Analytics, News, and Forecasts for CFD Markets: currency news — 04-02-2020.

FXStreet reports that TD Securities analyzes the approach of the European Central Bank to its quantitative easing plans in the next months.

“Net ECB APP purchases in January were €20bn (vs. €15bn in Dec). In terms of spilt, we saw an uptick in private sector purchases as compared to the previous two months.”

“The slowdown in private sector buybacks in Nov and Dec was driven by a lack of liquidity. However, the uptick in seasonal supply in Q1 provides the ECB with an opportunity to conduct purchases in both primary and secondary markets.”

“In the short-term, we think the private sector could see an edge due to QE buying in the coming weeks.”

James Knightley, the Chief International Economist at ING, notes that U.S. payrolls growth was choppy through the second half of 2019, with the strike by General Motors staff contributing significantly to the volatility.

"That story has fully unwound, but the next issue is Boeing given it has stopped production of the 737 Max aircraft. With 600 suppliers impacted by the decision, we strongly suspect there will be a renewed drop in manufacturing employment. The January ISM manufacturing employment component remained in contraction territory at levels historically consistent with 15,000 of job losses. Note too that the January Beige Book published by the Federal Reserve reported “job cuts or reduced hiring among manufacturers, and there were scattered reports of job cuts in the transportation and energy sectors.”

Construction job gains should offset this. The plunge in mortgage rates has reignited interest in the housing market with the National Association of Home Builders sentiment index at 20-year highs. Warmer-than-usual January weather may also mean that there hasn’t been the usual building halt and associated temporary worker lay-offs, adding to upside risk for jobs in this sector (remember it is seasonally adjusted). With housing starts and building permits on the rise and construction spending more broadly showing decent gains, this sector is likely to be a key driver of employment growth over the next six months.

Service sector employment growth has been gradually softening from decent levels, reflecting the slowing of activity more broadly in the economy. We also caution that 20% of all the jobs created in the US over the past 18 months or so have come from the leisure and hospitality industries, which is generally viewed as being a low skill, low wage, low security sector. We see little reason to expect any meaningful resurgence in service sector employment growth this month, although hiring for the Census is likely to accelerate in coming months. These are of course only going to be temporary jobs.

Taking this altogether we look for payrolls growth of 150,000 versus the 160,000 consensus forecast. 2019 saw on average payrolls growth 176,000 per month while 2018 experienced average monthly gains of 223,000."

The U.S. Commerce Department reported on Tuesday that the value of new factory orders rose 1.8 percent m-o-m in December, following a revised 1.2 percent m-o-m decline in November (originally a 0.7 percent m-o-m drop). That marked the largest monthly gain since August 2018.

Economists had forecast a 1.2 percent m-o-m advance.

According to the report, orders for transportation equipment jumped 7.9 percent m-o-m in December (the biggest advance since August 2018) after an 8.2 percent m-o-m tumble in November. Meanwhile, machinery orders decreased 1.0 percent m-o-m after falling 1.2 percent m-o-m in November. Orders for electrical equipment, appliances and components 0.3 percent m-o-m.

Total factory orders excluding transportation, a volatile part of the overall reading, increased 0.6 percent m-o-m in December (compared to a downwardly revised 0.2 percent m-o-m growth in November), while orders for nondefense capital goods excluding aircraft, a measure of business spending plans, decreased 0.8 percent m-o-m (instead of dropping 0.9 percent m-o-m as reported last month). The report also showed that shipments of core capital goods reduced 0.3 percent m-o-m in December, rather than declining 0.4 percent m-o-m as previously reported.

In 2019, factory orders decreased 0.6 percent y-o-y.

FXStreet reports that in the opinion of strategists at TD Securities gold will be affected mainly by the suppression of real rates all over the world.

“The precious metals complex continues to see a reversal in safe-haven flows, which is weighing on prices, but we reiterate that the structural bid in the yellow metal is ultimately independent of equity market flows and the continued strength in the USD.”

“Gold's bull market is associated with the loss-aversion theme, which continues to drive the structural growth in investment demand in precious metals as capital seeks protection from negative real rates. With central bankers suppressing real rates across the globe, we expect this theme to remain prevalent.”

• Coronavirus could spur a step-up in U.S. production
• There may be some component shortages due to coronavirus
• Expects coronavirus to have a minimal impact on supply chains, says it's not a catastrophe
• Phase 1 deal will take longer because of impact on Chinese buyers

Francesco Pesole, an FX Strategist at ING, notes the Reserve Bank of Australia (RBA) kept rates on hold overnight, whilst keeping the door open for more easing if necessary. 

