eFXdata reports that Societe Generale Research flags NZD, AUD, CAD, and GBP as the most vulnerable G10 currencies in August.
'In terms of trading positions, illiquidity and seasonals, the easiest conclusion is that FX volatility is likely to be higher this month. The second easiest conclusion is that the dollar is likely to do well against the high-beta EM and DM currencies. Our EM strategists highlight the risk to BRL and ZAR, in terms of both elevated volatility and weaker spot. We have identified NZD, AUD, CAD and GBP as the vulnerable G10 currencies," SocGen notes.
This morning's G10 losers are CHF and NOK, but the trades we picked out for this month were short NZD/JPY and GBP/CHF. With 10yr TIPS yields at -1%, the yen should still shine," SocGen adds.," SocGen adds.
FXStreet reports that tech stocks have rallied this year, with the tech-heavy Nasdaq up over 20% vs. a 2% gain for the S&P 500. While economists at UBS don't think tech is entering bubble territory, they do think investors with a concentration in the biggest recent winners should rebalance and reposition that exposure.
“The information technology (IT) sector currently trades at 25x consensus forward EPS estimates, a 17% increase from the beginning of the year. However, using the tech-heavy NASDAQ composite as a proxy, valuations are clearly well below late 1990s levels, when the index forward P/E rose above 70x at the height of the dotcom bubble. Furthermore, the IT sector looks appropriately valued relative to other sectors given current expectations for future cash flows and discount rates.”
“After the significant outperformance of growth in general and FAAMNG in particular, many investors' portfolios may be heavily skewed towards recent outperforming stocks. For example, the top five companies in the S&P 500 (Facebook, Amazon, Apple, Microsoft and Alphabet) now account for over 20% of the index. This doesn't necessarily mean that these stocks should be sold, and we still like most of the FAAMNG complex. But it does mean that portfolios may be less diversified and therefore more risky (both on the upside and downside) than they might seem. In addition, investors that have too much exposure to these growth stocks could be at risk if value stocks start to assume market leadership.”
CNBC reports that OPEC and its allies need to find a balance between supporting oil prices and keeping U.S. crude production at bay, a strategist told CNBC as the oil-producing group starts to roll back supply cuts.
The alliance’s historic production cuts of 9.7 million barrels per day expired on July 31 this year. From August, the cuts will be tapered to 7.7 million bpd.
Oil prices fell on Monday due to oversupply concerns, Reuters reported, noting that oil output already increased by 1 million bpd in July when Gulf countries ended their voluntary extra supply curbs.
“I think we’re witnessing kind of a high-wire ... balancing act that OPEC+ is trying to execute here,” said John Driscoll, chief strategist at JTD Energy Services.
OPEC+ in April made a deal to reduce supply to the market in a bid to support prices, which went into a “free fall” earlier this year amid demand destruction due to the coronavirus and a price war between Russia and Saudi Arabia.
“Now they’ve restored the balance, prices have recovered, but they have to be very careful because they don’t want to be the victim of their own success,” he told CNBC.
“If prices were to zoom past $45 a barrel, $50 a barrel on the back of these cuts, that may be waving the red cape in front of the U.S. independents, the producers,” he added.
“The way I see it, this is a very delicate, fragile balancing act and there’s this cloud of uncertainty overhanging all of it, on the pace of the recovery,” Driscoll said.
He noted that it is difficult to predict how quickly the economy can recover.
Driscoll also said he’s “very skeptical” about where oil demand is going to come from, given that travel plans are still getting scrapped during the summer holiday.
Bloomberg reports that investors are so concerned about the global outlook that worldwide holdings in gold-backed exchange-traded funds now stand behind only the official U.S. reserves of bullion after they surpassed Germany’s holdings.
Gold has rallied to a record this year as the coronavirus pandemic savaged growth, with gains supported by massive inflows into bullion-backed ETFs. Bulls are fearful that the waves of stimulus to fight the slowdown may debase paper currencies and ignite inflation. They also point to simmering geopolitical tensions, rising government debt burdens, and lofty equity valuations.
