LiteFinance
- Forex Broker al LiteFinance Global LLC
- Saint Vincent e Grenadine
- 933
The online ECN broker LiteFinance (ex. LiteForex) has been providing its clients access to Tier 1 liquidity in the currency, commodity, and stock market since 2005. All major currency pairs and cross rates, oil, precious metals, stock indexes, blue chips, and the largest set of cryptocurrency pairs can be traded at LiteFinance (ex. LiteForex).
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Forecast for EUR/USD: Will dollar correct?
Fundamental forecast for dollar for today
EUR/USD bears think a major part of negative information is factored in the quotes
The States’ inability to put an end to the pandemic may lead to the USD’s worst dynamics in the past 9 years. Not only gold has grown against the greenback in July, reaching a new record value. Almost everything has grown against the greenback. An increasing number of new Covid cases lets us think that controlling the virus in the USA is harder than in other countries. It cuts the efficiency of the US economy.
The main factors in the USD’s weakness are a bad epidemiological situation, China’s probable sales of US Treasuries, presidential election uncertainty, and fears that the Fed will continue monetary expansion and drop the federal funds rate below zero. It will hardly happen at FOMC’s meeting on 28-29 July, but obviously, the situation has changed for the worst since the last meeting.
Back in June, the number of Covid cases got stable. It was falling in New York and New Jersey, while Texas, Florida and California didn’t face the virus terror that they are in now. Still, the Fed’s forecast had already been pessimistic. Jerome Powell and his peers didn’t see any signs of the V-shape recovery the White House had been talking about. They rather appealed for fiscal stimulus and said the Central bank wasn’t able to deal alone with the pandemic. the Boston Fed President Eric Rosengren said in his latest interviews that he expected the same inflationary decline as in Europe, but the States weren’t as successful. American macro-indicators are still far from pre-crisis levels while the German Ifo Business Climate Index has exceeded them already.
The longer the epidemic lasts, the harder it will be for some sectors to recover. Millions of Americans will become jobless, businesses will go bankrupt and the banking system will be under a great stress. The economy is becoming less efficient, compared with competitors. This cannot but affect the currency rate. In the week ended 22 July, net USD shorts reached the highest level against 8 major currencies since April 2018.
The uncertainty around fiscal stimulus puts pressure on the greenback too. The Republicans proposed to increase the relief package by $1 trillion, cutting weekly unemployment benefits from $600 to $200. They believe the US has one foot in the pandemic and one foot in the recovery.
Still, no trend can do without correction. According to Rabobank, EUR/USD quotes have already considered both the probable worsening of US macro-statistics and the Fed’s downbeat expectations for GDP. The greenback may be given preference as a safe haven currency at any time, especially when US stock indexes aren’t willing to continue a rally. And that’s good for bulls! Retracements to $1.1655 and $1.158 will allow them to buy the euro cheaper.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/forecast-for-eurusd-will-dollar-correct/?uid=285861726&cid=79634
Dynamics of German business climate indexes
Fundamental forecast for dollar for today
EUR/USD bears think a major part of negative information is factored in the quotes
The States’ inability to put an end to the pandemic may lead to the USD’s worst dynamics in the past 9 years. Not only gold has grown against the greenback in July, reaching a new record value. Almost everything has grown against the greenback. An increasing number of new Covid cases lets us think that controlling the virus in the USA is harder than in other countries. It cuts the efficiency of the US economy.
The main factors in the USD’s weakness are a bad epidemiological situation, China’s probable sales of US Treasuries, presidential election uncertainty, and fears that the Fed will continue monetary expansion and drop the federal funds rate below zero. It will hardly happen at FOMC’s meeting on 28-29 July, but obviously, the situation has changed for the worst since the last meeting.
Back in June, the number of Covid cases got stable. It was falling in New York and New Jersey, while Texas, Florida and California didn’t face the virus terror that they are in now. Still, the Fed’s forecast had already been pessimistic. Jerome Powell and his peers didn’t see any signs of the V-shape recovery the White House had been talking about. They rather appealed for fiscal stimulus and said the Central bank wasn’t able to deal alone with the pandemic. the Boston Fed President Eric Rosengren said in his latest interviews that he expected the same inflationary decline as in Europe, but the States weren’t as successful. American macro-indicators are still far from pre-crisis levels while the German Ifo Business Climate Index has exceeded them already.
The longer the epidemic lasts, the harder it will be for some sectors to recover. Millions of Americans will become jobless, businesses will go bankrupt and the banking system will be under a great stress. The economy is becoming less efficient, compared with competitors. This cannot but affect the currency rate. In the week ended 22 July, net USD shorts reached the highest level against 8 major currencies since April 2018.
The uncertainty around fiscal stimulus puts pressure on the greenback too. The Republicans proposed to increase the relief package by $1 trillion, cutting weekly unemployment benefits from $600 to $200. They believe the US has one foot in the pandemic and one foot in the recovery.
Still, no trend can do without correction. According to Rabobank, EUR/USD quotes have already considered both the probable worsening of US macro-statistics and the Fed’s downbeat expectations for GDP. The greenback may be given preference as a safe haven currency at any time, especially when US stock indexes aren’t willing to continue a rally. And that’s good for bulls! Retracements to $1.1655 and $1.158 will allow them to buy the euro cheaper.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/forecast-for-eurusd-will-dollar-correct/?uid=285861726&cid=79634
Dynamics of German business climate indexes
LiteFinance
Forecast for EUR/USD: Euro will put eggs in different baskets
Fundamental forecast for euro for today
EUR/USD may continue to rally on diversification of investment portfolios and gold/forex reserves
I’m pleased when my forecasts hit the bullseye, and even more so when they are fundamentally based. In June, I bet on the difference between Europe’s and the US’ epidemiological states, which suggested a faster economic recovery of the eurozone . The epic French-German fiscal stimulus project allowed me to suppose that EUR/USD would have new growth drivers: a flow of capital from the New World to the Old World and diversification of gold/forex reserves to the advantage of the euro. I’m pleased that my forecasts have worked.
The States’ inability to combat the pandemic put it at a disadvantage. According to Markit, the US business activity in July fell short of Bloomberg’s forecasts while Purchasing managers’ index of the eurozone was a feast to the eye. True, Europe’s GDP must have drawn down deeper than the US peer, but it’s likely to return to pre-crisis levels faster. Divergence in economic growths is an important factor in pricing in both Forex and stock markets.
Global investors haven’t needed to diversify their portfolios in the recent years. The bet on American high-tech stocks worked really well. However, the higher S&P 500 gets, the more overbought it looks - even more so because of the complicated epidemiological situation and growing risks of the US GDP’s W-shape recovery. As a result, one wants to put eggs in different baskets, and European stocks look attractive after the EU has accepted the French-German offer. According to Goldman Sachs, the EU stocks will have grown 13% in dollar terms and outperformed American peers within 12 months.
The idea of replacing the USD with the single European currency in the central banks’ reserves looks interesting too. A famous billionaire Ray Dalio thinks that besides a trade war, a technology war and a geopolitical war, there can be a capital war between the U.S. and China. People’s Bank of China’s active diversification of over $3 trillion gold/forex reserves won’t do any good for the greenback. The USA’s refusal to pay back Chinese-held treasury debt will only speed up the process.
No doubt, some pitfalls should be considered when it comes to EUR/USD’s bullish trend. Growth of new Covid cases in some areas of Spain and South-Eastern Europe suggests that a recovery won’t be as smooth as one would want to. A weaker dollar is a boon for American technological companies that earn most of their profits from abroad, which makes investment portfolio diversification less necessary. The White House continues to hope for a V-shape recovery. However, all those arguments have looked unconvincing so far while the euro’s bullish trend is obvious. Continue using retracements for opening long-term long positions with targets at $1.18 and $1.22.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/forecast-for-eurusd-euro-will-put-eggs-in-different-baskets/?uid=285861726&cid=79634
Evolution of European and American stocks
Fundamental forecast for euro for today
EUR/USD may continue to rally on diversification of investment portfolios and gold/forex reserves
I’m pleased when my forecasts hit the bullseye, and even more so when they are fundamentally based. In June, I bet on the difference between Europe’s and the US’ epidemiological states, which suggested a faster economic recovery of the eurozone . The epic French-German fiscal stimulus project allowed me to suppose that EUR/USD would have new growth drivers: a flow of capital from the New World to the Old World and diversification of gold/forex reserves to the advantage of the euro. I’m pleased that my forecasts have worked.
The States’ inability to combat the pandemic put it at a disadvantage. According to Markit, the US business activity in July fell short of Bloomberg’s forecasts while Purchasing managers’ index of the eurozone was a feast to the eye. True, Europe’s GDP must have drawn down deeper than the US peer, but it’s likely to return to pre-crisis levels faster. Divergence in economic growths is an important factor in pricing in both Forex and stock markets.
Global investors haven’t needed to diversify their portfolios in the recent years. The bet on American high-tech stocks worked really well. However, the higher S&P 500 gets, the more overbought it looks - even more so because of the complicated epidemiological situation and growing risks of the US GDP’s W-shape recovery. As a result, one wants to put eggs in different baskets, and European stocks look attractive after the EU has accepted the French-German offer. According to Goldman Sachs, the EU stocks will have grown 13% in dollar terms and outperformed American peers within 12 months.
The idea of replacing the USD with the single European currency in the central banks’ reserves looks interesting too. A famous billionaire Ray Dalio thinks that besides a trade war, a technology war and a geopolitical war, there can be a capital war between the U.S. and China. People’s Bank of China’s active diversification of over $3 trillion gold/forex reserves won’t do any good for the greenback. The USA’s refusal to pay back Chinese-held treasury debt will only speed up the process.
No doubt, some pitfalls should be considered when it comes to EUR/USD’s bullish trend. Growth of new Covid cases in some areas of Spain and South-Eastern Europe suggests that a recovery won’t be as smooth as one would want to. A weaker dollar is a boon for American technological companies that earn most of their profits from abroad, which makes investment portfolio diversification less necessary. The White House continues to hope for a V-shape recovery. However, all those arguments have looked unconvincing so far while the euro’s bullish trend is obvious. Continue using retracements for opening long-term long positions with targets at $1.18 and $1.22.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/forecast-for-eurusd-euro-will-put-eggs-in-different-baskets/?uid=285861726&cid=79634
Evolution of European and American stocks
LiteFinance
Euro brings happiness
Fundamental Euro forecast for today
The EUR/USD surge to 18-month highs made the world’s authorities happy
How little it takes to make people happy! First, lose something important, and then get it back to feel good. The EUR/USD has been back to the levels of early 2019, and so the high and mighty are satisfied. For example, Donald Trump is happy, as he has many times criticized the strong dollar. The EU governments are happy as the strong euro signals the euro-area unity. The IMF is happy as it says the too high dollar’s value hampers the global economic recovery. The euro bears may argue that the ECB won’t let the rally continue as it is not beneficial for the export-let euro area. I, however, do not agree. When the authorities try to support the domestic demand cheap import becomes a more important factor than the interests of foreign buyers.
The leading Wall Street banks share the same opinion. Just yesterday, I noted that the approval of the French-German stimulus plan will support European stock in the competition with the US peers. It will increase the capital inflow to the euro-area markets, and so, the proportion of the euro in the FX reserves of the central banks will grow, just like its value. For example, Credit Suisse stresses that the percentage of the dollar in the global currency reserves can drop to the levels recorded in the early 1990s. The bank sees the EUR/USD at 1.18 and higher.
According to Mizuho, the current fair value of the euro is $1.22 and its rate may rise to $1.3 within 12 months due to large-scale purchases of high-yield bonds of the euro-area peripheral countries. The risks of the defaults have lowered after the EU governments agreed on the €1.8-trillion fiscal stimulus. AG Bisset Associates, which has been bearish on the US dollar for a long time, believes that the EUR/USD will be 30% in the next 16 months.
I believe the market continues working out the idea of the divergence in economic growth. The EU approval of the fiscal stimulus should speed up the euro-area GDP recovery trend. The US growth, however, is set back by disputes between the members of Congress and the White House. Democrats are willing to do even more than they were before (the House of Representatives approved a $3.5 trillion stimulus package). The Republicans, however, reject this proposal suggesting a package of $1 trillion, including payroll tax cuts to encourage people to return to jobs.
According to Bloomberg’s leading indicators, the gap in the recovery paces of the euro area and the US widened over the past week. The lack of agreement on the US new fiscal stimulus plan will widen it even more.
So, the bet on the divergence in the epidemiological situation and economic growth in the euro area and the US is working and should continue working. The EUR/USD upside target is at 1.17 by the year’s end. I recommend buying the euro on the corrections down.
Dynamics of the US dollar proportion in the global FX reserves
Fundamental Euro forecast for today
The EUR/USD surge to 18-month highs made the world’s authorities happy
How little it takes to make people happy! First, lose something important, and then get it back to feel good. The EUR/USD has been back to the levels of early 2019, and so the high and mighty are satisfied. For example, Donald Trump is happy, as he has many times criticized the strong dollar. The EU governments are happy as the strong euro signals the euro-area unity. The IMF is happy as it says the too high dollar’s value hampers the global economic recovery. The euro bears may argue that the ECB won’t let the rally continue as it is not beneficial for the export-let euro area. I, however, do not agree. When the authorities try to support the domestic demand cheap import becomes a more important factor than the interests of foreign buyers.