"The Bank has welcomed progress in labour and inflation numbers and only marginally mentioned two key risk factors – bushfires and coronavirus – for the economic outlook. More details will come from Governor Philip Lowe's speech at 0130GMT tomorrow and the Statement on Monetary Policy on Friday. For now, our feeling is that the Bank has opted for a wait-and-see approach in order to better assess the impact of these two factors before venturing into even lower rates (the Cash Rate is at 0.75%) which would inevitably prompt a discussion around unorthodox monetary policy. In our view, the RBA has likely remained too sanguine on the economy, and we remain of the view that more easing will be necessary in the coming months, especially considering the high exposure of Australia to the Chinese economy (which will likely slow on the back of the coronavirus)."

• Says that not sure if now is the right time to deepen oil output cuts
• Too early to say if a meeting could take place on 14-15 February

The safe-haven JPY and CHF fell against their major rivals in the European session on Tuesday, while CNY and AUD rose as risk appetite revived as worries about the potential economic impact of the coronavirus outbreak in China eased somewhat after the country announced the stimulus plans to support its growth.

On Monday, the People's Bank of China (PBoC) injected 1.2 trillion yuan (over $170 billion) into the financial system and cut the reverse repo rates by 10 basis points to help revive the country's economic growth. On Tuesday, the Chinese central bank poured 500 billion yuan into the financial system through reverse repo operations.

In addition, AUD was supported by the Reserve Bank of Australia's (RBA) decision to leave its main cash rate unchanged at 0.75 percent.

Elsewhere, GBP traded mixed against its major rivals after the release of the UK construction PMI data for January, which pointed to a much slower decline in the sector's output than that seen at the end of 2019. According to IHS Markit/CIPS, the headline seasonally adjusted UK Construction Total Activity Index rebounded from 44.4 in December 2019 to 48.4 in January 2020. Economists had expected an increase to 46.6. The latest reading was still below the 50.0 no-change threshold, but signaled the slowest fall in overall construction output for eight months.

• China will expand imports of medical-related materials and the production of raw materials

FXStreet reports that in the opinion of FX Strategists at UOB Group the kiwi dollar could depreciate to the 0.6420 region vs. the greenback if NZD/USD closes below 0.6460. 

24-hour view: “Our expectation for the ‘weakness in NZD to extend further’ did not materialize as NZD edged one pip below Friday’s low of 0.6454 before trading sideways. Downward momentum has eased considerably and the current movement is viewed as part of a consolidation phase. In other words, NZD is expected to trade sideways, likely between 0.6450 and 0.6485.”

Next 1-3 weeks: “The pace of the decline in NZD appears to have slowed as NZD traded in a quiet manner between 0.6453 and 0.6479 yesterday (03 Feb). For now, we are holding to our view from last Friday (31 Jan, spot at 0.6485) wherein ‘NZD has to close below the solid 0.6460 support before further weakness to 0.6420 can be expected’. On the upside, NZD has to move above 0.6520 (no change in ‘strong resistance’ level) in order to indicate that the current weakness has stabilized.”

FXStreet reports that the Reserve Bank of Australia (RBA) maintained steady its monetary policy, but there are some risks looming in the Australian economy. Therefore, strategists at Rabobank suggest selling the Aussie dollar.

“The RBA acknowledges that the trade and technology dispute between the US and China is a continuing source of uncertainty. It also refers to the coronavirus but wisely states that ‘it is too early to determine how long-lasting the impact will be'."

“The RBA has also left the door open for further rate cuts maintaining that ‘it remains prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time’.”

“The combination of the bushfires and the coronavirus risks is already suggesting that the company guidance may be the most interesting aspect of the forthcoming round of Australian earnings data. In view of the risks to growth and the AUD’s sensitivity to commodities prices, we see further downside risk for AUD/USD and look for a move towards 0.65 medium-term.”

FXStreet reports that фccording to FX Strategists at UOB Group, Cable is expected to trade within the 1.29-1.32 range for the next weeks.

24-hour view: “The manner by which GBP gave up its strong gains from late last week came as a surprise as it nose-dived by -1.55% to close at 1.3000. The impulsive decline appears to have room to extend further but oversold conditions suggest the Jan’s low of 1.2955 is likely out of reach. On the upside, 1.3065 is expected to be strong enough to cap any intraday bounce (minor resistance is at 1.3035).”

