Forex-novosti i prognoze od 29-12-2020

“We are entering a very dangerous new phase of the pandemic, and we’re going to need decisive early national action to prevent a catastrophe in January and February,” Andrew Hayward, professor of infectious disease epidemiology at University College London, told the BBC.

The "50% increase in transmissibility" of the new coronavirus variant means that "the previous levels of restrictions that worked before won't work now, and so tier four restrictions are likely to be necessary - or even higher than that", he added. "I think we're really looking at a situation where we're moving into near lockdown."

S&P reported on Tuesday its Case-Shiller Home Price Index, which tracks home prices in 20 U.S. metropolitan areas, rose 7.9 percent y-o-y in October, following an unrevised 6.6 percent y-o-y jump in September. This was the biggest annual gain in house prices since June 2014.

Economists had expected a climb of 6.9 percent y-o-y.

Phoenix (+12.7 percent y-o-y), Seattle (+11.7 percent y-o-y) and San Diego (+11.6 percent y-o-y) recorded the highest y-o-y advances among the 19 cities (excluding Detroit) in October. All 19 cities reported greater price gains in the year ending October versus the year ending September.

Meanwhile, the S&P/Case-Shiller U.S. National Home Price Index, which measures all nine U.S. census divisions, surged 8.4 percent y-o-y in October, following a 7.0 percent y-o-y increase in the previous month. This was the largest annual advance since March 2014.

“The surprising strength we noted in last month’s report continued into October’s home price data,” noted Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices. “Although the full history of the pandemic’s impact on housing prices is yet to be written, the data from the last several months are consistent with the view that COVID has encouraged potential buyers to move from urban apartments to suburban homes. We’ll continue to monitor what the data can tell us about this question.”

U.S. stock-index futures rose on Tuesday, as heightened hopes that fiscal aid could speed up a vaccine-led economic recovery in 2021 supported investors' optimism in the final days of 2020.

Global Stocks:

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

• Schumer is "pessimistic" about Democratic candidates Warnock and Ossoff's chances in Georgia next week
• After Democratic party performed poorly in down-ballot races, Schumer is no longer meeting with donors; he doesn't want to ruin donor relationships

USD traded lower against its major counterparts in the European session on Tuesday as risk sentiment improved further, after the U.S. House of Representatives supported President Donald Trump's proposal to increase the direct payments in the latest stimulus package.

Late Monday, the Democratic-led House of Representatives voted 275-134 in favour of increasing stimulus checks for Americans to $2,000 from the $600 in the legislation that Trump signed into law on Sunday. President originally criticized the pandemic relief package, which was approved by Congress last week, describing it as a "disgrace" and demanding to boost stimulus checks. Now, the bill goes to the Republican-controlled Senate, where its future is in question, as the lawmakers remain divided on the necessity of providing deeper relief for struggling Americans. 

The House lawmakers also voted to override Donald Trump's veto of a $740 billion National Defense Authorization Act that was approved by Congress earlier this month. The Senate is to take up the legislation later in the week, and it is expected to pass.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, dropped 0.36% to 90.01, the lowest levels since April 2018. The CFTC data showed that short positions in the  U.S. currency reached the highest levels in at least three months.

Statistics Sweden reported on Tuesday that the country's trade surplus decreased to SEK 1.4 billion in November from a revised SEK5.0 billion in October (originally SEK4.7 billion). In November 2019, the trade surplus was SEK2.6 billion.  

According to the report, the non-EU trade balance recorded a surplus of SEK20.6 billion in November, while the trade balance with the EU posted a deficit of SEK19.2 billion.

Exports decreased 3.0 percent y-o-y to SEK128.0 billion in November, as a 7 percent y-o-y drop in sales to the EU offset a 2 percent y-o-y advance in exports to non-EU countries. Meanwhile, imports fell 2 percent y-o-y to SEK126.6 billion, led by a 5 percent y-o-y decrease in purchases from the EU, which, however, was partially offset by a 7 percent y-o-y gain in imports from non-EU countries.