The leading Wall Street banks share the same opinion. Just yesterday, I noted that the approval of the French-German stimulus plan will support European stock in the competition with the US peers. It will increase the capital inflow to the euro-area markets, and so, the proportion of the euro in the FX reserves of the central banks will grow, just like its value. For example, Credit Suisse stresses that the percentage of the dollar in the global currency reserves can drop to the levels recorded in the early 1990s. The bank sees the EUR/USD at 1.18 and higher.
According to Mizuho, the current fair value of the euro is $1.22 and its rate may rise to $1.3 within 12 months due to large-scale purchases of high-yield bonds of the euro-area peripheral countries. The risks of the defaults have lowered after the EU governments agreed on the €1.8-trillion fiscal stimulus. AG Bisset Associates, which has been bearish on the US dollar for a long time, believes that the EUR/USD will be 30% in the next 16 months.
I believe the market continues working out the idea of the divergence in economic growth. The EU approval of the fiscal stimulus should speed up the euro-area GDP recovery trend. The US growth, however, is set back by disputes between the members of Congress and the White House. Democrats are willing to do even more than they were before (the House of Representatives approved a $3.5 trillion stimulus package). The Republicans, however, reject this proposal suggesting a package of $1 trillion, including payroll tax cuts to encourage people to return to jobs.
According to Bloomberg’s leading indicators, the gap in the recovery paces of the euro area and the US widened over the past week. The lack of agreement on the US new fiscal stimulus plan will widen it even more.
So, the bet on the divergence in the epidemiological situation and economic growth in the euro area and the US is working and should continue working. The EUR/USD upside target is at 1.17 by the year’s end. I recommend buying the euro on the corrections down.
Dynamics of the US dollar proportion in the global FX reserves
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XAU/USD forecast: Four nuts for gold
Fundamental gold price forecast for today
Gold can still break through its all-time highs
The huge monetary stimulus provided by the world’s leading central banks, and the weakness of the world’s major currencies have driven the gold price to the levels it was last seen in 2011. Will the growth of the inflation, or, maybe, stagflation, help gold to break through the all-time highs. When the XAU/USD bears are tired of fighting and are giving in, it doesn’t look like something unreal. According to Citigroup, the record high will be updated during 6-9 months. Besides, there is a 30% chance that the gold price will go up higher than $2000 per ounce in 3-5 months.
Ultra-low monetary policies of the central banks, the drop in the bonds real yields, a big flow of capitals into the gold ETFs, and the redistribution of assets in the investors’ portfolios allow the XAU/USD bulls to go ahead. Gold has already hot mew all-time highs against all G10 currencies except for the US dollar. It seems that the gold will soon break through the local high in trading versus the greenback. In addition to the high demand for ETF products, there is a rise in the demand for the inflation-protected bonds in July, as well as the drop in the USD index. All three factors are positive for gold.
The ETF gold holdings have increased by 450 tons, or $27 billion, since mid-July. It has become one of the major benefits of gold. The indicator has reached a record high of more than 3200 tons. During six months, investors bought the gold ETF products more than all central banks together in 2018-2019.
Earlier, bulls the XAU/USD bulls bet on the weakness of the world’s major currencies resulted from the huge monetary stimulus. Now, they are focused on inflation. Although the US PCE is far from the Fed’s target of 2%, 30-year Treasury inflation-protected securities are close to an all-time low, the yields on the 5-year and 10-year TIPS are close to the lowest levels since 2013 and 2012. In the week through July 8, investors invested about $5 billion in the related ETFs, having turned the trend of the capital outflow from the exchange-traded funds. The market expects the growth of the inflation rate, it is not confused by the current levels of the PCE and CPI. BofA Merrill Lynch says the US economy may face stagflation when the GDP is not recovering but the prices are growing.
In addition to the weakness of the world major currencies, including the US dollar, low Treasury real yields, and the expectations for the growth in consumer prices, another important growth driver for the XAU/USD is the redistribution of the investors’ assets. Stocks look too expensive according to the P/E ratio. Therefore, even strong US domestic data do not encourage the S&P 500 bulls. Bonds, unlike the stock indexes trading in the green, are trading in the red area and also look overbought. Gold seems much more promising under the current conditions. So, one could think of increasing the share of gold in the investment portfolio. If the price breaks through the resistance zone of $1820-$1825, it makes sense to enter gold longs and take part in the LiteForex contest devoted to the LiteForex 15th anniversary with excellent prizes.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/xauusd-forecast-four-nuts-for-gold/?uid=285861726&cid=79634
Dynamics of gold and ETF holdings
Fundamental gold price forecast for today
Gold can still break through its all-time highs
The huge monetary stimulus provided by the world’s leading central banks, and the weakness of the world’s major currencies have driven the gold price to the levels it was last seen in 2011. Will the growth of the inflation, or, maybe, stagflation, help gold to break through the all-time highs. When the XAU/USD bears are tired of fighting and are giving in, it doesn’t look like something unreal. According to Citigroup, the record high will be updated during 6-9 months. Besides, there is a 30% chance that the gold price will go up higher than $2000 per ounce in 3-5 months.
Ultra-low monetary policies of the central banks, the drop in the bonds real yields, a big flow of capitals into the gold ETFs, and the redistribution of assets in the investors’ portfolios allow the XAU/USD bulls to go ahead. Gold has already hot mew all-time highs against all G10 currencies except for the US dollar. It seems that the gold will soon break through the local high in trading versus the greenback. In addition to the high demand for ETF products, there is a rise in the demand for the inflation-protected bonds in July, as well as the drop in the USD index. All three factors are positive for gold.
The ETF gold holdings have increased by 450 tons, or $27 billion, since mid-July. It has become one of the major benefits of gold. The indicator has reached a record high of more than 3200 tons. During six months, investors bought the gold ETF products more than all central banks together in 2018-2019.
Earlier, bulls the XAU/USD bulls bet on the weakness of the world’s major currencies resulted from the huge monetary stimulus. Now, they are focused on inflation. Although the US PCE is far from the Fed’s target of 2%, 30-year Treasury inflation-protected securities are close to an all-time low, the yields on the 5-year and 10-year TIPS are close to the lowest levels since 2013 and 2012. In the week through July 8, investors invested about $5 billion in the related ETFs, having turned the trend of the capital outflow from the exchange-traded funds. The market expects the growth of the inflation rate, it is not confused by the current levels of the PCE and CPI. BofA Merrill Lynch says the US economy may face stagflation when the GDP is not recovering but the prices are growing.
In addition to the weakness of the world major currencies, including the US dollar, low Treasury real yields, and the expectations for the growth in consumer prices, another important growth driver for the XAU/USD is the redistribution of the investors’ assets. Stocks look too expensive according to the P/E ratio. Therefore, even strong US domestic data do not encourage the S&P 500 bulls. Bonds, unlike the stock indexes trading in the green, are trading in the red area and also look overbought. Gold seems much more promising under the current conditions. So, one could think of increasing the share of gold in the investment portfolio. If the price breaks through the resistance zone of $1820-$1825, it makes sense to enter gold longs and take part in the LiteForex contest devoted to the LiteForex 15th anniversary with excellent prizes.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/xauusd-forecast-four-nuts-for-gold/?uid=285861726&cid=79634
Dynamics of gold and ETF holdings
LiteFinance
EUR/USD forecast: Dollar is rising
Fundamental US dollar forecast for today
How deep will the EUR/USD fall?
The less you know, the better. The European Central Bank President Christine Lagarde hasn’t mentioned the disputes among the members of the Governing Council. She said the central bank currently expects to spend the full amount of its pandemic bond-buying program unless there isn’t a significant surprise, but the markets suggest something different. According to Bloomberg’s sources familiar with the matter, policymakers didn’t come to an agreement on whether the full program was likely to be used. Some Executive Board members argue that the improving economy may mean bond-buying could end before reaching the current cap. If it was officially announced, it would cancel the ECB’s baseline projection is for an 8.7% contraction in the euro-area economy this year. However, the ECB is not yet prepared to send such a message.
Lagarde stresses that the euro-area recovery remains partial and uneven, with risks still tilted to the downside. She says the ECB’s monetary stimulus will add 1.3% to the GDP and 0.8% to the inflation rate by 2022. The Governing Council is again divided into hawks and doves. The rich North is opposed to the poor South. So it is not surprising that some policymakers suggest the end of the bond-buying program, and other Executive Board members offer to expand it. According to the forecasts of the European Commission, the GDPs of Italy, France, and Spain will be down by approximately 11.5%, and Germany’s economy will lose half as much.
The lack of agreement among the ECB governors could eliminate such a benefit of the euro as the euro-area unity. It is extremely dangerous ahead of the EU summit. If the bloc doesn’t approve of the French-German 750 billion-euro recovery fund will set a date for an extraordinary meeting to continue discussions on this topic, the EUR/USD bulls will be set back.
In the US, however, the retail sales data and homebuilders’ outlook are is back at pre-pandemic levels. Furthermore, the Fed’s balance sheet fell by $210 billion since June 10, being back below $7 trillion. If the US economy performs better than it could be expected considering the growth in the daily COVID-19 cases to more than 70,000, then why should the Fed continue taking active measures? According to the forecast of Wall Street experts, the Fed’s balance sheet should rise to $8.5 trillion by the end of 2020, instead of $9.5 trillion expected earlier.
In addition to the improved domestic data in the US, investors consider such a bullish driver for the greenback as the escalation of the US-China trade war. The White House is not happy that the Chinese GDP grew by 3.2% in the second quarter, while the US GDP is likely to be down by 10% in the same period. A faster economic recovery will allow China’s exporters to boost their share in the market, and so, make one more step forward to the world’s leadership.
In my opinion, the down moves of the EUR/USD are nothing more than just a correction. An increase in the number of coronavirus cases will suggest worse economic data of the US for June, which, amid the main investment idea based on the divergence in the economic growth, should encourage the EUR/USD bulls to go ahead. If the EU governments agree on the fiscal stimulus package, the euro buyers will feel more confident. In the meanwhile, the major currency pair meets my expectations and consolidates in the range of 1.11-1.14. The euro is more likely to rise to $1.16 and higher than to fall to $1.11.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-dollar-is-rising/?uid=285861726&cid=79634
Forecasts for Fed balance sheet
Fundamental US dollar forecast for today
How deep will the EUR/USD fall?
The less you know, the better. The European Central Bank President Christine Lagarde hasn’t mentioned the disputes among the members of the Governing Council. She said the central bank currently expects to spend the full amount of its pandemic bond-buying program unless there isn’t a significant surprise, but the markets suggest something different. According to Bloomberg’s sources familiar with the matter, policymakers didn’t come to an agreement on whether the full program was likely to be used. Some Executive Board members argue that the improving economy may mean bond-buying could end before reaching the current cap. If it was officially announced, it would cancel the ECB’s baseline projection is for an 8.7% contraction in the euro-area economy this year. However, the ECB is not yet prepared to send such a message.
Lagarde stresses that the euro-area recovery remains partial and uneven, with risks still tilted to the downside. She says the ECB’s monetary stimulus will add 1.3% to the GDP and 0.8% to the inflation rate by 2022. The Governing Council is again divided into hawks and doves. The rich North is opposed to the poor South. So it is not surprising that some policymakers suggest the end of the bond-buying program, and other Executive Board members offer to expand it. According to the forecasts of the European Commission, the GDPs of Italy, France, and Spain will be down by approximately 11.5%, and Germany’s economy will lose half as much.
The lack of agreement among the ECB governors could eliminate such a benefit of the euro as the euro-area unity. It is extremely dangerous ahead of the EU summit. If the bloc doesn’t approve of the French-German 750 billion-euro recovery fund will set a date for an extraordinary meeting to continue discussions on this topic, the EUR/USD bulls will be set back.
In the US, however, the retail sales data and homebuilders’ outlook are is back at pre-pandemic levels. Furthermore, the Fed’s balance sheet fell by $210 billion since June 10, being back below $7 trillion. If the US economy performs better than it could be expected considering the growth in the daily COVID-19 cases to more than 70,000, then why should the Fed continue taking active measures? According to the forecast of Wall Street experts, the Fed’s balance sheet should rise to $8.5 trillion by the end of 2020, instead of $9.5 trillion expected earlier.
In addition to the improved domestic data in the US, investors consider such a bullish driver for the greenback as the escalation of the US-China trade war. The White House is not happy that the Chinese GDP grew by 3.2% in the second quarter, while the US GDP is likely to be down by 10% in the same period. A faster economic recovery will allow China’s exporters to boost their share in the market, and so, make one more step forward to the world’s leadership.