Next 1-3 weeks: “While our view has been proven wrong on many occasions before, to be proven wrong within a single day is not exactly common. When GBP edged above the top of our previously expected 1.2900/1.3200 range last Friday, we indicated yesterday (03 Feb, spot at 1.3175) that ‘the risk has shifted to the upside towards 1.3285’. However, GBP nosed dived and gave up most if not all of its strong gains from late last week as it plunged by -1.55% (the largest 1-day drop since Nov 2018). The recent sharp and rapid but short-lived price actions have resulted in a mixed outlook. From here, we are reverting back to our view from earlier last week wherein GBP is expected to trade in an erratic manner between the two major levels of 1.2900 and 1.3200.”

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, suggested the pair should shift its attention to the 200-day SMA if the 1.1095 level is cleared (55-day SMA).

"EUR/USD last week sold off towards and recovered just ahead of the 1.0981 29th November low. The market is currently being thwarted by the 55 day ma at 1.1095 and only above here will attention revert to the 200 day ma at 1.1126. Directly above here lies the 1.1171 55 week ma, the 1.1208 one year down channel and the 1.1240 recent high. These remain the break up point to the 200 week ma at 1.1355."

According to preliminary estimates form Istat, in January 2020 the Italian consumer price index for the whole nation (NIC) increased by 0.2% on monthly basis and by 0.6% with respect to January 2019 (up from +0.5% in the previous month).

The slight acceleration of the growth on annual basis of All items index was mainly due to the speed-up of prices of Non-regulated energy products (from +1.6% to +3.2%), of Services related to transport (from +1.1% to +2.9%) and of Processed food including alcohol (from +0.4% to +1.0%), partially offset by the widening of the decrease of prices of Regulated energy products (from -7.8% to -9.5%) and by the slowdown of prices of Services related to recreation, including repair and personal care (from +1.3% to +0.8%).

Both core inflation (excluding energy and unprocessed food) and inflation excluding energy were +0.8% (respectively from +0.6% and +0.7%).

The annual rate of change of prices of Goods was +0.1% (from zero) and that one of prices of Services was +1.0% (the same as in the previous month). As a consequence, the inflationary gap between Services and Goods was still positive and equal +0.9 percentage points (+1.0 in December). Prices of Grocery and unprocessed food increased by 1.2% on monthly basis and +0.9% on annual basis (up from +0.6% in the previous month).

In January 2020, according to preliminary estimates, the Italian harmonized index of consumer prices (HICP) decreased by 1.7% on monthly basis and increased by +0.5% with respect to January 2019.

According to the report from Eurostat, in December 2019, compared with November 2019, industrial producer prices remained stable in both the euro area (EA19) and the EU27. In November 2019, prices increased by 0.1% in the euro area and by 0.2% in the EU27.

In December 2019, compared with December 2018, industrial producer prices decreased by 0.7% in the euro area and by 0.4% in the EU27.

The average industrial producer prices for the year 2019, compared with 2018, increased by 0.7% in the euro area and by 0.9% in the EU27.

Industrial producer prices in the euro area in December 2019, compared with November 2019, rose by 0.5% for non-durable consumer goods and by 0.1% for capital goods, while prices decreased by 0.1% for intermediate goods and for durable consumer goods and by 0.5% in the energy sector. Prices in total industry excluding energy rose by 0.1%.

In the EU27, industrial producer prices rose by 0.5% for non-durable consumer goods and by 0.1% for capital goods, while prices decreased by 0.1% for intermediate goods and for durable consumer goods and by 0.5% in the energy sector. Prices in total industry excluding energy rose by 0.1%.

January data from IHS Markit/CIPS pointed to a much slower decline in UK construction output than that seen at the end of 2019. New business volumes were also close to stabilisation, which contrasted with the sharp falls seen in the final quarter of last year. Survey respondents widely commented on a boost to client demand from receding political uncertainty. Looking ahead, construction companies are now the most optimistic about their growth prospects since April 2018. A number of firms noted that clients' willingness to spend had picked up after the general election, which should translate into rising workloads over the course of 2020.

The headline seasonally adjusted UK Construction Total Activity Index rebounded from 44.4 in December to 48.4 in January. Economists had expected an increase to 46.6. The latest reading was still below the 50.0 no-change threshold, but signalled the slowest fall in overall construction output for eight months.

House building was the best performing broad area of construction activity, with output falling only slightly in January. Mirroring the overall construction output trend, residential work fell at the slowest pace since May 2019. Commercial activity decreased for the thirteenth consecutive month in January, but the rate of contraction was much weaker than in December and the softest since the start of 2019. Meanwhile, civil engineering was the worst performing category of output in January, with construction firms often citing a lack of tender opportunities to help replace completed infrastructure contracts.

FXStreet reports that analysts at Commerzbank recommend opening longs on the EUR/GBP based on technical analysis, as they have seen the rupture of the 6-month downtrend.

