes.

Reuters reports that data from the National Bureau of Statistics (NBS) showed that China’s factory activity growth slowed slightly in May as raw materials costs grew at their fastest pace in over a decade.

The official manufacturing PMI inched lower to 51.0 in May, against analyst expectations that it would remain unchanged from April at 51.1. The official PMI has stood above the 50-point mark that separates growth from contraction for over a year.

A sub-index for new export orders stood at 48.3 in May, down from 50.4 in the previous month and slipping sharply into contraction.

A sub-index for raw material costs in the official PMI stood at 72.8 in May, up from April’s 66.9 and hitting the highest level since 2010.

Prices for commodities such as coal, steel, iron ore and copper have surged this year, fuelled by post-lockdown recoveries in demand and easing liquidity globally.

In addition to surging raw material prices, Chinese factories are struggling with high shipping costs and an appreciating Chinese currency. Some are able to pass on the higher costs to overseas customers, while some small firms are stopping taking orders to avoid losses.

A sub-index for the activity of small firms stood at 48.8 in May, sharply down from April’s 50.8.

Firms continued to lay off workers and at faster pace, the official data also showed.

In the services sector, activity expanded for the 15th straight month, and at a faster pace, with the non-manufacturing PMI index rising to 55.2 from 54.9 the month before.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2307 (3259)

$1.2268 (2263)

$1.2239 (3508)

Price at time of writing this review: $1.2200

Support levels (open interest**, contracts):

$1.2134 (1020)

$1.2093 (1933)

$1.2047 (3908)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 4 is 73758 contracts (according to data from May, 28) with the maximum number of contracts with strike price $1,2050 (3908);

GBP/USD

$1.4315 (918)

$1.4278 (639)

$1.4227 (901)

Price at time of writing this review: $1.4194

Support levels (open interest**, contracts):

$1.4082 (596)

$1.4041 (297)

$1.3995 (284)

Comments:

- Overall open interest on the CALL options with the expiration date June, 4 is 21495 contracts, with the maximum number of contracts with strike price $1,4350 (2868);

- Overall open interest on the PUT options with the expiration date June, 4 is 33452 contracts, with the maximum number of contracts with strike price $1,3100 (3957);

- The ratio of PUT/CALL was 1.56 versus 1.54 from the previous trading day according to data from May, 28

* - 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.