In my opinion, the down moves of the EUR/USD are nothing more than just a correction. An increase in the number of coronavirus cases will suggest worse economic data of the US for June, which, amid the main investment idea based on the divergence in the economic growth, should encourage the EUR/USD bulls to go ahead. If the EU governments agree on the fiscal stimulus package, the euro buyers will feel more confident. In the meanwhile, the major currency pair meets my expectations and consolidates in the range of 1.11-1.14. The euro is more likely to rise to $1.16 and higher than to fall to $1.11.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-dollar-is-rising/?uid=285861726&cid=79634
Forecasts for Fed balance sheet
LiteFinance
GBP/USD forecast: Pound caught the wind of change
Fundamental Pound forecast for today
Global risk appetite is no longer the main driver of the GBP/USD
For a long time, amid its high volatility, the GBP depended on the changes in the global risk appetite, behaving like an emerging market’s currency. Nonetheless, investors have now changed their point of view, as financial markets are stabilizing, and it is clear that the peak of the global economic recession has been over. Now, the major forex driver is the speed of the recovery trend in a particular country, which is greatly determined by the epidemiological situation. And the epidemiological situation is difficult in the UK.
The UK is likely to be among the European countries worst affected by COVID-19. About 300,000 coronavirus cases and 45,000 deaths, a late strict lockdown made the OECD forecast the UK GDP drop by 11.5% in 2020, which is the worst downturn for the advanced economies. Some improvements in the data on the UK retail sales, PMI, and inflation allowed the BoE Chief Economist Andy Haldane to suggest that the UK GDP should rebound sooner than it was earlier expected. It encouraged the GBP/USD bulls to draw the price to the top of figure 26. However, the success of the sterling buyers has not lasted for long.
The UK GDP report for May showed that the economy expanded by only 1.8%, instead of 5.5% expected by Reuters experts. It prompts that it will take a longer time for the UK GDP rate to return to the trend. The derivatives market expects the BoE will cut the interest rate below zero by March 2022. Economists polled by Bloomberg forecast the QE expansion by £50 billion through the end of 2020. The MPC Member Silvana Tenreyro says she is willing to vote for the further measures to support the UK economic recovery.
The head of the Bank of England Andrew Bailey supports this idea, saying that the central bank will do its best to support the UK GDP growth, and the interest rates should be kept low for a long time.
The pound is weakened because of several fundamental factors. The MPC members sound dovish, investors are disappointed as the UK economy fails to rebound quickly and shift their focus from the risk appetite to the divergence in the GDP growth. Furthermore, the Brexit issue has not been solved, and the breakup in trade relations with the EU will worsen the UK economic state that is already weak. The UK growth, according to Bloomberg is recovering, slower than that of other European countries. It suggests reasons to buy the EUR/GBP with targets at 0.925 and 0.94.
I expect the GBP/USD to consolidate in the trading range of 1.24-1.27. The pair should be responsive to the economic reports in the UK and the USA, as well as the news about Brexit. The epidemiological situation in the USA is worse than in the euro area. Besides, the US dollar long-term outlook is bearish. So, the GBP/USD uptrend could yet recover. Nonetheless, the sterling must have a fresh driver to go up form the trading range.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/gbpusd-forecast-pound-caught-the-wind-of-change/?uid=285861726&cid=79634
Dynamics of the probability of the BoE interest rate changes
Fundamental Pound forecast for today
Global risk appetite is no longer the main driver of the GBP/USD
For a long time, amid its high volatility, the GBP depended on the changes in the global risk appetite, behaving like an emerging market’s currency. Nonetheless, investors have now changed their point of view, as financial markets are stabilizing, and it is clear that the peak of the global economic recession has been over. Now, the major forex driver is the speed of the recovery trend in a particular country, which is greatly determined by the epidemiological situation. And the epidemiological situation is difficult in the UK.
The UK is likely to be among the European countries worst affected by COVID-19. About 300,000 coronavirus cases and 45,000 deaths, a late strict lockdown made the OECD forecast the UK GDP drop by 11.5% in 2020, which is the worst downturn for the advanced economies. Some improvements in the data on the UK retail sales, PMI, and inflation allowed the BoE Chief Economist Andy Haldane to suggest that the UK GDP should rebound sooner than it was earlier expected. It encouraged the GBP/USD bulls to draw the price to the top of figure 26. However, the success of the sterling buyers has not lasted for long.
The UK GDP report for May showed that the economy expanded by only 1.8%, instead of 5.5% expected by Reuters experts. It prompts that it will take a longer time for the UK GDP rate to return to the trend. The derivatives market expects the BoE will cut the interest rate below zero by March 2022. Economists polled by Bloomberg forecast the QE expansion by £50 billion through the end of 2020. The MPC Member Silvana Tenreyro says she is willing to vote for the further measures to support the UK economic recovery.
The head of the Bank of England Andrew Bailey supports this idea, saying that the central bank will do its best to support the UK GDP growth, and the interest rates should be kept low for a long time.
The pound is weakened because of several fundamental factors. The MPC members sound dovish, investors are disappointed as the UK economy fails to rebound quickly and shift their focus from the risk appetite to the divergence in the GDP growth. Furthermore, the Brexit issue has not been solved, and the breakup in trade relations with the EU will worsen the UK economic state that is already weak. The UK growth, according to Bloomberg is recovering, slower than that of other European countries. It suggests reasons to buy the EUR/GBP with targets at 0.925 and 0.94.
I expect the GBP/USD to consolidate in the trading range of 1.24-1.27. The pair should be responsive to the economic reports in the UK and the USA, as well as the news about Brexit. The epidemiological situation in the USA is worse than in the euro area. Besides, the US dollar long-term outlook is bearish. So, the GBP/USD uptrend could yet recover. Nonetheless, the sterling must have a fresh driver to go up form the trading range.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/gbpusd-forecast-pound-caught-the-wind-of-change/?uid=285861726&cid=79634
Dynamics of the probability of the BoE interest rate changes
LiteFinance
EUR/USD forecast: Euro wants to go up
Fundamental Euro forecast for today
EUR/USD bulls pin their hopes on China’s GDP report, the ECB meeting, and the EU summit
When the market is full of optimists, it ignores bad news and lively reacts to the good news. It doesn’t matter that during the test of the COVID-19 vaccine, side effects were observed; what matters is that all the people participating in the experiment produced antibodies. It doesn’t matter that corporate reporting by JP Morgan and Citigroup for the second quarter was gloomy, as the actual data exceeded the forecasts. It doesn’t matter that some FOMC members suggest strong uncertainty around the US economic recovery when some US central bankers still believe in the V-shaped recovery trend. When the glass is half-full, the S&P 500 and the EUR/USD can well continue the rally.
St. Louis Fed President James Bullard says the US economy adapts to the coronavirus, and there is still hope for a quick rebound. A strong jobs report for May and June supports the idea that the US GDP reached its bottom in April, and the forecast for the second quarter has been too grim. Federal Reserve Governor Lael Brainard says one of the main reasons for the improvement in the US employment data is the fiscal stimulus, some of whose programs are coming to an end. Even if the rate of the spread of COVID-19 slows down, the economy “is likely to face headwinds,” she warns, which may result in a double-dip recession.
Brainard’s pessimistic tone hasn’t caused much stress in the financial markets. The liquidity volumes poured by the Fed and other world’s central banks are too big, so the stock indexes won’t stop growing.
The stimulus sizes are so huge that the S&P 500 just can’t fall too deep. Besides, the euro has its own growth drivers, so the EUR/USD is steadily growing. The price has tested the resistance at 1.14, and the euro bulls are expecting more good news provided by the Chinese GDP report, the ECB meeting and the EU summit to drive the price higher.
The markets are going back to the norm and start to feature a correct response to the news. They are rising when the actual data exceed the forecasts and vice versa. With this regard, the pessimistic forecasts suggesting a 45% drop in corporate profits in the second quarter are more likely to support the S&P 500 than to send it down, which has been proven by the reaction of the stock index to the release of the reports by JP Morgan and Citigroup. The S&P 500 should also be supported if the Chinese domestic data are positive. The forecasts for China’s GDP, industrial production, retail sales, and investments are not very strong. It is expected that China’s economy hasn’t yet returned to the pre-crisis levels. What if it isn’t so?
The ECB doesn’t consider further interest rate cuts. Furthermore, it is willing to gradually reduce the volumes of the liquidity poured in the markets, following the example of other central banks. It will be a positive factor for the euro. Another growth driver will appear if the EU governments adopt the French-German fiscal stimulus plan at the EU summit. The EUR/USD has been consolidating in the range of 1.11-1.14 for too long, it is time to go up. If the price retests the resistance at 1.14, the bulls will go ahead. If, of course, everything goes on as expected.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-euro-wants-to-go-up/?uid=285861726&cid=79634
Dynamics of money supply and MSCI World Total Return
Fundamental Euro forecast for today
EUR/USD bulls pin their hopes on China’s GDP report, the ECB meeting, and the EU summit
When the market is full of optimists, it ignores bad news and lively reacts to the good news. It doesn’t matter that during the test of the COVID-19 vaccine, side effects were observed; what matters is that all the people participating in the experiment produced antibodies. It doesn’t matter that corporate reporting by JP Morgan and Citigroup for the second quarter was gloomy, as the actual data exceeded the forecasts. It doesn’t matter that some FOMC members suggest strong uncertainty around the US economic recovery when some US central bankers still believe in the V-shaped recovery trend. When the glass is half-full, the S&P 500 and the EUR/USD can well continue the rally.
St. Louis Fed President James Bullard says the US economy adapts to the coronavirus, and there is still hope for a quick rebound. A strong jobs report for May and June supports the idea that the US GDP reached its bottom in April, and the forecast for the second quarter has been too grim. Federal Reserve Governor Lael Brainard says one of the main reasons for the improvement in the US employment data is the fiscal stimulus, some of whose programs are coming to an end. Even if the rate of the spread of COVID-19 slows down, the economy “is likely to face headwinds,” she warns, which may result in a double-dip recession.
Brainard’s pessimistic tone hasn’t caused much stress in the financial markets. The liquidity volumes poured by the Fed and other world’s central banks are too big, so the stock indexes won’t stop growing.
The stimulus sizes are so huge that the S&P 500 just can’t fall too deep. Besides, the euro has its own growth drivers, so the EUR/USD is steadily growing. The price has tested the resistance at 1.14, and the euro bulls are expecting more good news provided by the Chinese GDP report, the ECB meeting and the EU summit to drive the price higher.
The markets are going back to the norm and start to feature a correct response to the news. They are rising when the actual data exceed the forecasts and vice versa. With this regard, the pessimistic forecasts suggesting a 45% drop in corporate profits in the second quarter are more likely to support the S&P 500 than to send it down, which has been proven by the reaction of the stock index to the release of the reports by JP Morgan and Citigroup. The S&P 500 should also be supported if the Chinese domestic data are positive. The forecasts for China’s GDP, industrial production, retail sales, and investments are not very strong. It is expected that China’s economy hasn’t yet returned to the pre-crisis levels. What if it isn’t so?
The ECB doesn’t consider further interest rate cuts. Furthermore, it is willing to gradually reduce the volumes of the liquidity poured in the markets, following the example of other central banks. It will be a positive factor for the euro. Another growth driver will appear if the EU governments adopt the French-German fiscal stimulus plan at the EU summit. The EUR/USD has been consolidating in the range of 1.11-1.14 for too long, it is time to go up. If the price retests the resistance at 1.14, the bulls will go ahead. If, of course, everything goes on as expected.
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-euro-wants-to-go-up/?uid=285861726&cid=79634
Dynamics of money supply and MSCI World Total Return
LiteFinance
EUR/USD forecast: Dollar lost the fear
Fundamental US dollar forecast for today
What was the benefit of the USD index yesterday can become its flaw tomorrow
What is good for the entire world is bad for the US dollar. The pandemic is still the major growth driver of the greenback. The US stock indexes are weighed on by the difficult epidemiological situation in the U.S. and the news that California cancels plans to open economy. It supports the demand for safe havens and so, the dollar remains strong. However, based on the assumption that COVID-19 will be defeated, the long-term prospects for the US dollar look gloomy.
During the turmoil, investors buy out safe havens. However, once the markets calm down, the safe havens lose their appeal. The balance of the Fed's foreign exchange swaps with other central banks, designed to provide them with the dollar liquidity, dropped to $153 billion from $449 billion in late May. Global stock indexes have stabilized, nobody needs the greenback any more.
Having cut the interest rates to 0%-0.25%, the Fed returned the US dollar the status of the main safe haven, which strengthened the greenback when investors were guided by fear. However, when the global GDP started to recover from the recession, yesterday’s benefit turns into a flaw. The dollar has lost such a growth driver as high government bond yields, which sets back the capital inflow into the US. Foreign investors become more interested in China’s assets than in US securities. Foreign investors bought $619 billion of Chinese government bonds in the second quarter, it is the highest amount on record.
