FXStreet reports that analysts at Charles Schwab note that crude oil futures prices continue to recover from the historic April lows as a combination of production cuts and signs of increasing demand appear to have stabilized the market in the near-term.

“On the production front, Saudi Arabia and other OPEC Plus members appear ready to continue their agreed upon 9.7 million barrels per day production cuts potentially past June, which was agreed to in the last OPEC meeting.”

“On the demand front, we note that several countries are beginning to ease some of the measures imposed and are allowing more businesses to reopen. This should help to grow energy demand modestly at first and help to curtail the current global glut of Crude Oil.”

“With prices now back above 30.00, we could see the market trade within a new price range from 30.00 up to 35.00, which we have seen last back in mid-April.”

“Major chart support is seen at the April 22 low of 20.28, with resistance seen at the March 9 high of 38.98.”

FXStreet reports that economists at TD Securities see scope for a bit more of a sterling squeeze but it will remain limited. 

“Brexit risks are back in the frame, while the UK economy is in a very perilous position. The UK was one of the last in the region to go into lockdown and has taken only tentative steps to emerge. This suggests a protracted period of recovery.”

“We think GBP/USD might struggle above 1.2180 and think the 1.2240/60 area should provide a fairly solid ceiling.”

“Looking lower, we are keeping an eye on 1.1973 as our next target ahead of our initial take-profit level of 1.1850.”

The National Association of Homebuilders (NAHB) announced on Monday its housing market index (HMI) rose seven points to 37 in May from an unrevised April reading of 30. This rise in builder sentiment followed the largest single monthly drop in the history of the index in April.

Economists had forecast the HMI to increase to 33.

A reading over 50 indicates more builders view conditions as good than poor.

All three HMI components registered gains this month. The indicator gauging current sales conditions increased six points to 42 in May, while the component measuring traffic of prospective buyers climbed eight points to 21 and the measure charting sales expectations surged 10 points to 46.

NAHB Chairman Dean Mon noted: "The fact that most states classified housing as an essential business during this crisis helped to keep many residential construction workers on the job, and this is reflected in our latest builder survey. At the same time, builders are showing flexibility in this new business environment by making sure buyers have the knowledge and access to the homes they are seeking through innovative measures such as social media, virtual tours and online closings."

Meanwhile, NAHB Chief Economist Robert Dietz said: "Low-interest rates are helping to sustain demand. As many states and localities across the nation lift stay-at-home orders and more furloughed workers return to their jobs, we expect this demand will strengthen. Other indicators that suggest a housing rebound include mortgage application data that has posted four weeks of gains and signs that buyer traffic has improved in housing markets in recent weeks. However, high unemployment and supply-side challenges including builder loan access and building material availability are near-term limiting factors."

FXStreet reports that analysts at TD Securities remain committed sellers of AUD rallies and look to fade any further upward progress back toward a 0.65 handle. 

“We note that the daily MACD has recently rolled over, pointing to a deteriorating technical backdrop. Today may not be the day to look for it, but we think a push lower through a near-term double bottom a hair above 0.64 could see additional selling pressure emerge.” 

“We’d expect to see a test of 0.6370. The real prize is a bit lower, we think. We think the 0.6260 area could emerge as the key threshold for further downside potential.”

“We think we’d have to see a clear move above recent highs at 0.6570 to revisit our bearish bias.”

U.S. stock-index futures rose on Monday as investors' risk appetite improved as major global economies were returning to work amid slowing coronavirus infection rates. Meanwhile, Moderna's (MRNA; +27.9%) announcement of positive results from a Phase 1 clinical trial for its candidate Covid-19 vaccine stoked optimism about a potential coronavirus vaccine.

Global Stocks:

FXStreet reports that strategists at Rabobank view rallies as selling opportunities and see downside risk to the GBP/USD 1.19 target.  

“Given the scale of the economic crisis that Britain is entering into, it may be wise for investors to keep an open mind as to monetary policy developments over the next year or so in the UK and beyond. The fact that the money market continues to price in a dip into negative rates suggests they are doing just that.”

“Brexit risks and criticism of the government on its handling of the Covid-19 crisis suggest the potential for further pressure for the pound.  We see downside risk to our longstanding target of GBP/USD 1.19.”

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

NVIDIA (NVDA) upgraded to Outperform from Market Perform at BMO Capital Markets; target raised to $425

Oil: Brent to test major resistance – Credit Suisse

FXStreet reports that strategists at Credit Suisse note that commodity markets continue to improve strongly, with the Brent Crude Oil set to test its main resistance from the April highs.