"EUR/GBP has eroded the 6-month downtrend at .8497. The 61.8% retracement at .8380 has recently held 3 times and we suspect that the market might be basing from a longer-term perspective."

"Attention reverts to the .8606/10 nearby resistance. A close above .8610 is needed to alleviate downside pressure and re-target the .8769 200 day ma."

"Below .8226 remain the June and October 2012 highs as well as the April 2016 high and the January and February 2014 lows at .8167/18."

CNBC reports that as China continues to reel from the spreading coronavirus, the world is looking for a familiar entity to swoop in and save the day: a central bank, in this case the People's Bank of China.

This time, though, even big rate cuts and other forms of easing may not be enough.

Central banks like the PBOC and its counterparts around the world - notably the U.S. Federal Reserve and the European Central Bank - have been bailing out economies and financial markets since the 2008 financial crisis. Trillions in digital money printing along with bargain-basement interest rates have been the main weapons of choice to combat recurring episodes of slowness.

On cue, the PBOC on Monday announced a massive reverse repo program - swapping high-quality securities for cash - along with corresponding cuts in short-term rates.

In the virus case, though, policymakers are facing a major unknown that comes at a time when China's economy already was slowing. This may be one instance, then, where opening the spigots on monetary policy isn't enough.

"We doubt that [the steps announced Monday] alone will be enough to put China's economy back on track," Hubert de Barochez, markets economist at Capital Economics, said in a note to clients. "The latest cuts will do nothing directly to offset the drag on economic activity from Chinese authorities' response to the epidemic - notably travel bans and business closures."

"And even in the most optimistic scenario - whereby the epidemic would be put under control rapidly and things would go back to normal soon - we think that the PBOC would need to cut rates again this year," he added.

FXStreet reports that FX Strategists at UOB Group noted that occasional bullish attempts in EUR/USD should meet a tough barrier in the 1.1180 region.

24-hour view: "Expectation for EUR strength to 'move above 1.1115' was incorrect as it dropped briefly to 1.1034 before recovering to end the day lower at 1.1058 (-0.32%). The movement is viewed as part of a consolidation phase. In other words, EUR is expected to trade sideways for today, likely between 1.1035 and 1.1085."

Next 1-3 weeks: "The rapid manner by which EUR gave up a large part of the strong gains from last Friday (31 Jan) came as a surprise (EUR lost -0.31% yesterday). For now, we are holding on to our view from yesterday (03 Feb, spot at 1.1090) wherein last week's 1.0990 low is a short-term bottom and the current movement is viewed as a rebound that has scope to extend higher towards the solid resistance at 1.1180. However, a breach of 1.1015 (no change in 'strong support' level) would indicate that our expectation for a rebound is premature."

According to the report from Ministry of Employment, in January 2020, unemployment registered in the Public Employment Services offices has been reduced by 31,908 people compared to the same month last year, with a year-on-year reduction rate of 0.97%. In seasonally adjusted terms, eliminating calendar effects, the rise in unemployment is much lower and increased by 13,480 people. The number of unemployed registered in the month of January 2020 has risen by 90,248 in relation to the previous month. This is an increase slightly higher than in 2019 but below the average of the last ten years. In relative values, the increase in unemployment is 2.85%. The increase in the number of registered unemployed persons is common throughout January in the historical series of the last twenty-five years.

Thus, the total number of unemployed is 3,253,853. In January 2019 unemployment rose by 83,464 compared with the previous month.

The male unemployment stood at 1.356.980 people, the increase in 28.584 (2,15%) and the female in 1.896.873, due to an increase in 61.664 (3,36%) in the month of December. Compared to January 2019, male unemployment fell by 3,468 (-0.25%) and female unemployment fell by 28,440 (-1,48%). Although unemployment is lower for women than for men, in absolute terms female unemployment is still higher than male unemployment.

FXStreet reports that analysts at Danske Bank expect a 25bp rate cut by the Bank of England in May and more GBP weakness amid elevated Brexit uncertainty.

"UK formally left the EU on Friday, marking the beginning of the transition period running until 31 December 2020. Both the UK and the EU have published their trade agreement objectives. The most important red lines for the UK are to end regulatory alignment and the jurisdiction of the EU court. For the EU, it is to protect the integrity of the single market and the customs union, securing rights to fish in British waters and ensure the UK does not undercut EU standards (i.e. level playing field conditions)."

"These are initial positions and eventually both sides are likely to compromise. However, this is unlikely to happen until we are much closer to the deadline on 31 December 2020, as PM Boris Johnson has ruled out an extension."