And the US desperately needs money! The U.S. budget deficit reached $3 trillion in the 12 months through June. The Congressional Budget Office expects it will be $ 3.7 billion this fiscal year. Besides, another round of emergency spending, suggested by the White House, will increase the US budget deficit, as well as the issuance volumes. How can they raise resources if foreign investors are increasingly buying bonds issued by the Chinese government?
In addition to the drop in the demand for safe havens and dollar liquidity, low Treasury yields, and problems with raising capital, the greenback is weighed on by growing Joe Biden's approval ratings and concerns about a decline in the US domestic data. It is expected that the Democratic president will not attack Beijing so much and write provocative tweets as Donald Trump does. Remember, the US-China trade war was one of the major dollar’s growth drivers in 2018-2019.
Therefore, there are quite many long-term negative factors affecting the US dollar, that is why its one-year risk reversals are down.
In the short run, the greenback is supported by the pandemic, and the euro is weighed on by the uncertainty around the outcomes of the ECB meeting and the EU summit, as well as the upcoming report on the Chinese GDP. The current EUR/USD consolidation in the narrow range of 1.125-1.14 is quite natural. Investors do not want to take important decisions ahead of the release of the important information in the week through July 17. We shall also wait and see.
Dynamics of the balance of the Fed's foreign exchange swaps
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-dollar-lost-the-fear/?uid=285861726&cid=79634
Fundamental US dollar forecast for today
What was the benefit of the USD index yesterday can become its flaw tomorrow
What is good for the entire world is bad for the US dollar. The pandemic is still the major growth driver of the greenback. The US stock indexes are weighed on by the difficult epidemiological situation in the U.S. and the news that California cancels plans to open economy. It supports the demand for safe havens and so, the dollar remains strong. However, based on the assumption that COVID-19 will be defeated, the long-term prospects for the US dollar look gloomy.
During the turmoil, investors buy out safe havens. However, once the markets calm down, the safe havens lose their appeal. The balance of the Fed's foreign exchange swaps with other central banks, designed to provide them with the dollar liquidity, dropped to $153 billion from $449 billion in late May. Global stock indexes have stabilized, nobody needs the greenback any more.
Having cut the interest rates to 0%-0.25%, the Fed returned the US dollar the status of the main safe haven, which strengthened the greenback when investors were guided by fear. However, when the global GDP started to recover from the recession, yesterday’s benefit turns into a flaw. The dollar has lost such a growth driver as high government bond yields, which sets back the capital inflow into the US. Foreign investors become more interested in China’s assets than in US securities. Foreign investors bought $619 billion of Chinese government bonds in the second quarter, it is the highest amount on record.
And the US desperately needs money! The U.S. budget deficit reached $3 trillion in the 12 months through June. The Congressional Budget Office expects it will be $ 3.7 billion this fiscal year. Besides, another round of emergency spending, suggested by the White House, will increase the US budget deficit, as well as the issuance volumes. How can they raise resources if foreign investors are increasingly buying bonds issued by the Chinese government?
In addition to the drop in the demand for safe havens and dollar liquidity, low Treasury yields, and problems with raising capital, the greenback is weighed on by growing Joe Biden's approval ratings and concerns about a decline in the US domestic data. It is expected that the Democratic president will not attack Beijing so much and write provocative tweets as Donald Trump does. Remember, the US-China trade war was one of the major dollar’s growth drivers in 2018-2019.
Therefore, there are quite many long-term negative factors affecting the US dollar, that is why its one-year risk reversals are down.
In the short run, the greenback is supported by the pandemic, and the euro is weighed on by the uncertainty around the outcomes of the ECB meeting and the EU summit, as well as the upcoming report on the Chinese GDP. The current EUR/USD consolidation in the narrow range of 1.125-1.14 is quite natural. Investors do not want to take important decisions ahead of the release of the important information in the week through July 17. We shall also wait and see.
Dynamics of the balance of the Fed's foreign exchange swaps
For more information follow the link to the website of the LiteForex
https://www.liteforex.com/blog/analysts-opinions/eurusd-forecast-dollar-lost-the-fear/?uid=285861726&cid=79634
LiteFinance
EUR/USD forecast: Dollar is grasping at straws
Fundamental US dollar forecast for today
The growth in the number of COVID-19 cases in the USA sets back the EUR/USD uptrend
The EU governments used to be accused of inefficient management, but the pandemic changed everything. The success of European medical services, quick actions to provide monetary and fiscal stimulus, and Germany’s willingness to take responsibility for poorer euro-area states have encouraged the EUR/USD bulls to go ahead. The euro risk reversals are growing as the epidemiological situation in the USA, unlike that in the euro area, is deteriorating, and the local rises of the US dollar are used to sell the greenback off. According to Bloomberg’s option probability calculator, based on the options market pricing, the EUR/USD is more likely to trade above 1.15 in a week’s time than to drop below 1.12.
The median gauge of the Wall Street 11 biggest banks also suggest the eurodollar should be at 1.15 by the end of 2020. BofA Merrill Lynch suggests the most bearish forecast, saying the EUR/USD should be down to 1.05. They say the Fed will hardly boost its balance sheet significantly, while the ECB will continue easing its monetary policy. According to 64% of Bloomberg experts, Christine Lagarde and her colleagues will boost the ECB’s QE program by €400-€600 billion by the end of the year. However, I believe it is not very wise to bet solely on the divergence in views from policymakers in the U.S. and EU. Markets are likely to be more influenced by the trade wars or the COVID-19 news, than the decisions on monetary policies.
Investors should take into account different factors and build their own trading strategies based on the strongest drivers. In 2018-2019, the determining forex pricing factor was the US-China trade war, in 2020, it is the coronavirus pandemic and economic lockdowns. With this regard, a better epidemiological situation in Europe suggests a quicker rebound of the euro-area economy, which should support the growing demand for European assets. The liquidity is flowing out of the US, and so, the greenback is weakening.
One shouldn’t be confused by the growth of Citigroup's US Economic Surprise Index. The US positive economic data under current conditions are like fast food. It looks appealing but it is bad for your health.
The euro is also supported by the yuan that is growing in value now. The matter is not only in the market important for the Eurozone. When investors are willing to buy anything but for the US assets, the greenback's rivals are growing in price.
The drop of the USD/CNY has resulted from both a quick recovery of the Chinese economy and the weakness of the world’s major currencies weighed on by the huge fiscal stimulus. The yuan positively responds to the growth of the approval ratings of democratic presidential candidate Joe Biden, whose policy is likely to be less aggressive than that of Donald Trump.
Of course, one should not fully give up on the US dollar as a safe haven amid the growth in the number of coronavirus cases in the USA. However, the middle-term and long-term outlook of the greenback is bearish. Therefore, one should use the drop of the EUR/USD to the bottom of the trading range of 1.11-1.14, I suggested earlier, to add to the long positions.
Dynamics the ratio of U.S. versus Germany COVID-19 cases and the euro risk reversals
Fundamental US dollar forecast for today
The growth in the number of COVID-19 cases in the USA sets back the EUR/USD uptrend
The EU governments used to be accused of inefficient management, but the pandemic changed everything. The success of European medical services, quick actions to provide monetary and fiscal stimulus, and Germany’s willingness to take responsibility for poorer euro-area states have encouraged the EUR/USD bulls to go ahead. The euro risk reversals are growing as the epidemiological situation in the USA, unlike that in the euro area, is deteriorating, and the local rises of the US dollar are used to sell the greenback off. According to Bloomberg’s option probability calculator, based on the options market pricing, the EUR/USD is more likely to trade above 1.15 in a week’s time than to drop below 1.12.
The median gauge of the Wall Street 11 biggest banks also suggest the eurodollar should be at 1.15 by the end of 2020. BofA Merrill Lynch suggests the most bearish forecast, saying the EUR/USD should be down to 1.05. They say the Fed will hardly boost its balance sheet significantly, while the ECB will continue easing its monetary policy. According to 64% of Bloomberg experts, Christine Lagarde and her colleagues will boost the ECB’s QE program by €400-€600 billion by the end of the year. However, I believe it is not very wise to bet solely on the divergence in views from policymakers in the U.S. and EU. Markets are likely to be more influenced by the trade wars or the COVID-19 news, than the decisions on monetary policies.
Investors should take into account different factors and build their own trading strategies based on the strongest drivers. In 2018-2019, the determining forex pricing factor was the US-China trade war, in 2020, it is the coronavirus pandemic and economic lockdowns. With this regard, a better epidemiological situation in Europe suggests a quicker rebound of the euro-area economy, which should support the growing demand for European assets. The liquidity is flowing out of the US, and so, the greenback is weakening.
One shouldn’t be confused by the growth of Citigroup's US Economic Surprise Index. The US positive economic data under current conditions are like fast food. It looks appealing but it is bad for your health.
The euro is also supported by the yuan that is growing in value now. The matter is not only in the market important for the Eurozone. When investors are willing to buy anything but for the US assets, the greenback's rivals are growing in price.
The drop of the USD/CNY has resulted from both a quick recovery of the Chinese economy and the weakness of the world’s major currencies weighed on by the huge fiscal stimulus. The yuan positively responds to the growth of the approval ratings of democratic presidential candidate Joe Biden, whose policy is likely to be less aggressive than that of Donald Trump.
Of course, one should not fully give up on the US dollar as a safe haven amid the growth in the number of coronavirus cases in the USA. However, the middle-term and long-term outlook of the greenback is bearish. Therefore, one should use the drop of the EUR/USD to the bottom of the trading range of 1.11-1.14, I suggested earlier, to add to the long positions.
Dynamics the ratio of U.S. versus Germany COVID-19 cases and the euro risk reversals
LiteFinance
EUR/USD forecast: Euro has caught a tail-wind
Fundamental Euro forecast for today
The EUR/USD bulls are supported by good news from Asia and the stabilization of European financial markets.
For a long time, the entire financial world has been following the US, depending on the US stock indexes. However, the economic situation in the US is like “hope for the better but prepare for the worse”, and other countries are now coming in the game. The continuous growth of the Chinese stocks over the last seven days and the yuan’s rise to its four-month highs indicate the strength of China’s economy, which might become the world’s financial leader in the future. At the beginning of July, the Shanghai Composite, not the S&P 500, is the best indicator of the global risk appetite, the US stock index is following the Chinese and not vice versa.
When they were moving in opposite directions in 2018-2019, investors saw this as a signal that the US was winning the trade war. Donald Trump could afford to use a carrot-and-stick policy to force China to sign the trade deal profitable for the US. Now, Washington can only use minor threats, including hints at bans on TikTok or the entry of Chinese students into the USA, as well as the decision to unpeg the Hong Kong dollar to the US dollar, which would create problems for foreigners working with the Chinese markets. Beijing, which didn’t respond to the US attacks earlier, now makes loud statements that the current US policy, based on strategic misjudgments that lack factual evidence, is a paranoia.
China is now more confident, gaining strength also because the Shanghai Composite is steadily growing, and Donald Trump’s approval ratings are falling. According to Goldman Sachs, the probabilities that Joe Biden will capture the White House, and Democrats will gain control of the Senate, are 43% and 62%, up from 30% and 61% in February. If Trump hints at the escalation of the US-China trade war under the current conditions, the S&P 500 drop will ruin his plans for re-election. The US stock index is now following its China’s peer, and experts say the S&P 500 is not responsive to the deterioration of the epidemiological situation in the USA. They explain it by the Fed’s huge monetary stimulus that has pressed the Treasury yields down. However, the US stock market rose when the Treasury yields were growing. This signals that the S&P 500 reacts to the US economic state, not to the low interest rates.
A tail-wind from Asia followed by growth of the risk appetite is a reason to sell safe havens, including the US dollar. The EUR/USD has hit its monthly highs also because of Angela Merkel's statement. Germany's chancellor says the eurozone has seen “huge economic upheaval” and the governments cannot afford to “waste any time” discussing the plans to protect the euro-area economy. Merkel underlined the need to swiftly adopt the French-German €750-billion recovery plan. The decline in the yield spread between the bonds of the euro-area peripheral countries and Germany to the lowest levels since March signals that the financial stress has eased.
Euro looks strong, it should try to break out the resistances at $1.1385 and $1.1405. If the resistances are broken out, the bulls will go ahead, and the price will continue rising.
Dynamics of S&P 500 and Treasury yields
Fundamental Euro forecast for today
The EUR/USD bulls are supported by good news from Asia and the stabilization of European financial markets.
For a long time, the entire financial world has been following the US, depending on the US stock indexes. However, the economic situation in the US is like “hope for the better but prepare for the worse”, and other countries are now coming in the game. The continuous growth of the Chinese stocks over the last seven days and the yuan’s rise to its four-month highs indicate the strength of China’s economy, which might become the world’s financial leader in the future. At the beginning of July, the Shanghai Composite, not the S&P 500, is the best indicator of the global risk appetite, the US stock index is following the Chinese and not vice versa.