“We look for a challenge on the Brent Crude Oil major resistance from the April highs at $36.00.” 

“With the 38.2% retracement of the entire Q1 collapse not far above at $37.28, our view has been for this to cap and define the top of what we think may be a significant long-term sideways range.” 

“Above $37.28 would be seen marking a significant break to the upside, potentially for broader risk assets as well, with resistance then seen next at the large price gap from March, starting at $39.70 and stretching up to $45.50.”

FXStreet reports that UOB Group’s Economist Ho Woei Chen, CFA, assessed the outlook for the Chinese economy amidst the ongoing recovery.

“The economic data releases for April continued to show an uneven recovery in China. The largest improvement was in the industrial production (IP) which turned in the first expansion since the start of the year, coming in above consensus expectation at +3.9% y/y which was led by manufacturing of specially-used equipments (+14.3% y/y) and telecommunication equipments/computers (+11.8% y/y).”

“Despite some improvements, indicators such as retail sales and fixed-asset investment were visibly sluggish and remained in contraction in April. Despite the large YTD contraction in infrastructure investment, real estate investment has fallen by a more moderate - 3.3% y/y YTD.”

“The April economic indicators including unexpected gains in exports suggest that the outlook continues to improve for China amidst the easing in domestic supply constraints. However, the pace of recovery will remain dependent on the easing of lockdown measures elsewhere. Notably, the new export orders component of the manufacturing PMI fell sharply in April indicating that external demand has weakened.”

“The annual National People’s Congress (NPC) to be held in Beijing starting next Friday (22 May) is expected to reaffirm the need to boost counter-cyclical measures to support this nascent economic recovery.”

USD fell against most other major currencies in the European session on Monday as investors' risk appetite improved slightly as major economies around the world and several U.S. states cautiously were returning to work amid slowing coronavirus infection rates.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, slipped marginally (-0.13%) to 100.28.

Market participants also digested the comments of the U.S. Federal Reserve Chairman Jerome Powell, who told CBS' "60 Minutes" on Sunday that full economic recovery could take more than a year and would likely require the arrival of a vaccine for the coronavirus. He predicted that the U.S. GDP could shrink more than 30% in the second quarter and unemployment would peak between 20-25%, but added that the economy was seen to avoid a Depression-like downturn over the longer term. Powell also said the Fed was not out of ammunition to help the economy get through the coronavirus pandemic but urged the U.S. Congress to do more.

FXStreet reports that economists at HSBC suggest that AUD and NZD could do well given healthy fiscal positions whereas fiscal imbalances are likely to weigh on the EUR. Meanwhile, GBP and CAD are set to weaken this year on fiscal vulnerabilities.

“Those with the most room to support their economies through the course of the drawn-out recovery should feel the benefit from a currency perspective. In this light, we believe the AUD and NZD will perform well.”

“The fiscal imbalances and inconsistencies across the Eurozone, without a clear plan to mutualise debt in some form, will see renewed questions about the sustainability of the single currency zone. While we do not envisage a EUR break-up, the market may put a greater price on this possibility, which will weigh on EUR/USD.”

“GBP looks vulnerable from a fiscal perspective with a high level of debt-to-GDP, large deficit and in need of foreign financing. This is before one considers the potential political tribulations of Brexit and risk that no trade deal is reached with the European Union by the end of this year. We see GBP/USD falling this year before a modest reversal in 2021. CAD will suffer a similar fate and we expect it to depreciate against USD in 2020.”

• Countries that move too fast on easing COVID measures without putting in place public health architecture run real risk of handicapping their own recovery
  
  

FXStreet reports that Randy Frederick from Charles Schwab notes that Q1 earnings season is nearly over while the market remains more resilient than the extremely high valuations and horrific economic data would logically portend.

“From a growth standpoint, Q1 EPS is -7.3% y/o/y; Q1 revenue is +0.9% y/o/y. This compares to +0.6% and +3.4% respectively in Q4.”

“While it wouldn’t surprise me if the SPX pulled back 5% - 10%, it seems unlikely that it will break the 3/23 low again.”

“Technically, the SPX remains in a bull market (still up more than 27% from the 3/23 low) so 2,237 remains the primary downside technical support, with potential interim support at the 50-day SMA (now at 2,712) and the 2018 low of 2,351.”