Worldwide holdings in gold-backed ETFs rose to 3,365.6 tons on Monday, up 30.5% this year, according to preliminary data compiled by Bloomberg. That’s a couple of tons ahead of Germany’s stash. U.S. reserves exceed 8,000 tons.
Even after futures topped $2,000 an ounce, there are plenty of forecasts for further, substantial gains. Among them, Goldman Sachs Group Inc. says gold may climb to $2,300 as investors are “in search of a new reserve currency,” while RBC Capital Markets puts the odds of a rally to $3,000 at 40%.
FXStreet reports that during July the euro strengthened further against the US dollar, moving from 1.1247 to 1.1819. Policy optimism provides support to the shared currency. The EUR/USD pair may experience some consolidation in the near-term but economists at MUFG see upside potential in the long-run.
“While the composition of the EUR 750 billion package was altered with EUR 390 billion available for grants versus the original EUR 500 billion, the details remain supportive for the outlook ahead. Crucially, this positive sentiment is also reflective of the sound management of COVID in Europe. There are some risks to this of course. Spain in particular, but other countries too, have shown a notable escalation and containing the spread of COVID will be important for keeping EUR on a trend higher.”
“The consequence of reduce fragmentation risks in the euro-zone is greater support for yields in Germany versus the periphery and versus UST bonds. The scale of narrowing in the UST-Bund spread is very significant and points to a turn in EUR/USD trend to the upside. We do not see this changing with the Fed’s focus of QE very much on maintaining lower yields for longer.”
“EUR upside potential is building as evident from the spot move in July. The scale of the move means some correction or consolidation is probable over the short-term. But the longer-term EUR/USD trend is now higher.”
|01:30||Australia||Retail Sales, M/M||June||16.9%||2.4%||2.7%|
|04:30||Australia||Announcement of the RBA decision on the discount rate||0.25%||0.25%||0.25%|
During today's Asian trading, the US dollar declined moderately against the euro and rose against the yen.
The ICE index, which tracks the dynamics of the us dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose by 0.03%.
The dollar index continues to strengthen after the highest monthly decline in the past ten years. However, the combination of growing economic and political uncertainty in the context of the COVID-19 pandemic and in the run-up to the November US presidential election may pose a "collapse risk", usually characteristic of emerging markets currencies, analysts warn, adding that the US economic uncertainty index has jumped to the level of the rest of the world, although before the pandemic it was significantly below the global level.
Meanwhile, interest rate cuts and other monetary easing measures by the US Federal reserve, as well as a drop in treasury yields to near record lows, significantly reduced the dollar's premium to other safe haven currencies.
The australian dollar gained 0.25 percent against the U.S. dollar. The Reserve Bank of Australia, as expected, kept the key interest rate at a record low of 0.25% per annum.
According to the report from State Secretariat for Economic Affairs (SECO), consumer sentiment in Switzerland has largely recovered from its slump in April. Expectations regarding general economic development have improved, but those regarding the labour market remain very negative. Accordingly, respondents believe that now is not a good time to make major purchases.
In July, the consumer sentiment index stood at −12 points, meaning that consumer sentiment has largely recovered from its historic low in April (−39 points). However, it still comes in below average (long-term average: –5 points).
Expectations regarding general economic development have improved significantly, starting from their historically low level in April. The relevant sub-index has climbed to –17 points, indicating that a certain economic recovery has begun in the wake of the relaxation of the measures to contain the coronavirus.
By contrast, expectations regarding the development of the labour market remain very negative. Although the index on expected unemployment has improved, it is still fairly close to the historical level reached during the financial and economic crisis. Job security has also been assessed much worse than in April.
While households’ past financial situation (–10 points) has been rated at a similar level to the previous quarter, expectations regarding the financial situation have brightened considerably, with the relevant sub-index (–4 points) now only slightly below the long-term average. Declining consumer prices are also likely to have contributed to this result. Accordingly, the sub-index on anticipated price development has also dropped.