When they were moving in opposite directions in 2018-2019, investors saw this as a signal that the US was winning the trade war. Donald Trump could afford to use a carrot-and-stick policy to force China to sign the trade deal profitable for the US. Now, Washington can only use minor threats, including hints at bans on TikTok or the entry of Chinese students into the USA, as well as the decision to unpeg the Hong Kong dollar to the US dollar, which would create problems for foreigners working with the Chinese markets. Beijing, which didn’t respond to the US attacks earlier, now makes loud statements that the current US policy, based on strategic misjudgments that lack factual evidence, is a paranoia.
China is now more confident, gaining strength also because the Shanghai Composite is steadily growing, and Donald Trump’s approval ratings are falling. According to Goldman Sachs, the probabilities that Joe Biden will capture the White House, and Democrats will gain control of the Senate, are 43% and 62%, up from 30% and 61% in February. If Trump hints at the escalation of the US-China trade war under the current conditions, the S&P 500 drop will ruin his plans for re-election. The US stock index is now following its China’s peer, and experts say the S&P 500 is not responsive to the deterioration of the epidemiological situation in the USA. They explain it by the Fed’s huge monetary stimulus that has pressed the Treasury yields down. However, the US stock market rose when the Treasury yields were growing. This signals that the S&P 500 reacts to the US economic state, not to the low interest rates.
A tail-wind from Asia followed by growth of the risk appetite is a reason to sell safe havens, including the US dollar. The EUR/USD has hit its monthly highs also because of Angela Merkel's statement. Germany's chancellor says the eurozone has seen “huge economic upheaval” and the governments cannot afford to “waste any time” discussing the plans to protect the euro-area economy. Merkel underlined the need to swiftly adopt the French-German €750-billion recovery plan. The decline in the yield spread between the bonds of the euro-area peripheral countries and Germany to the lowest levels since March signals that the financial stress has eased.
Euro looks strong, it should try to break out the resistances at $1.1385 and $1.1405. If the resistances are broken out, the bulls will go ahead, and the price will continue rising.
Dynamics of S&P 500 and Treasury yields
LiteFinance
Dollar uses old ties
Fundamental US dollar forecast for today
The correlation between USD and the S&P 500 has recovered and is at the highest level since 2016
When the market is in a game of tug-of-war, there could hardly be such strong moves as there were in the second quarter. Good news from Europe alternates with the gloomy forecast for the US economic recovery, which weighs on the US stock indexes and supports the greenback as a safe haven. As a result, the EUR/USD pair is consolidating in the range of 1.11-1.14, and the Fed should be extremely careful not to scare off investors. The speech of Federal Reserve Vice Chairman Richard Clarida, instead of calming financial markets, resulted in a turmoil. He says the US central bank has not run out of monetary tools. The Fed could again take the measures that proved to be efficient in the past and expand the balance sheet. Such a tone suggests that the US economic state is getting worse, and the Fed expects a W-shaped recovery of the US GDP. As a result, the S&P 500 has closed in the red zone, especially since the epidemiological situation in the USA is still difficult. Over the fifth day of seven, there are more than 50,000 new coronavirus cases in the U.S., and the death rate is again up to the highest levels since early June. People are getting more concerned about the COVID-19 pandemic, and it is a negative factor for the US stock indexes.
In May, the number of layoffs in the US (1.8 million) was down to the pre-crisis levels. However, the situation, when even strong reports on the US retail sales, PMI, and jobs market is seen as a reason to worry about the growth of new coronavirus cases, presages nothing positive. The White House still tries to be optimistic, actively promoting its $660 billion small-business relief program that saved 51 million jobs. What else could the US administration do when Donald Trump’s approval rating is down? According to the Financial Times poll, the proportion of Americans who expect that the coronavirus pandemic in the US will worsen next month has increased from 35% to 49%. Only 39% of respondents believe the US economy will rebound this year, compared to 42% in June. The opinion of the population is similar to the OECD forecasts, seeing the US unemployment rate at 11.3% and 8.5% in 2020-2021. If the economy is locked down again, unemployment will be up to 12.9% and 11.5%. I should note that not only the US economic outlook is gloomy, but the EU’s as well. The European Commission has lowered its forecasts for the euro-area GDP from -7.4% to -8.3% this year and from + 6.1% to + 5.8% next year. Nonetheless, the COVID-19 in Europe is better than in the USA, and the Eurozone periphery government bond yields returned to the pre-crisis levels. Therefore, my forecasts have been accurate. The euro has quickly recovered its correlation with the S&P 500, and the EUR/USD is consolidating in the range of 1.11-1.14. The euro might continue its rally, but it should be supported by the US stock indexes. The next support level is close to 1.124, and the resistance is in the zone of 1.129-1.13.
Dynamics of S&P 500 and Google searches for COVID-19
Fundamental US dollar forecast for today
The correlation between USD and the S&P 500 has recovered and is at the highest level since 2016
When the market is in a game of tug-of-war, there could hardly be such strong moves as there were in the second quarter. Good news from Europe alternates with the gloomy forecast for the US economic recovery, which weighs on the US stock indexes and supports the greenback as a safe haven. As a result, the EUR/USD pair is consolidating in the range of 1.11-1.14, and the Fed should be extremely careful not to scare off investors. The speech of Federal Reserve Vice Chairman Richard Clarida, instead of calming financial markets, resulted in a turmoil. He says the US central bank has not run out of monetary tools. The Fed could again take the measures that proved to be efficient in the past and expand the balance sheet. Such a tone suggests that the US economic state is getting worse, and the Fed expects a W-shaped recovery of the US GDP. As a result, the S&P 500 has closed in the red zone, especially since the epidemiological situation in the USA is still difficult. Over the fifth day of seven, there are more than 50,000 new coronavirus cases in the U.S., and the death rate is again up to the highest levels since early June. People are getting more concerned about the COVID-19 pandemic, and it is a negative factor for the US stock indexes.
In May, the number of layoffs in the US (1.8 million) was down to the pre-crisis levels. However, the situation, when even strong reports on the US retail sales, PMI, and jobs market is seen as a reason to worry about the growth of new coronavirus cases, presages nothing positive. The White House still tries to be optimistic, actively promoting its $660 billion small-business relief program that saved 51 million jobs. What else could the US administration do when Donald Trump’s approval rating is down? According to the Financial Times poll, the proportion of Americans who expect that the coronavirus pandemic in the US will worsen next month has increased from 35% to 49%. Only 39% of respondents believe the US economy will rebound this year, compared to 42% in June. The opinion of the population is similar to the OECD forecasts, seeing the US unemployment rate at 11.3% and 8.5% in 2020-2021. If the economy is locked down again, unemployment will be up to 12.9% and 11.5%. I should note that not only the US economic outlook is gloomy, but the EU’s as well. The European Commission has lowered its forecasts for the euro-area GDP from -7.4% to -8.3% this year and from + 6.1% to + 5.8% next year. Nonetheless, the COVID-19 in Europe is better than in the USA, and the Eurozone periphery government bond yields returned to the pre-crisis levels. Therefore, my forecasts have been accurate. The euro has quickly recovered its correlation with the S&P 500, and the EUR/USD is consolidating in the range of 1.11-1.14. The euro might continue its rally, but it should be supported by the US stock indexes. The next support level is close to 1.124, and the resistance is in the zone of 1.129-1.13.
Dynamics of S&P 500 and Google searches for COVID-19
LiteFinance
Euro will determine its own fate
Fundamental Euro forecast for today
The bulls on EUR/USD have a lot of trump cards, both external and internal
When Chinese media say that promoting a healthy bull market after a pandemic is more important to the economy than ever, you can buy indefinitely. Although the growth of Shanghai Composite Index by 14% over 5 trading days reminds pessimists of a growing bubble similar to the that of August 2015. In fact, leverage is now half as much, PBOC's liquidity control is tighter, and faith in a V-shaped economic recovery of China is a strong argument in favour of the longs.
What is good for China is good for the eurozone. The export-oriented economy of the euro bloc experienced serious difficulties during the Beijing and Washington trade wars in 2018-2019, which led to a weakened euro. The pandemic has changed a lot. China dealt with COVID-19 quite some time ago, and now Europe can count on the growth of external demand as the Chinese GDP returns to the trend.
Moreover, the €750 billion bond issue by the European Commission to fight coronavirus is a tidbit for investors from Asia. The US Department of the Treasury should understand that treasuries are not the only game in the city, and the transfer of capital from the New to the Old World can affect the dollar badly. According to CrossBorder Capital estimates, three-quarters of the decline in US Treasury bond yields and a substantial part of the 30% greenback strengthening since the mid-2000s are connected with high Chinese demand for US assets. If this process reverses, the USD index will lose a quarter of its current value. At the initial stage of this process, the Shanghai Composite Index pulls the S&P 500 up - that helps to improve the global risk appetite and leads to the selling of safe-haven assets, including the US dollar.
It should be noted that the euro is not going to trust its fate exclusively to Beijing, it has its own trump cards, including a better epidemiological situation than the United States, the revival of domestic demand, the unity of the eurozone countries and a strong leader - Germany. While American unemployment rose from 3.5% in February to 11.1% in June, European unemployment rose from 7.2% in February to 7.4% in May, retail sales in the euro bloc countries increased in May by a record 17.8%, German manufacturing orders increased by 10.4%. The EU stands confidently on its feet, while the US is discussing whether to expect a second lockdown or not.
Europeans managed to avoid a constitutional crisis, and the Bundesbank will continue to participate in the ECB's quantitative easing program after approval by the German government and parliament.
Thus, support from China, divergence in the economic growth of the Eurozone and the USA, as well as the interest of the White House and the Fed in strong stock indexes create the prerequisites needed for the continuation of the EUR/USD rally. The catalyst for further growth of the pair will be a confident breakthrough of resistance at 1.1335. In order to prove the seriousness of their intentions, the bulls must hold the support at 1,129-1,13.
Dynamics of stock indexes
Fundamental Euro forecast for today
The bulls on EUR/USD have a lot of trump cards, both external and internal
When Chinese media say that promoting a healthy bull market after a pandemic is more important to the economy than ever, you can buy indefinitely. Although the growth of Shanghai Composite Index by 14% over 5 trading days reminds pessimists of a growing bubble similar to the that of August 2015. In fact, leverage is now half as much, PBOC's liquidity control is tighter, and faith in a V-shaped economic recovery of China is a strong argument in favour of the longs.
What is good for China is good for the eurozone. The export-oriented economy of the euro bloc experienced serious difficulties during the Beijing and Washington trade wars in 2018-2019, which led to a weakened euro. The pandemic has changed a lot. China dealt with COVID-19 quite some time ago, and now Europe can count on the growth of external demand as the Chinese GDP returns to the trend.
Moreover, the €750 billion bond issue by the European Commission to fight coronavirus is a tidbit for investors from Asia. The US Department of the Treasury should understand that treasuries are not the only game in the city, and the transfer of capital from the New to the Old World can affect the dollar badly. According to CrossBorder Capital estimates, three-quarters of the decline in US Treasury bond yields and a substantial part of the 30% greenback strengthening since the mid-2000s are connected with high Chinese demand for US assets. If this process reverses, the USD index will lose a quarter of its current value. At the initial stage of this process, the Shanghai Composite Index pulls the S&P 500 up - that helps to improve the global risk appetite and leads to the selling of safe-haven assets, including the US dollar.
It should be noted that the euro is not going to trust its fate exclusively to Beijing, it has its own trump cards, including a better epidemiological situation than the United States, the revival of domestic demand, the unity of the eurozone countries and a strong leader - Germany. While American unemployment rose from 3.5% in February to 11.1% in June, European unemployment rose from 7.2% in February to 7.4% in May, retail sales in the euro bloc countries increased in May by a record 17.8%, German manufacturing orders increased by 10.4%. The EU stands confidently on its feet, while the US is discussing whether to expect a second lockdown or not.
Europeans managed to avoid a constitutional crisis, and the Bundesbank will continue to participate in the ECB's quantitative easing program after approval by the German government and parliament.
Thus, support from China, divergence in the economic growth of the Eurozone and the USA, as well as the interest of the White House and the Fed in strong stock indexes create the prerequisites needed for the continuation of the EUR/USD rally. The catalyst for further growth of the pair will be a confident breakthrough of resistance at 1.1335. In order to prove the seriousness of their intentions, the bulls must hold the support at 1,129-1,13.
Dynamics of stock indexes
LiteFinance
Dollar throws a loop
Fundamental US dollar forecast for today
US economy faces a negative feedback loop
“The weaker is the economy, the stronger is the currency”. This is the principle, according to which the US dollar is trading after the Fed has cut the interest rates, turning the USD into a major safe-haven. US weak domestic data have strengthened the dollar and vice versa. The US jobs report signaled that the greenback can be rising even if the economic data are strong. “The stronger is the economy, the stronger is the currency”. It is just because the situation could be worse tomorrow. The US economy faces a negative feedback loop. The increase in the employment rate results in a jump of new COVID-19 cases, which is likely to cause the loss of jobs soon.