• Global supply chains must be kept open
• China supports comprehensive review of global response to the coronavirus
• Says that vaccine development in China will be made a global public good
• Calls on international community to increase political, financial support to WHO

FXStreet reports that strategists at Credit Suisse note that EUR/CHF remains heavily under pressure, testing and so far holding key support at the April/May range lows and the key psychological barrier at 1.0505/00.

“We expect further downside to unfold in line with the recent bearish ‘outside day’ which remains in place and with daily MACD momentum also still pointing lower again.” 

“An eventual break below 1.0500 would suggest the medium-term downtrend is resuming and should finally allow momentum to re-accelerate, with scope then for an eventual move to 1.0413/09 thereafter as the next initial support.” 

“Resistance moves to 1.0526/32, then 1.0541, ahead of the 55-day average at 1.0561, where we would expect the market to cap once more.”

• ECB has to act to avoid fragmentation among Eurozone countries
• The European response to coronavirus crisis has been insufficient
• Coordinated fiscal response is needed
• Premature withdrawal of emergency fiscal measures would increase risk of more durable hit to economic growth

FXStreet reports that analysts at Nordea note that the RBNZ kept the door wide open for NIRP last week as they hinted that discussions with financial institutions about preparing for a negative OCR are ongoing.

“The RBNZ could be one of the cases to watch in terms of whether NIRP gains momentum world-wide again, since the RBNZ has a relatively small balance sheet as % of GDP, and hence may be tempted to move first as it is less expensive to go negative when you have a small balance sheet.”

“RBNZ didn’t sound overly concerned about squeezing out foreign holders of NZGBs as ‘it will weigh on our currency and transmit positively to the economy’. NZD looks very vulnerable after this.”

“RBNZ is considering buying foreign assets in the QE program as well (a de facto FX intervention to weaken NZD).”

• Germany Q2 economic activity significantly below that of Q1
• Construction sector to be more robust than rest of the economy
• Fiscal support plan should be targeted, temporary
• Some 6 million workers in state wage support during the month of April

FXStreet reports that support is seen at 0.5925/20, then 0.5911/06 while resistance now moves lower to 0.6016, which ideally caps, according to analysts at Credit Suisse.

"The market has come to a temporary halt just ahead of the key lower end of the April range and 38.2% retracement at 0.5925/06. Removal of here on a closing basis would see an acceleration of the downtrend, with support seen thereafter at 0.5851/44, before the 'triangle measured top objective' just below at 0.5809."

"Resistance is seen initially at 0.5962, then 0.6016, above which would negate the recent 'outside day'. Resistance moves thereafter to 0.6055, removal of which would negate the top to leave the market in the range."

FXStreet reports that economists at HSBC consider various possible scenarios that could play out and what these may mean for G10 currencies. A U-shaped recovery is the most likely case.

"L-shape: The global economy fails to rebound even after the easing of COVID-19 containment measures. FX is driven by the relative health of external positions. Winners: JPY, CHF, Gold, Losers: AUD, NZD, GBP."

"U-shape: The upswing fails to arrive immediately. FX is driven by the relative health of government finances as markets look for policy to deliver the upswing. Winners: USD, JPY, AUD, NZD, Losers: EUR, CAD, GBP."

"V-shape: A healthy and reasonable swift rebound in growth. 'Risk on-Risk off' is still dominant, as previous FX losers become the winners. Winners: AUD, NZD, CAD, Losers: Gold, USD, JPY, CHF."

"！-shape: An extended downturn in growth, perhaps prompted by a second wave of containment measures. A 'Risk-off' mood would ensue. Winners: Gold, JPY, USD, Losers: CAD, AUD, NZD."

Reuters reports that Britain and the United States are hopeful that negotiations for a trade agreement can proceed at an accelerated pace, Britain's department for trade said on Monday in an update on the talks after the first round concluded last week.

"Both sides are hopeful that negotiations for a comprehensive trade agreement can proceed at an accelerated pace," British trade minister Liz Truss said in a statement.

"Ambassador (Robert) Lighthizer and I agreed that a second virtual round will take place in the weeks of 15 and 26 June, and that in advance of that negotiating teams will continue their work and meet virtually on a rolling basis, with meetings continuing throughout this week and beyond."

FXStreet reports that economists at Rabobank expect USD/CAD to eventually break out of its recent pattern with 1.4170 the necessary hurdle to leap on the way to the target of 1.44 before the end of June.