FXStreet notes that the EU and the UK reached an agreement on a permanent free trade agreement on Christmas Eve. The agreement still needs to be ratified by both the EU and the UK. The UK Parliament is expected to approve the deal on Wednesday, December 30 and the EU leaders are expected to give the deal provisional application today. The EU parliament also needs to ratify the deal early next year, likely in February. Economists at Danske Bank believe there are still significant changes to the relationship ahead.

“As expected, the deal mostly covers goods trading and only to a small extent trading in services (i.e. UK financial services firms lose their passport rights to sell services to the EU market). The agreement means that the EU and the UK avoid a cliff-edge scenario but there will still be significant changes to the trading relationship starting on 1 January, which may create some disturbances in the very near term at the borders.”

“The combination of the deal and the vaccine rollouts means the UK macro outlook for 2021 is much brighter. The deal means that some uncertainties for businesses will go away, implying higher investments after they had stagnated for some time ahead of the COVID-19 crisis. We would not be surprised if the UK economy outperforms the euro area next year. We stick to our view that the Bank of England will maintain the Bank Rate at +0.1% in the near future and will not cut into negative territory.”

“The accompanying joint declarations suggest the EU and the UK will continue discussing financial regulation with the ambition to reach a deal before the end of March 2021. They also need to reach a permanent deal on data transfers and on Gibraltar (in discussions with Spain). We also do not know how (or if at all) the UK will use its sovereignty to change its economic framework.”

FXStreet notes that after months of difficult negotiations, the UK and European Union (EU) have agreed on the terms of a post-Brexit trade deal just days ahead of the end of the UK’s transition period with the EU on December 31. The deal removes some downside risks to growth in 2021. Economists at HSBC remain constructive on UK equities. Furthermore, reduced Brexit uncertainty may boost investor appetite for UK assets.

“The deal should limit the scope for further major disruption at the UK/EU border in the new year period, which would have hit trade and economic activity.”

“For now, the challenges posed by the pandemic remain substantial and overwhelm other economic and geopolitical considerations... but the outlook for later in 2021 remains positive as the pandemic is likely to subside.” 

“We remain constructive on UK equities. UK indices have lagged wider market performance in 2020, and are relatively exposed to cyclical sectors (financials, materials, industrials) and the health of the global economy (via multinationals). We think this implies significant scope for catch-up in 2021 with the global economy recovering from the pandemic as vaccines are rolled out (with the UK well positioned in this respect).”

“Reduced Brexit uncertainty may boost investor appetite for UK assets. Policy uncertainty is ebbing away, and further Brexit clarity can contribute to this trend continuing next year.”

• We will make prudent monetary policy flexible, targeted and appropriate
• We will guide financial institutions to increase medium-to-long-term loans to manufacturing sector
• We will make macro leverage ratio basically stable

Reuters reports that India's Civil Aviation Minister on Tuesday said the country was likely to extend a ban on flights from Britain that it has imposed in a bid to contain a new strain of the coronavirus.

"I foresee a slight extension of the temporary suspension. I don't expect that extension to be a long or indefinite extension," Hardeep Singh Puri told reporters.

FXStreet reports that the abundance of liquidity is leading, at portfolio equilibrium, to a rise in both bond prices and share prices, and therefore to a negative correlation between long-term interest rates and stock market indices, per Natixis.

“The correlation between long-term interest rates and share prices is normally expected to be positive. In recessions, risk aversion rises, inflation falls, corporate earnings decline and monetary policy becomes more expansionary. Everything, therefore, works to push down both long-term interest rates and stock market indices. In periods of growth, on the contrary, risk aversion falls, inflation rises, earnings increase, monetary policies become more restrictive and one can expect a rise in long-term interest rates and stock market indices.”

Reuters reports that the Trump administration on Monday strengthened an executive order barring U.S. investors from buying securities of alleged Chinese military-controlled companies, following disagreement among U.S. agencies about how tough to make the directive.

The Treasury Department published guidance clarifying that the executive order, released in November, would apply to investors in exchange-traded funds and index funds as well as subsidiaries of Chinese companies designated as owned or controlled by the Chinese military.

Secretary of State Mike Pompeo said Monday that the announcement "ensures U.S. capital does not contribute to the development and modernization of the People's Republic of China's (PRC) military, intelligence, and security services."