The decline in the unemployment rate from 13.3% to 11.1%, the growth of non-farm payrolls is a record single-month gain since the records started in 1939 (+4.8 million), and an increase in the number of people receiving unemployment benefits from 59,000 to 19.3 million suggest two controversial scenarios. The first two indicators signal a V-shaped recovery of the US economy, the latter one shows that people are still being fired. However, the employment rate fails to reach the levels recorded in February by approximately 14.7 million (9.6%), and unemployment, according to forecasts of the Congressional Budget Office, will not be able to return to the level of 3.5%, which was before the pandemic, until the end of the next decade. CBO expects to see unemployment at 10.5% at the end of 2020.
In June, about 40% of the increase in payrolls was led by leisure and hospitality. The report of the Labor Department considers only the first half of the month, so there can well be a jump in new coronavirus cases in the second half. The opening of hotels and restaurants is the best environment for the coronavirus spread. The US has entered a negative feedback cycle when a return to work results in a deterioration in the epidemiological situation. The greater is the employment growth, the more there are new COVID-19 cases. Until the pandemic is under control, the US economy won’t recover. The US jobs report for June could be the last positive reading before a deeper downturn. In July, the data could show a different picture.
The upcoming negative feedback loop “higher employment-more coronavirus cases-lower employment” breaks the major investment idea of the past three months, associated with a rise of the global risk appetite. That is why the correlation of the S&P 500 and the US dollar is getting weaker, and the EUR/USD bulls have failed to break out the resistance at 1.129. If the US economy is strong today and weak tomorrow, the rally of the US stock can quickly turn into a fall. The markets are rising on the expectations, and, when the expectations are negative, it is better to be careful.
The Forex market is entering a period when the expectation of a disaster (a W-shaped rebound of the US economy) is scarier than the disaster itself. It is a favorable environment for the greenback. The US stock market, as well as the euro, can only be supported by the coronavirus vaccine. Until then, the breakout of the support at 1.122-1.1225 will make the EUR/USD more likely to roll down to the important levels of 1.119 and 1.117.
Dynamics of U.S. employment
Fundamental US dollar forecast for today
US economy faces a negative feedback loop
“The weaker is the economy, the stronger is the currency”. This is the principle, according to which the US dollar is trading after the Fed has cut the interest rates, turning the USD into a major safe-haven. US weak domestic data have strengthened the dollar and vice versa. The US jobs report signaled that the greenback can be rising even if the economic data are strong. “The stronger is the economy, the stronger is the currency”. It is just because the situation could be worse tomorrow. The US economy faces a negative feedback loop. The increase in the employment rate results in a jump of new COVID-19 cases, which is likely to cause the loss of jobs soon.
The decline in the unemployment rate from 13.3% to 11.1%, the growth of non-farm payrolls is a record single-month gain since the records started in 1939 (+4.8 million), and an increase in the number of people receiving unemployment benefits from 59,000 to 19.3 million suggest two controversial scenarios. The first two indicators signal a V-shaped recovery of the US economy, the latter one shows that people are still being fired. However, the employment rate fails to reach the levels recorded in February by approximately 14.7 million (9.6%), and unemployment, according to forecasts of the Congressional Budget Office, will not be able to return to the level of 3.5%, which was before the pandemic, until the end of the next decade. CBO expects to see unemployment at 10.5% at the end of 2020.
In June, about 40% of the increase in payrolls was led by leisure and hospitality. The report of the Labor Department considers only the first half of the month, so there can well be a jump in new coronavirus cases in the second half. The opening of hotels and restaurants is the best environment for the coronavirus spread. The US has entered a negative feedback cycle when a return to work results in a deterioration in the epidemiological situation. The greater is the employment growth, the more there are new COVID-19 cases. Until the pandemic is under control, the US economy won’t recover. The US jobs report for June could be the last positive reading before a deeper downturn. In July, the data could show a different picture.
The upcoming negative feedback loop “higher employment-more coronavirus cases-lower employment” breaks the major investment idea of the past three months, associated with a rise of the global risk appetite. That is why the correlation of the S&P 500 and the US dollar is getting weaker, and the EUR/USD bulls have failed to break out the resistance at 1.129. If the US economy is strong today and weak tomorrow, the rally of the US stock can quickly turn into a fall. The markets are rising on the expectations, and, when the expectations are negative, it is better to be careful.
The Forex market is entering a period when the expectation of a disaster (a W-shaped rebound of the US economy) is scarier than the disaster itself. It is a favorable environment for the greenback. The US stock market, as well as the euro, can only be supported by the coronavirus vaccine. Until then, the breakout of the support at 1.122-1.1225 will make the EUR/USD more likely to roll down to the important levels of 1.119 and 1.117.
Dynamics of U.S. employment
LiteFinance
Euro protects its fans
Fundamental Euro forecast for today
The EUR/USD rally signals the success of the euro-area medical services and management
The pandemic has changed not only the world but view of the world as well. Earlier, the export-led euro-area economy needed the weak euro. Now, the surge of the trade-weighted euro doesn’t bother the ECB or the EU governments. When the common goal is to increase the domestic demand, not foreign demand, the strong local currency is what they need. The euro growth means that the management of the crisis resulted from COVID-19 in Europe is more effective than the US management, and so, the euro area could exit the recession sooner than the U.S.
The recession in Europe is deeper than in the USA, however, the recovery trend is faster. According to Bloomberg, the economic activity in Germany and France in mid-June was 80-90% of the pre-crisis level compared with 65% in the USA. The speed of the GDP recovery trend is of key importance for the capital flows, the demand for the securities issued in the regions, and for the EUR/USD price. The euro-area stock indexes look undervalued compared to the US stocks, and the capital inflow to Europe from the USA will support the euro.
One could doubt the euro strength amid the ECB €1.35 trillion pandemic emergency purchase program and ultra-low interest rates. However, the Fed’s monetary stimulus is bigger. The decision to hold the federal funds rate around zero through the end of 2022 and the discussion of the potential yield control policy at the FOMC June meeting deprive the dollar of its important benefits. Yes, the Fed says it is too early to suggest targeting bond yields, however, if the US growth continues to recover and the bond market rates continue to rise, its policy may change.
Therefore, the current euro’s strength mostly results from the hope that the ECB and the euro-area governments will protect the economy better than their colleagues in other world regions. Advances in medicine and the improvement of the epidemiological situation in Europe increases the euro risk reversals. The premium for the euro buy options against safe-haven assets such as the US dollar or Japanese yen is growing faster than the price of sell options.
Of course, the EUR/USD is greatly supported by the US stock indexes. The best three-month rise of the US stock market over the past two decades was one of the reasons for the euro rally in the May-June period. Besides, Instinet notes that the last seven times the S&P 500 rose 15% in a quarter, it rose an average of 9.5% in the next quarter. Strong reading of the US jobs market should support the stock market rise and encourage the euro fans to open longs at the breakout of the resistance at $1.129 with the targets at $1.1335 and $1.139.
Dynamics of trade-weighted euro
Fundamental Euro forecast for today
The EUR/USD rally signals the success of the euro-area medical services and management
The pandemic has changed not only the world but view of the world as well. Earlier, the export-led euro-area economy needed the weak euro. Now, the surge of the trade-weighted euro doesn’t bother the ECB or the EU governments. When the common goal is to increase the domestic demand, not foreign demand, the strong local currency is what they need. The euro growth means that the management of the crisis resulted from COVID-19 in Europe is more effective than the US management, and so, the euro area could exit the recession sooner than the U.S.
The recession in Europe is deeper than in the USA, however, the recovery trend is faster. According to Bloomberg, the economic activity in Germany and France in mid-June was 80-90% of the pre-crisis level compared with 65% in the USA. The speed of the GDP recovery trend is of key importance for the capital flows, the demand for the securities issued in the regions, and for the EUR/USD price. The euro-area stock indexes look undervalued compared to the US stocks, and the capital inflow to Europe from the USA will support the euro.
One could doubt the euro strength amid the ECB €1.35 trillion pandemic emergency purchase program and ultra-low interest rates. However, the Fed’s monetary stimulus is bigger. The decision to hold the federal funds rate around zero through the end of 2022 and the discussion of the potential yield control policy at the FOMC June meeting deprive the dollar of its important benefits. Yes, the Fed says it is too early to suggest targeting bond yields, however, if the US growth continues to recover and the bond market rates continue to rise, its policy may change.
Therefore, the current euro’s strength mostly results from the hope that the ECB and the euro-area governments will protect the economy better than their colleagues in other world regions. Advances in medicine and the improvement of the epidemiological situation in Europe increases the euro risk reversals. The premium for the euro buy options against safe-haven assets such as the US dollar or Japanese yen is growing faster than the price of sell options.
Of course, the EUR/USD is greatly supported by the US stock indexes. The best three-month rise of the US stock market over the past two decades was one of the reasons for the euro rally in the May-June period. Besides, Instinet notes that the last seven times the S&P 500 rose 15% in a quarter, it rose an average of 9.5% in the next quarter. Strong reading of the US jobs market should support the stock market rise and encourage the euro fans to open longs at the breakout of the resistance at $1.129 with the targets at $1.1335 and $1.139.
Dynamics of trade-weighted euro
LiteFinance
Does the loonie need immunity?
Today’s forecast for Canadian dollar
Ottawa lost the highest credit rating but bears in USD/CAD won’t put up a white flag
What doesn’t kill you makes you stronger. We all thought that USD/CAD bears will got weaker as Washington threatened to tax Canadian aluminium imports once again and the Fitch agency downgraded Canada’s Foreign Currency Issuer Default Rating (IDR) from ‘AAA’ to ‘AA+’. Yet the pair is trying to return to downtrend after a 3-week correction amid oil news and rumours of an overnight rate rise in 2022 and despite the greenback’s strong positions inspired by an idea of the US economy’s double recession.
In April the economy of Canada fell 1.6% to the 10-year trough of C$1.63 trillion. In March-April the loss was 18.2%. According to Governor of the Bank of Canada Tiff Macklem, GDP is at the early stage of a long recovery.
Still, currency markets predict a 50% chance of monetary restriction in 2022. This is a bearish factor for USD/CAD against the background of Fed’s unwillingness to raise the federal funds rate before 2023. Investors wrongly believed that the new governor will be more “dovish” and will cut the overnight rate to below zero. The loonie is making use of that mistake.
I’d say the CAD’s main growth driver is oil which isn’t going to correct. True, Libya may increase exports by 1 million barrels a day, which will inconvenience OPEC+ in its attempt to stabilize the market. The US oil reserves reached a record high of 540.7 million barrels, which indicates a weak domestic demand. True, the dollar is strong. Yet, bulls in Brent and WTI have their own trumps. One of them is China’s indefatigable appetite as its economy is recovering after the pandemic.
Covid-19 cost Ottawa much. Canada’s budget deficit may grow to C$256 billion (almost 12% of GDP) from C$21.77 billion (1.2% of GDP) in the fiscal year 2020/2021. The deterioration of Canada’s public finances is the reason why Fitch downgraded its rating. The agency revealed that Canada has no immunity. S&P Global Ratings and Moody’s Investors Service may follow Fitch soon. However, let’s not make a mountain out of a molehill. Government debts are growing worldwide amidst the pandemic. Thus, the downgrade is hardly a reason for reducing the share of Canadian bonds in investment portfolios.
The market believes that Bank of Canada will move to monetary restriction faster than the Fed. This belief and the bullish state of the oil market let the loonie feel confident. The situation may change once the stats on the US and Canadian labour markets are published. Wall Street Journal estimates an increase in non-farm payrolls in a wide range, with estimates from +1.9 million to +7.2 million. If the indicator is better than a consensus forecast of +2.9 million, the US stock indexes’ growth will support bears in USD/CAD. In the meanwhile, we continue participating in LiteForex’s contest and following the strategy of short positions in USD/CAD set out in April and May. This time, open short positions at the retracement from resistance at 1.375 or at the breakout of support at 1.35-1.351.
USD/CAD and oil dynamics
Today’s forecast for Canadian dollar
Ottawa lost the highest credit rating but bears in USD/CAD won’t put up a white flag
What doesn’t kill you makes you stronger. We all thought that USD/CAD bears will got weaker as Washington threatened to tax Canadian aluminium imports once again and the Fitch agency downgraded Canada’s Foreign Currency Issuer Default Rating (IDR) from ‘AAA’ to ‘AA+’. Yet the pair is trying to return to downtrend after a 3-week correction amid oil news and rumours of an overnight rate rise in 2022 and despite the greenback’s strong positions inspired by an idea of the US economy’s double recession.
In April the economy of Canada fell 1.6% to the 10-year trough of C$1.63 trillion. In March-April the loss was 18.2%. According to Governor of the Bank of Canada Tiff Macklem, GDP is at the early stage of a long recovery.
Still, currency markets predict a 50% chance of monetary restriction in 2022. This is a bearish factor for USD/CAD against the background of Fed’s unwillingness to raise the federal funds rate before 2023. Investors wrongly believed that the new governor will be more “dovish” and will cut the overnight rate to below zero. The loonie is making use of that mistake.