"The USD/CAD pair is trading a somewhat familiar triangle pattern with range-trading in an ever tighter range. This sort of triangle pattern often results in a sharp break once the barriers are breached and given the formation comes after a significant rally, the bias would normally be for a break to the upside."

"A move above 1.4170 opens up a move to our target of 1.44 before the end of June. On the downside, we would need a confirmed close below 1.3850 to break the formation but we see this as unlikely at this stage."

Bloomberg reports that Germany hopes talks with European Union partners on Monday will make progress toward lifting a global travel warning and enabling citizens to take vacations this summer, according to Foreign Minister Heiko Maas.

Germany has a worldwide travel warning in place through June 14 due to the coronavirus on unnecessary leisure trips abroad. Although they are being scaled back, controls will remain in place on Germany's borders with France, Austria and Switzerland until June 15, as well as for arrivals by air from Spain and Italy.

Maas said a video call Monday with 10 counterparts from nations including Italy, Spain, Greece, Portugal and Austria will focus on establishing criteria for holidays that would allow Germany to issue guidelines on international travel instead of a warning.

"That will give people a basis on which to make a decision about where they can go and where it would be better not to go," Maas said in an interview with ZDF television. He cautioned that a "mechanism" is also needed to enable a quick reaction in the event of a resurgence in infections.

FXStreet reports that in opinion of FX Strategists at UOB Group, extra gains in USD/CNH are expected to meet a tough barrier in the 7.1560 level.

24-hour view: "We highlighted last Friday that 'the rapid but short-lived swings have resulted in a mixed outlook' and expected USD to 'trade within a relatively wide range of 7.1050/7.1300'. USD subsequently traded at a higher range than expected (between 7.1083 and 7.1354) before ending the day on a firm note at 7.1337. While the underlying tone has improved, any advance from here is likely limited to a test of the 7.1400 resistance. Support is at 7.1150 followed by 7.1050."

Next 1-3 weeks: "Despite the relatively strong bounce last Friday (7.1337, +0.32%), upward momentum has not improved by much and it is too early to expect a sustained advance in USD. While USD could edge higher from here, any up move is expected to encounter solid resistance at 7.1560 followed by the year-to-date high near 7.1650 which is acting as a formidable resistance. On the downside, a breach of 7.0800 would indicate the current mild upward pressure has eased."

RTTNews reports that China's home prices increased in April suggesting that the property market started gradual recovery as businesses reopen after the spread of coronavirus subsides.

Out of 70 cities, house prices increased in 50 compared to 38 cities in March, data published by the National Bureau of Statistics showed Monday.

According to preliminary estimate, house prices in first-tier cities rose 0.2 percent. House prices decreased 0.3 percent on month in Beijing and remained flat in Shenzhen and Guangzhou. Meanwhile, prices gained 0.6 percent in Shanghai.

The sales prices of newly built commercial housing in 31 second-tier cities rose by 0.5 percent month-on-month and that in 35 third-tier cities climbed 0.6 percent.

Data showed that house prices fell 0.2 percent in Wuhan, the epicenter of coronavirus outbreak.

FXStreet reports that the gains that WTI and Brent crude have posted since their lows on 28 April, barely three weeks ago, are likely to see a correction, in the opinion of Howie Lee from OCBC Bank.

"There are some signs that the rally in crude oil has been too fast, too furious, and a correction might be imminent after the heady gains from the past three weeks."

"Beyond the near-term, we think crude oil is set to continue rallying, with Brent possibly headed for $40/bbl before the year ends - but in the coming week or two, we see some selling pressure forming."

FXStreet reports that in opinion of FX Strategists at UOB Group, AUD/USD is expected to extend the ongoing consolidation in the next weeks.

24-hour view: "Our expectation for AUD to 'probe the 0.6490 resistance' did not materialize as it dropped to 0.6402 after touching 0.6473. The quick bounce off the low suggests limited downside risk for today. From here, AUD could retest the 0.6475 level but a break of the next resistance at 0.6500 is unlikely. Support is at 0.6420 followed by 0.6400."

Next 1-3 weeks: "There is not much to add to our update from Wednesday (13 May, spot at 0.6455). As highlighted, while AUD could edge lower, any weakness is unlikely to be 'one-way'. In other words, while the bias is titled the downside, the current movement is viewed as part of a broad 0.6370/0.6570 range."