FXStreet reports that according to BNY Mellon, investors will exercise greater caution in light of recent volatility in China’s bond markets, tighter controls of technology companies and greater oversight on initial public offerings (IPOs), per 

“Wider capital account liberalization will likely continue in an asymmetric manner. Although foreign inflows are highly welcome, domestic outbound flows will continue to face some restrictions, particularly during times of stress (such as episodes in February and March at the height of the global pandemic).”

“In the near-term, given recent bond market gyrations in China, developments in the equity markets over IPOs, and increased oversight of technology and fintech companies, there probably needs to be a confidence-rebuilding exercise, with a more stable framework in sight to reassure market participants. On the external front, it remains to be seen whether Beijing will re-engage with Washington D.C. with the aim of lifting ownership restrictions on Chinese companies by US investors.”

Reuters reports that Germany's BGA trade association said it expects exports to shrink by at least 12% this year as demand from the USA and UK collapsed due to the coronavirus pandemic.

"The COVID-19 pandemic has pushed us back five years when it comes to exports - and at the same time it has catapulted us five years into the future in terms of digitalisation," BGA President Anton Boerner said.

Reuters reports that a foreign ministry spokesman of Сhina said that China hopes lengthy negotiations for an investment deal with the European Union can wrap up at an "early date".

"We hope the deal can come to fruition at an early date," the spokesman, Wang Wenbin, told a regular news briefing in the Chinese capital, adding that talks had recently "achieved huge progress."

The comment followed remarks on Monday by European officials that the deal was likely to be clinched this week, giving EU firms better access to the Chinese market, better competition conditions and protections for investments.

Even if there is political agreement on the deal this week, hammering out legal texts could take months. Together with the ratification process, that could mean pact implementation will take about a year, EU officials have said.

FXStreet reports that beyond the deal, economists at HSBC struggle to see how the UK will retain its competitiveness compared to its current position.

“Although the rally in the GBP in 2020 suggests the FX market anticipated that a deal was more likely than not, confirmation allows the FX market to price out whatever modest probability had been attached to a ‘no-deal’ outcome. In our view, the announcement should keep the GBP elevated over the near-term, but further upside will likely be limited, given the agreement looks largely priced in.”

“Despite a solid performance versus the USD in 2020, the GBP has broadly underperformed its G10 peers. We believe underperformance is justified and is likely to continue in 2021. We see GBP-USD trading broadly sideways in 2021.”

Reuters reports that EU Brexit negotiator Michel Barnier said the trade deal struck with Britain was a relief and provided stability for people and companies.

The last-gasp deal clinched a week before the year-end deadline brought "a little stability," he added.

Barnier said there were still some elements to define in the EU's future relationship with Britain, including on foreign policy cooperation.

FXStreet reports that economists at Natixis examine the variables that seem to have heavily influenced the dollar’s exchange rate. 

“We clearly see a negative correlation between the yield spread (United States-Europe) and the dollar’s exchange rate against the euro and a positive correlation between the ratio of the monetary bases (United States/eurozone) and the dollar/euro exchange rate.”

“We note a significant link between the yield spread (United States-world) and the dollar’s trade-weighted exchange rate (the trade-weighted exchange rate increases when the dollar appreciates); and a significant link only since 2010 between the ratio of the monetary bases and the dollar’s trade-weighted exchange rate.”

“We see significant correlations with the expected sign between the US current account balance and the dollar/euro exchange rate and the dollar’s trade-weighted exchange rate, but no significant correlation of the right sign with US external debt.”

“We see a significant link and the expected sign between risk aversion and global growth and the dollar’s exchange rate (both dollar/euro and trade-weighted exchange rates).”

During today's Asian trading, the US dollar declined against the euro and the japanese yen. Pressure on the dollar is exerted by an increase in risk appetite associated with optimism about the signing of a bill on measures to help the US economy during the coronavirus pandemic.

"In general, the adoption of financial assistance measures in the US is an incentive for those who are betting on a lower dollar, although the weakness of the US national currency is generally restrained”, said Vishnu Varathan, director of economics and strategy at Mizuho Bank.