I’d say the CAD’s main growth driver is oil which isn’t going to correct. True, Libya may increase exports by 1 million barrels a day, which will inconvenience OPEC+ in its attempt to stabilize the market. The US oil reserves reached a record high of 540.7 million barrels, which indicates a weak domestic demand. True, the dollar is strong. Yet, bulls in Brent and WTI have their own trumps. One of them is China’s indefatigable appetite as its economy is recovering after the pandemic.
Covid-19 cost Ottawa much. Canada’s budget deficit may grow to C$256 billion (almost 12% of GDP) from C$21.77 billion (1.2% of GDP) in the fiscal year 2020/2021. The deterioration of Canada’s public finances is the reason why Fitch downgraded its rating. The agency revealed that Canada has no immunity. S&P Global Ratings and Moody’s Investors Service may follow Fitch soon. However, let’s not make a mountain out of a molehill. Government debts are growing worldwide amidst the pandemic. Thus, the downgrade is hardly a reason for reducing the share of Canadian bonds in investment portfolios.
The market believes that Bank of Canada will move to monetary restriction faster than the Fed. This belief and the bullish state of the oil market let the loonie feel confident. The situation may change once the stats on the US and Canadian labour markets are published. Wall Street Journal estimates an increase in non-farm payrolls in a wide range, with estimates from +1.9 million to +7.2 million. If the indicator is better than a consensus forecast of +2.9 million, the US stock indexes’ growth will support bears in USD/CAD. In the meanwhile, we continue participating in LiteForex’s contest and following the strategy of short positions in USD/CAD set out in April and May. This time, open short positions at the retracement from resistance at 1.375 or at the breakout of support at 1.35-1.351.
USD/CAD and oil dynamics
LiteFinance
Euro takes the initiative
Fundamental Euro forecast today
Germany is more likely to have a V-shaped rebound than other world’s economies
Hope is the last thing to die. The epidemiological situation is deteriorating in the USA, and there are concerns about another lockdown and a W-shaped recovery of the U.S. economy. Nevertheless, investors still hope that the epic rally of the S&P 500, which occurred in the second quarter, will resume in the third quarter. The matter is not only in the COVID-19 and speed of the GDP recovery trend but also in the huge amounts of money held by the U.S. stocks bulls. Although the FOMC tone is cautious, nobody is willing to go against the Fed.
According to Jerome Powell, the U.S. economy rebounded faster than the central bank had expected, but “a full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities”. The Fed’s Chair has supported both the U.S. dollar, saying that the path forward for the economy is extraordinarily uncertain, and the U.S. stock indexes, whose trends are a kind of mirror of the GDP recovery trend. The S&P 500 was also supported by Larry Kudlow, the president's chief economics adviser, who said that the idea of the strong V-shaped recovery is still right there.
I still believe that the correction of the U.S. stock market will hardly be deep, as it is not beneficial for either the White House or the Fed. Furthermore, it is good that the euro takes the initiative more and more often. Berlin tries to resolve the dispute between the Constitutional court and the ECB, the euro-area economic data are improving, and the improvement of the epidemiological situation in the euro area suggests that the European economy should recover faster than the U.S. growth.
According to the German Finance Minister Olaf Scholz, the ECB has convincingly demonstrated all the documents justifying the QE program, so the German government sees no obstacles to the Bundesbank's continued participation in the ECB's bond-buying program. An increase in the inflation rate, positive forecasts for retail sales data, and huge monetary and fiscal stimulus suggest that Germany’s economy is more likely to follow a V-shaped recovery than any other world’s economy. The export-led euro-area economy is also supported by China reporting the growth of the manufacturing PMI and continuing to fulfill its trade obligations to the United States.
As long as China is buying U.S. exports, financial markets can remain clam. China bought only 19% of the declared $170 billion of US agricultural products in the January-May period, according to Bloomberg, but there was a global downturn. The global economic situation is gradually improving, so everything should be alright.
My forecasts might seem too optimistic, but several reasons are supporting this scenario. If the U.S. epidemiological situation improves, the euro-area economy, including Germany, rebounds faster than the U.S. growth, and there are no trade wars, the EUR/USD may well hit 1.14 and 1.16.
Dynamics of COVID-19 daily new cases
Fundamental Euro forecast today
Germany is more likely to have a V-shaped rebound than other world’s economies
Hope is the last thing to die. The epidemiological situation is deteriorating in the USA, and there are concerns about another lockdown and a W-shaped recovery of the U.S. economy. Nevertheless, investors still hope that the epic rally of the S&P 500, which occurred in the second quarter, will resume in the third quarter. The matter is not only in the COVID-19 and speed of the GDP recovery trend but also in the huge amounts of money held by the U.S. stocks bulls. Although the FOMC tone is cautious, nobody is willing to go against the Fed.
According to Jerome Powell, the U.S. economy rebounded faster than the central bank had expected, but “a full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities”. The Fed’s Chair has supported both the U.S. dollar, saying that the path forward for the economy is extraordinarily uncertain, and the U.S. stock indexes, whose trends are a kind of mirror of the GDP recovery trend. The S&P 500 was also supported by Larry Kudlow, the president's chief economics adviser, who said that the idea of the strong V-shaped recovery is still right there.
I still believe that the correction of the U.S. stock market will hardly be deep, as it is not beneficial for either the White House or the Fed. Furthermore, it is good that the euro takes the initiative more and more often. Berlin tries to resolve the dispute between the Constitutional court and the ECB, the euro-area economic data are improving, and the improvement of the epidemiological situation in the euro area suggests that the European economy should recover faster than the U.S. growth.
According to the German Finance Minister Olaf Scholz, the ECB has convincingly demonstrated all the documents justifying the QE program, so the German government sees no obstacles to the Bundesbank's continued participation in the ECB's bond-buying program. An increase in the inflation rate, positive forecasts for retail sales data, and huge monetary and fiscal stimulus suggest that Germany’s economy is more likely to follow a V-shaped recovery than any other world’s economy. The export-led euro-area economy is also supported by China reporting the growth of the manufacturing PMI and continuing to fulfill its trade obligations to the United States.
As long as China is buying U.S. exports, financial markets can remain clam. China bought only 19% of the declared $170 billion of US agricultural products in the January-May period, according to Bloomberg, but there was a global downturn. The global economic situation is gradually improving, so everything should be alright.
My forecasts might seem too optimistic, but several reasons are supporting this scenario. If the U.S. epidemiological situation improves, the euro-area economy, including Germany, rebounds faster than the U.S. growth, and there are no trade wars, the EUR/USD may well hit 1.14 and 1.16.
Dynamics of COVID-19 daily new cases
LiteFinance
Euro is not coming down without a fight
EUR/USD bulls are trying to hold the price above level 1.12
The market isn’t reacting to the bad news, which is good news. The number of COVID-19 cases per day in the US has increased to a record high. The U.S. senators seek to sanction Chinese officials for violating Hong Kong’s independence. The report on the US initial jobless claims has been worse than the forecast. All these factors should have dropped the S&P 500 below 3000, the EUR/USD should have been down to at least the support at 1.117. The international trade was down by 12.1% in April, which is the worst drop since records started. Reuters experts say the global economic state has deteriorated. To skeptics’ surprise, the US stocks have been up, and the euro-dollar has been held up above figure 12. The euro is not coming down without a fight!
The second wave of the pandemic and the escalation of trade wars are the factors that can trigger a deep correction in the U.S. stock market. On June 24, the S&P 500 was down when the number of coronavirus cases was close to the record high. However, when the number of new COVID-19 cases reached its peak, the U.S. stocks have been unexpectedly up. In fact, COVID-19 is just a decoration and the stock market moves depend on how deep the US GDP drops and how quickly it rebounds. That is why the market was more impressed by the speech of White House chief economic adviser Larry Kudlow, who said that the economy is not going to be closed again, the US economy could expand by 20% in the second half-year, and the US unemployment rate could fall below 10% by the end of 2020, than by the surge in the new coronavirus cases.
The fact that the epidemiological situation in the USA doesn’t improve suggests it is not relevant to sell off the US dollar. According to JP Morgan, the greenback could be much weaker than it is now expected if the global GDP is 2% up by the year’s end, and if the projections for the growth-gap between the US and the global economy are 3% down. The first suggestion is not working yet. 71 out of 90 experts polled by Reuters say the global GDP outlook has been worse over the past month or at least has been the same. On the other hand, Bloomberg’s leading indicators signal that the euro-area economy is recovering faster than the U.S. growth.
Investors were focused on the ECB reply to the German constitutional court and ignored an important point in the minutes of the Governing Council's June meeting. If the euro-area GDP is strong, €1.35 trillion of the emergency purchase program won’t be spent. This a clearly hawkish stance, which is surprising at the current stage of economic development.
In my opinion, the EUR/USD will hardly rally up unless the epidemiological situation in the U.S. improves. However, a faster recovery trend for the euro area and China than for the USA, suggests bullish market sentiment. Therefore, it makes sense to open long positions if the pair foes down to the supports at 1.1155 and 1.112.
Dynamics of new COVID-19 cases in the USA
EUR/USD bulls are trying to hold the price above level 1.12
The market isn’t reacting to the bad news, which is good news. The number of COVID-19 cases per day in the US has increased to a record high. The U.S. senators seek to sanction Chinese officials for violating Hong Kong’s independence. The report on the US initial jobless claims has been worse than the forecast. All these factors should have dropped the S&P 500 below 3000, the EUR/USD should have been down to at least the support at 1.117. The international trade was down by 12.1% in April, which is the worst drop since records started. Reuters experts say the global economic state has deteriorated. To skeptics’ surprise, the US stocks have been up, and the euro-dollar has been held up above figure 12. The euro is not coming down without a fight!
The second wave of the pandemic and the escalation of trade wars are the factors that can trigger a deep correction in the U.S. stock market. On June 24, the S&P 500 was down when the number of coronavirus cases was close to the record high. However, when the number of new COVID-19 cases reached its peak, the U.S. stocks have been unexpectedly up. In fact, COVID-19 is just a decoration and the stock market moves depend on how deep the US GDP drops and how quickly it rebounds. That is why the market was more impressed by the speech of White House chief economic adviser Larry Kudlow, who said that the economy is not going to be closed again, the US economy could expand by 20% in the second half-year, and the US unemployment rate could fall below 10% by the end of 2020, than by the surge in the new coronavirus cases.
The fact that the epidemiological situation in the USA doesn’t improve suggests it is not relevant to sell off the US dollar. According to JP Morgan, the greenback could be much weaker than it is now expected if the global GDP is 2% up by the year’s end, and if the projections for the growth-gap between the US and the global economy are 3% down. The first suggestion is not working yet. 71 out of 90 experts polled by Reuters say the global GDP outlook has been worse over the past month or at least has been the same. On the other hand, Bloomberg’s leading indicators signal that the euro-area economy is recovering faster than the U.S. growth.
Investors were focused on the ECB reply to the German constitutional court and ignored an important point in the minutes of the Governing Council's June meeting. If the euro-area GDP is strong, €1.35 trillion of the emergency purchase program won’t be spent. This a clearly hawkish stance, which is surprising at the current stage of economic development.
In my opinion, the EUR/USD will hardly rally up unless the epidemiological situation in the U.S. improves. However, a faster recovery trend for the euro area and China than for the USA, suggests bullish market sentiment. Therefore, it makes sense to open long positions if the pair foes down to the supports at 1.1155 and 1.112.
Dynamics of new COVID-19 cases in the USA
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LiteFinance
Brent has a Joker in the hand
COVID-19 vaccine will ensure oil rally
As you know, the market is ruled by Fear and Greed. The greed triggered the epic rallies of the S&P 500 and oil up form March lows. The fear, which came back after the epidemiological situation had become worse in the USA, sent the US stocks and the oil price down in the correction. The stock buyers are not confident in a soon rebound of the US growth, the Brent and the WTI bulls have doubts that the global demand will be back to the trend in 2021-2022. Another lockdown is hardly possible, but investors are far less optimistic.
Before trade wars and pandemic, the oil market was full of supply. Investors were tracking the OPEC’s attempts to improve the supply/demand balance by cutting oil production. Occasional geopolitical shocks, such as Iran’s potential blockading of the Strait of Hormuz or attacks on industrial sites in Saudi Arabia, resulted in short-term price hikes. The demand was not that important in pricing. However, the oil market structure has changed because of the US-China trade war and COVID-19 pandemic. According to OPEC, global oil demand in the second quarter will fall by 17.3 million barrels a day, and it will be down by 9.1 million b/d year-on-year in 2020. That is why Brent fell in March to its lowest level since 1999.
In the April-June period, the situation seemed to be improving amid several positive factors. China’s economy was recovering, investors believe in the V-shaped rebound if the US growth, the price war between Russia and Saudi Arabia ended, the OPEC+ agreed to cut the oil output by 9.7 million barrels a day, and the North American oil produces reduced the output by 3.8 million barrels a day. Nonetheless, the COVID-19 epidemic hasn’t been defeated, and the global oil demand isn’t recovering. So, the oil market is again in contango. Long-term oil futures are bid higher than nearby contracts, signaling the surplus will be long-term. Besides, contrary to the expectations, the US crude inventories didn’t reduce the economy’s reopening, they have almost reached 540 barrels.