The likelihood of making major purchases has left April’s low behind but remains well below average, with the relevant sub-index standing at –17 points. Key reasons for this may be the difficult labour market prospects and the high level of uncertainty, which outweigh the improved expectations regarding households’ own budget.
FXStreet reports that NZD/USD is expected to keep the consolidative fashion unchanged for the time being, likely between 0.6540 and 0.6710, suggested FX Strategists at UOB Group.
24-hour view: “Yesterday, we held the view that NZD ‘could test the strong support at 0.6600’ but ‘a sustained decline below this level is unlikely’. NZD subsequently dropped to a low of 0.6575 before rebounding. While downward pressure is not strong, there is scope for NZD to retest the 0.6575 level before a more sustained recovery can be expected. Resistance is at 0.6630 followed by 0.6650.”
Next 1-3 weeks: “We highlighted yesterday (03 Aug, spot at 0.6620) that ‘a break of 0.6600 would indicate that NZD has moved into a consolidation phase’. NZD subsequently dropped to 0.6575 before settling on a soft note at 0.6613 (-0.24%). For the next 1 to 2 weeks, NZD is likely to trade sideways, expected to be between 0.6540 and 0.6710. Looking forward, a clear break of 0.6540 would suggest the start of a deeper pullback in NZD.”
RTTNews reports that Australia's central bank maintained its interest rate at a record low and quantitative easing unchanged as the package unveiled in March is supporting the economy as expected.
The board of Reserve Bank of Australia, governed by Philip Lowe, decided to maintain cash rate and the targeted yield on three-year government bonds of 25 basis points.
Lowe said the bank will buy government securities in the secondary market on Wednesday to ensure that the yield on 3-year bonds remains consistent with the target.
The bank vowed to maintain accommodative approach as long as it is required.
The RBA will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2-3 percent target band, Lowe said in a statement.
The RBA had reduced the key interest rate to the current record low of 0.25 percent at the March meeting. Also in March, the bank had introduced asset purchase programme to combat the downturn caused by the pandemic.
As Australians deal with the coronavirus, the economy is being supported by the substantial, coordinated and unprecedented easing of fiscal and monetary policy, the banker noted. It is likely that fiscal and monetary stimulus will be required for some time given the outlook for the economy and the labor market.
The downturn is not as severe as earlier expected and a recovery is now underway in most of Australia. However, the recovery is likely to be both uneven and bumpy, with the coronavirus outbreak in Victoria having a major effect on the Victorian economy, Lowe observed.
According to the baseline scenario, output falls by 6 percent over 2020 and then grows by 5 percent over the following year. Inflation is forecast to remain below 2 percent over the next couple of years.
Resistance levels (open interest**, contracts)
Price at time of writing this review: $1.1768
Support levels (open interest**, contracts):
- Overall open interest on the CALL options and PUT options with the expiration date August, 7 is 65723 contracts (according to data from August, 3) with the maximum number of contracts with strike price $1,1400 (4028);
Resistance levels (open interest**, contracts)
Price at time of writing this review: $1.3072
Support levels (open interest**, contracts):
- Overall open interest on the CALL options with the expiration date August, 7 is 21728 contracts, with the maximum number of contracts with strike price $1,3250 (2547);
- Overall open interest on the PUT options with the expiration date August, 7 is 20357 contracts, with the maximum number of contracts with strike price $1,2400 (1525);
- The ratio of PUT/CALL was 0.94 versus 0.91 from the previous trading day according to data from August, 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.
|01:30||Australia||Retail Sales, M/M||June||16.9%||2.4%|
|04:30||Australia||Announcement of the RBA decision on the discount rate||0.25%|
|09:00||Eurozone||Producer Price Index (YoY)||June||-5%||-3.9%|
|09:00||Eurozone||Producer Price Index, MoM||June||-0.6%||0.5%|
|22:30||Australia||AiG Performance of Construction Index||July||35.5|
|22:45||New Zealand||Employment Change, q/q||Quarter II||0.7%||-2%|
|22:45||New Zealand||Unemployment Rate||Quarter II||4.2%||5.8%|
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