The House of Representatives of the US Congress on Monday approved the increase in incentive payments requested by President Donald Trump in the conditions of COVID-19 from $600 to $2 thousand. The bill was passed with 275 votes in favor and 134 against. The measure is expected to face opposition in the Senate. On Sunday evening, Trump signed the country's budget for the 2021 fiscal year of $2.3 trillion, which includes a package of measures to support the economy in the face of a pandemic of $900 billion.

The British pound is rising against the dollar. On the eve of the Committee of Permanent Representatives (Coreper) of the EU countries approved the temporary application of the Agreement on Trade and Cooperation between the EU and the UK after Brexit, reached on December 24. The final decision of the EU Council on the accelerated written procedure is also expected on Tuesday. The temporary application of the agreement will take effect from January 1, 2021.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell 0.28%.

CNBC reports that according to research firm Capital Economics, Australia’s economy has been badly hit by escalating trade tensions with China.

China is by far Australia’s largest trading partner, accounting for 39.4% of goods exports and 17.6% of services exports between 2019 and 2020, the firm said.

But Beijing has for months been targeting a growing list of imported products from Down Under — putting tariffs on wine and barley, and suspending beef imports.

GDP in Australia could contract even more if Beijing continues to pile tariffs on more Australian imports, said its senior economist Marcel Thieliant in a note.

Goods and services that are already “in the firing line” are worth almost a quarter of Australia’s exports to China — forming 1.8% of its economic output, the research firm said.

“That figure could rise to around 2.8% of GDP if China targeted other products for which it isn’t hugely dependent on Australian imports,” Thieliant said.

Bloomberg reports that speculative traders are ending the year doubling down on their bets against the dollar.

Net short non-commercial positions in futures linked to the ICE U.S. Dollar Index have surged to the most since March 2011, according to the latest Commodity Futures Trading Commission data. The gauge of the U.S. currency has fallen over 6% this year as investors turned against the greenback amid unprecedented monetary easing from the Fed and a move away from haven assets.

A combination of negative U.S. real yields, extended valuations across American assets and a current account deficit that requires dollar depreciation to finance will likely weigh on the currency into next year, strategists at Goldman Sachs Asset Management wrote in a recent note.

“We see depreciation in the dollar continuing into 2021,” the Goldman team said. “Liquidity dynamics and virus news flow may influence the timing of dollar weakness, but not necessarily the medium-term downtrend.”

EUR/USD

Resistance levels (open interest**, contracts)

$1.2303 (1456)

$1.2278 (1294)

$1.2261 (949)

Price at time of writing this review: $1.2239

Support levels (open interest**, contracts):

$1.2180 (3532)

$1.2154 (1381)

$1.2121 (2446)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date January, 8 is 78068 contracts (according to data from December, 28) with the maximum number of contracts with strike price $1,2100 (4884);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3634 (1002)

$1.3571 (1218)

$1.3525 (961)

Price at time of writing this review: $1.3478

Support levels (open interest**, contracts):

$1.3387 (782)

$1.3362 (833)

$1.3333 (740)

Comments:

- Overall open interest on the CALL options with the expiration date January, 8 is 58588 contracts, with the maximum number of contracts with strike price $1,4000 (33133);

- Overall open interest on the PUT options with the expiration date January, 8 is 29535 contracts, with the maximum number of contracts with strike price $1,2800 (2936);

- The ratio of PUT/CALL was 0.50 versus 0.51 from the previous trading day according to data from December, 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.

CNBC reports that business leaders said in a survey by the China Beige Book that China has not fully recovered from the shock of the coronavirus pandemic.

Roughly two-thirds of executives polled by the third-party firm said they don’t expect sales, profitability and hiring to return to 2019 levels until at least three months from now.

The survey’s tepid outlook contrasts with generally optimistic forecasts for China, the only major economy in the world expected to grow this year in the wake of the pandemic.

Government commentary in the last few weeks have also signaled concerns about overall economic growth. While economists predict China’s gross domestic product will likely expand about 2% this year, consumers have so far spent less than they did last year as many remain uncertain about future income.

For the fourth quarter, the China Beige Book found sharp drops in sales growth for luxury goods, food and apparel compared to the prior quarter.

“Firms in these sub-sectors noted narrower margins as well as weaker sales volumes and hiring growth,” the report said.