Therefore, the global demand, especially in the US, doesn’t any longer support the Brent and the WTI uptrends, which makes correction more likely to start soon. However, other benefits of the oil bulls are still operating. Unlike in the USA, the epidemiological situation in China and Europe is improving. The OPEC+ countries have cut the oil production by 9.7 mb/d. The US shale production will hardly return to the pre-crisis levels soon. Therefore, the oil bulls might resume the rally. According to Bloomberg experts, in 18 months, the US production will be 16% lower than its record highs of 13 million barrels per day in February.
In my opinion, positive outweighs. COVID-19 vaccines and medicines should be soon developed, the death rate is declining despite the growth in the number of new coronavirus cases. So, the global oil demand should increase after a while, and we could use the current oil market correction to enter buy trades. I suggest opening Brent middle-term longs with the targets at $47 and $51. LiteForex trading services perfectly suit this goal.
Oil market sentiment
COVID-19 vaccine will ensure oil rally
As you know, the market is ruled by Fear and Greed. The greed triggered the epic rallies of the S&P 500 and oil up form March lows. The fear, which came back after the epidemiological situation had become worse in the USA, sent the US stocks and the oil price down in the correction. The stock buyers are not confident in a soon rebound of the US growth, the Brent and the WTI bulls have doubts that the global demand will be back to the trend in 2021-2022. Another lockdown is hardly possible, but investors are far less optimistic.
Before trade wars and pandemic, the oil market was full of supply. Investors were tracking the OPEC’s attempts to improve the supply/demand balance by cutting oil production. Occasional geopolitical shocks, such as Iran’s potential blockading of the Strait of Hormuz or attacks on industrial sites in Saudi Arabia, resulted in short-term price hikes. The demand was not that important in pricing. However, the oil market structure has changed because of the US-China trade war and COVID-19 pandemic. According to OPEC, global oil demand in the second quarter will fall by 17.3 million barrels a day, and it will be down by 9.1 million b/d year-on-year in 2020. That is why Brent fell in March to its lowest level since 1999.
In the April-June period, the situation seemed to be improving amid several positive factors. China’s economy was recovering, investors believe in the V-shaped rebound if the US growth, the price war between Russia and Saudi Arabia ended, the OPEC+ agreed to cut the oil output by 9.7 million barrels a day, and the North American oil produces reduced the output by 3.8 million barrels a day. Nonetheless, the COVID-19 epidemic hasn’t been defeated, and the global oil demand isn’t recovering. So, the oil market is again in contango. Long-term oil futures are bid higher than nearby contracts, signaling the surplus will be long-term. Besides, contrary to the expectations, the US crude inventories didn’t reduce the economy’s reopening, they have almost reached 540 barrels.
Therefore, the global demand, especially in the US, doesn’t any longer support the Brent and the WTI uptrends, which makes correction more likely to start soon. However, other benefits of the oil bulls are still operating. Unlike in the USA, the epidemiological situation in China and Europe is improving. The OPEC+ countries have cut the oil production by 9.7 mb/d. The US shale production will hardly return to the pre-crisis levels soon. Therefore, the oil bulls might resume the rally. According to Bloomberg experts, in 18 months, the US production will be 16% lower than its record highs of 13 million barrels per day in February.
In my opinion, positive outweighs. COVID-19 vaccines and medicines should be soon developed, the death rate is declining despite the growth in the number of new coronavirus cases. So, the global oil demand should increase after a while, and we could use the current oil market correction to enter buy trades. I suggest opening Brent middle-term longs with the targets at $47 and $51. LiteForex trading services perfectly suit this goal.
Oil market sentiment
LiteFinance
Dollar is conducting an investigation
Traders, like detectives, must ask a question about who benefits
In 2018-2019, when the US dollar was growing steadily, and Donald Trump was talking about the drawbacks of a strong local currency, investors were discussing the possibility of joint intervention by the Fed and the US Treasury to hold the USD bulls back. They estimated the resources that Steven Mnuchin and his colleagues can afford, they projected the levels where they should start selling the greenback. The pandemic has proved that things are much simpler. Low Treasury rates and steadily rising US stock indexes are the major growth drivers for the EUR/USD. The euro-area positive PMI data are just another reason to sell the US dollar.
Traders, like detectives, must ask a question about who benefits. The rise of the Misery index, including both unemployment and inflation, to its all-time highs is posing a significant threat to President Donald Trump’s re-election in November. Historically, such increases have correlated with a loss for the incumbent party in the White House, and right now, the signals have never been more positive for the challenger. Donald Trump urgently needs strong stock indices, to prove that the US economy is strong. That is why he insists that the US-China trade deal is intact and COVID-19 should go away after a while, although it would be good to have a vaccine.
The Fed is not going to oppose the US president. The US central bank, like the White House, needs a strong economy. Jerome Powell and his fellow central-bankers are concerned about the rise of the personal savings rate in the U.S. They need low interest rates to encourage Americans to take their money away from banks and spend, thereby supporting the rebound of the US GDP.
So, investors, who buy the greenback now, have to go against both the Fed and the White House, which is extremely risky. The decision on whether to hold the USD in portfolios in the same volume or not has been taken. There is another question now, what to buy? Does it make sense to buy the euro? Yes, there are disputes in the euro area: between the “Frugal Four” and other EU members on the emergency recovery fund, and between the ECB and Germany’s constitutional court on the QE, between the UK and the EU on Brexit. However, everybody is confident that everything will end up well. Furthermore, the euro-area strong PMI data in June bring back the idea of the V-shaped recovery of the euro-area economy.
Investors do not worry that the PMI is still below the critical level of 50, and the economy will hardly return to the pre-crisis levels before 2022. Markets bet on the improvement of the epidemiological situation in Europe, which, like China, should restore economic growth faster than the USA. The only threat to this scenario could be posed by trade wars. If there are no shocks, the EUR/USD can well meet my forecast made in December and rise to 1.14 in late June and 1.16 in late December.
Dynamics of Misery Index
Traders, like detectives, must ask a question about who benefits
In 2018-2019, when the US dollar was growing steadily, and Donald Trump was talking about the drawbacks of a strong local currency, investors were discussing the possibility of joint intervention by the Fed and the US Treasury to hold the USD bulls back. They estimated the resources that Steven Mnuchin and his colleagues can afford, they projected the levels where they should start selling the greenback. The pandemic has proved that things are much simpler. Low Treasury rates and steadily rising US stock indexes are the major growth drivers for the EUR/USD. The euro-area positive PMI data are just another reason to sell the US dollar.
Traders, like detectives, must ask a question about who benefits. The rise of the Misery index, including both unemployment and inflation, to its all-time highs is posing a significant threat to President Donald Trump’s re-election in November. Historically, such increases have correlated with a loss for the incumbent party in the White House, and right now, the signals have never been more positive for the challenger. Donald Trump urgently needs strong stock indices, to prove that the US economy is strong. That is why he insists that the US-China trade deal is intact and COVID-19 should go away after a while, although it would be good to have a vaccine.
The Fed is not going to oppose the US president. The US central bank, like the White House, needs a strong economy. Jerome Powell and his fellow central-bankers are concerned about the rise of the personal savings rate in the U.S. They need low interest rates to encourage Americans to take their money away from banks and spend, thereby supporting the rebound of the US GDP.
So, investors, who buy the greenback now, have to go against both the Fed and the White House, which is extremely risky. The decision on whether to hold the USD in portfolios in the same volume or not has been taken. There is another question now, what to buy? Does it make sense to buy the euro? Yes, there are disputes in the euro area: between the “Frugal Four” and other EU members on the emergency recovery fund, and between the ECB and Germany’s constitutional court on the QE, between the UK and the EU on Brexit. However, everybody is confident that everything will end up well. Furthermore, the euro-area strong PMI data in June bring back the idea of the V-shaped recovery of the euro-area economy.
Investors do not worry that the PMI is still below the critical level of 50, and the economy will hardly return to the pre-crisis levels before 2022. Markets bet on the improvement of the epidemiological situation in Europe, which, like China, should restore economic growth faster than the USA. The only threat to this scenario could be posed by trade wars. If there are no shocks, the EUR/USD can well meet my forecast made in December and rise to 1.14 in late June and 1.16 in late December.
Dynamics of Misery Index
LiteFinance
Silver is outperforming gold
XAG/USD bulls are going ahead
If you asked me which Forex&Commodities asset is the most promising investment, I would choose silver without hesitating. First, silver traditionally follows the sector leader, gold, so, it has the same growth drivers. Second, the main consumer of physical silver is the industry. It suggests the XAG/USD falls faster during global recessions, but the uptrend also recovers faster than the XAU/USD during the rebound of global growth.
According to the Silver Institute, silver should save investors from the economic fallout of the pandemic. The organization says, in 2020, the global physical silver demand in the industrial consumption will decline from 510.9 million ounces to 475.4 million ounces, the consumption of silver jewelry and silverware will be down from 201.3 million ounces to 187.5 million ounces. However, the demand for ETF products will increase from 81.7 million ounces to 120 million ounces.
In fact, the ETF silver holdings are increasing much faster. Since the XAG/USD price started growing up from the March low, according to Commerzbank, the ETF silver holdings increased by 4900 tons, which is equivalent to two months of global mining. Differently put, 2/3 of global silver production is consumed by ETFs.
In my opinion, the silver industrial demand will be increasing faster than the Silver Institute expects. Under the current conditions, it is easier to return people to production than make them use restaurants and hotels. The results of social distancing are still present. That is why the manufacturing PMI is going up to the trend faster than the services PMI. One of the best performers is China, which has been one of the first to defeat the COVID-19 epidemic. The growth of China’s PMI gives a clue on the XAG/USD future price trend.
A significant proportion of the industrial consumption in sliver demand influences the trend of silver futures during the recession, followed by the global economic recovery. The silver price was sliding down faster than gold to the low of March 2020 and to the low of October 2008 during the previous economic crisis. From the lows of 2008 to the record highs of 2011, the XAU/USD increased by 165%, while the XAG/USD was 490%(!) up. Since mid-March, gold has been 21% up, while the silver price has increased by 53%.
In addition to the economic recovery after the recession, silver is supported by the growth drivers of gold. These are huge volumes of cheap liquidity provided by the Fed and other central banks, ultra-low rates of the global bond market, and the weakness of the world major currencies, including the US dollar. Therefore, I could recommend buying silver on the breakout of the resistance levels at $18.2 and $18.45. The middle-term upside targets for silver purchases are $20 and $23 per ounce. The major risks for this scenario are the second wave of the coronavirus pandemic and the escalation of trade wars.
Dynamics and structure of supply and demand for silver
XAG/USD bulls are going ahead
If you asked me which Forex&Commodities asset is the most promising investment, I would choose silver without hesitating. First, silver traditionally follows the sector leader, gold, so, it has the same growth drivers. Second, the main consumer of physical silver is the industry. It suggests the XAG/USD falls faster during global recessions, but the uptrend also recovers faster than the XAU/USD during the rebound of global growth.
According to the Silver Institute, silver should save investors from the economic fallout of the pandemic. The organization says, in 2020, the global physical silver demand in the industrial consumption will decline from 510.9 million ounces to 475.4 million ounces, the consumption of silver jewelry and silverware will be down from 201.3 million ounces to 187.5 million ounces. However, the demand for ETF products will increase from 81.7 million ounces to 120 million ounces.
In fact, the ETF silver holdings are increasing much faster. Since the XAG/USD price started growing up from the March low, according to Commerzbank, the ETF silver holdings increased by 4900 tons, which is equivalent to two months of global mining. Differently put, 2/3 of global silver production is consumed by ETFs.
In my opinion, the silver industrial demand will be increasing faster than the Silver Institute expects. Under the current conditions, it is easier to return people to production than make them use restaurants and hotels. The results of social distancing are still present. That is why the manufacturing PMI is going up to the trend faster than the services PMI. One of the best performers is China, which has been one of the first to defeat the COVID-19 epidemic. The growth of China’s PMI gives a clue on the XAG/USD future price trend.
A significant proportion of the industrial consumption in sliver demand influences the trend of silver futures during the recession, followed by the global economic recovery. The silver price was sliding down faster than gold to the low of March 2020 and to the low of October 2008 during the previous economic crisis. From the lows of 2008 to the record highs of 2011, the XAU/USD increased by 165%, while the XAG/USD was 490%(!) up. Since mid-March, gold has been 21% up, while the silver price has increased by 53%.
In addition to the economic recovery after the recession, silver is supported by the growth drivers of gold. These are huge volumes of cheap liquidity provided by the Fed and other central banks, ultra-low rates of the global bond market, and the weakness of the world major currencies, including the US dollar. Therefore, I could recommend buying silver on the breakout of the resistance levels at $18.2 and $18.45. The middle-term upside targets for silver purchases are $20 and $23 per ounce. The major risks for this scenario are the second wave of the coronavirus pandemic and the escalation of trade wars.
Dynamics and structure of supply and demand for silver