"We think more GBP weakness is in the cards this year, as we expect investors will become increasingly impatient with the lack of progress. We also expect a 25bp cut by the Bank of England in May, as elevated Brexit uncertainty continues to weigh on business investments."

During today's Asian trading, the US dollar stabilized against the euro after yesterday's significant strengthening on the background of data on the strengthening of the growth rate of manufacturing activity in the US.

The ISM index of business activity in the us manufacturing sector in January rose to 50.9 points - the highest in six months-from 47.8 points a month earlier. The index value above the 50-point mark signals an increase in business activity in the industrial sector, which is marked in the US for the first time in six months. The purchasing managers ' index (PMI) for the industrial sector, calculated by IHS Markit, rose to 51.9 points in January from 51.7 points a month earlier.

The US dollar strengthened against the yen, and experts expect this trend to continue, noting that the risk aversion associated with the spread of the coronavirus is gradually fading due to the actions of the Chinese Central Bank.

The Central Bank of China on Tuesday poured 500 billion yuan into the financial system through reverse REPO operations. On Monday, the infusion amounted to 1.2 trillion yuan.

Experts are confident that the outbreak of pneumonia caused by coronavirus in China will have a negative impact on the country's economy, which can be seen in the statistics this month. Nevertheless, the actions of the Central Bank of China, which seeks to show that it is ready to do everything necessary to support the economy, should reassure traders.

The pound rose slightly against the dollar after yesterday's significant drop . On January 31, the UK left the EU. After that, a transition period started, during which the parties must agree on the principles on which they will build their future relations.

eFXdata reports that Credit Suisse discusses USD/JPY technical outlook and adopts a tactical bearish bias towards 107.65 in the near-term.

" We still believe there is scope for some further weakness for USDJPY from here. The market has recovered back above the 200-day average at 108.43, with the potential uptrend from August just below at 108.25. Below here in due course though would open up the 38.2% retracement of the same move at 108.06. Below here the key 107.65 low is the next key level in focus, which is likely to prove a particularly tough barrier in our view and we would be alert to the possibility of another potential base forming in this zone, particularly with the 50% retracement just below at 107.34," CS notes.

"Resistance stays at 109.27/35, above which would instead set a small base to relieve the downside pressure, with the next level then seen at 109.65/66, before the 109.76/79 breakdown point. Only back above 110.29 would reassert the upmove though," CS adds.

FXStreet reports that David Plank, Head of Australian Economics at Australia and New Zealand Banking Group (ANZ) said that the Reserve Bank of Australia (RBA) Board kept the cash rate at 0.75% in February. But the big surprise was the description of the growth outlook.

"The central scenario is for the Australian economy to grow by around 2¾ per cent this year and 3 per cent next year, which would be a step up from the growth rates over the past two years.

This is unchanged from the central scenario presented in the last forecast update in November. It is possible that the numbers to be published in Friday's Statement on Monetary Policy (SoMP) will reveal some impact from the bushfires and coronavirus, but the initial assessment is modest enough to allow the RBA to leave its presentation of the central scenario unchanged.

We will no doubt see a much fuller discussion of the risks posed by the bushfires and the coronavirus in the SoMP. We also except the Governor to spend considerable time discussing these risks in his speech on The Year Ahead to the Press Club in Sydney on 5 February.

It seems highly likely to us that the RBA's perhaps understandably cautious assessment of these risks is about to be overtaken by "events, dear boy, events", to steal a phrase attributed to the former British Prime Minister, Harold Macmillan. The question is when this will become clear."

EUR/USD

Resistance levels (open interest**, contracts)

$1.1156 (2881)

$1.1118 (3991)

$1.1098 (1279)

Price at time of writing this review: $1.1061

Support levels (open interest**, contracts):

$1.1044 (2918)

$1.0999 (2761)

$1.0950 (1281)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date February, 7 is 67481 contracts (according to data from February, 3) with the maximum number of contracts with strike price $1,1150 (4448);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3203 (1372)

$1.3111 (1849)

$1.3047 (1121)

Price at time of writing this review: $1.2996

Support levels (open interest**, contracts):

$1.2966 (2939)

$1.2933 (1357)

$1.2892 (1697)

Comments:

- Overall open interest on the CALL options with the expiration date February, 7 is 25449 contracts, with the maximum number of contracts with strike price $1,3600 (3908);

- Overall open interest on the PUT options with the expiration date February, 7 is 22017 contracts, with the maximum number of contracts with strike price $1,3000 (2939);

- The ratio of PUT/CALL was 0.87 versus 0.86 from the previous trading day according to data from February, 3

* - 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.