During today's Asian trading, the US dollar was almost unchanged against the euro on the background of statements by the head of the US Federal reserve system Jerome Powell about the prospects of the us economy.

The ICE Dollar index, which shows the value of the US dollar against six major world currencies, fell by 0.09% compared to the previous trading day.

The unemployment rate in the US may rise to 25%, GDP may fall by 20-30% or even more in the second quarter due to the suspension of economic activity caused by the spread of the COVID-19 coronavirus, Jerome Powell warned on CBS.

Powell warned that the US "will take some time to fully return" to normal life and this "may stretch until the end of next year."

Meanwhile, the Japanese national currency slowly but steadily rose in price at the end of each month since the beginning of the year and became the only one among the 10 major currencies whose exchange rate increased. This was facilitated by the instability in world markets caused by the coronavirus outbreak, as well as the easing of the fed's monetary policy and the steps of the us regulator to increase the supply of the dollar.

Demand for the yen also supports concerns about increased tensions between the US and China. Experts note that as the us presidential election approaches, current President Donald trump may tighten his position on China.

Meanwhile, the pound rose slightly against the US dollar. British Finance Minister Rishi Sunak will answer questions from The house of Commons today. Last week, he announced an extension until October to support people forced to go on leave due to the COVID-19 epidemic. According to him, people who are forced to go on vacation will continue to receive 80% of the salary up to 2.5 thousand pounds.

Bloomberg reports that traders are getting ahead of themselves pricing in negative U.S. rates next year, according to JPMorgan Asset Management.

"Three, four years down the line if the economy is still in a very weak state, then perhaps the Federal Reserve could consider negative rates," said Seamus Mac Gorain, head of global rates in London. "For now, they're much more focused on the balance sheet, on their tools rather than on negative rates."

Fed Chair Jerome Powell and his colleagues have pushed back against the need for negative rates, questioning its usefulness as investors weighed the possibility. Futures markets are pricing for that to happen, with contracts on Fed funds rate showing bets for the move in the second quarter of 2021.

"They've seen the cost of negative rates now at these levels, in terms of the impact on the banking sector," JPMorgan Asset's Mac Gorain said. "On the whole, the shift is a little bit away from negative rates."

While it "makes sense" to price the tail risk of negative rates, most central bank signals suggest the opposite may be true for now, he said. The European Central Bank had "several opportunities to cut rates again and they haven't done it," and the same could be said of the Bank of Japan, he added.

eFXdata reports that MUFG Research maintains a tactical bearish bias on GBP/USD, expecting a breach of the 1.20 level in the near-term.

"We remain bearish on the pound and see increased prospects of a decline below the 1.2000 level versus the dollar. There is an increasing risk that investors view the outlook for the UK more negatively relative to elsewhere, thus encouraging increased speculative selling. The pound is the 2nd worst performing G10 currency this week..We believe the contraction in growth, reported on Wednesday, of 2.0% in Q1 and 5.8% in the month of March is consistent with full lockdown contraction of around 20%," MUFG notes.

"On top of this the UK is in the unique position of having a considerable risk on the horizon in relation to the EU trade negotiations. We see a test and breach of the 1.2000 level in GBP/USD as a likely prospect over the short-term," MUFG adds.

Reuters reports that the coronavirus-hit euro zone economy probably will not return to its pre-pandemic levels until next year at the earliest, the European Central Bank's chief economist told El Pais newspaper, adding that the ECB was prepared to tweak its tools if needed.

"From today's perspective, it looks in any case unlikely that economic activity will return to its pre-crisis level before 2021, if not later," Philip Lane said in the interview published on the ECB's website.

Lane said the ECB was constantly monitoring the situation and was ready to adjust all of its instruments if that proved necessary. He added that the ECB's Pandemic Emergency Purchase Programme, also known as PEPP, could be adjusted.

He said the ECB was analysing the situation ahead of the upcoming June meeting, adding: "If we see that financial conditions are too tight, or the pressure on individual bond markets is not reflecting economic fundamentals, we can adjust the size or duration of our purchases, which we can anyway allocate flexibly over time and market segments."

CNBC reports that the U.S. economy could shrink by upwards of 30% in the second quarter but will avoid a Depression-like economic plunge over the longer term, Federal Reserve Chairman Jerome Powell told "60 Minutes" in an interview aired Sunday.

The central bank chief also conceded that jobless numbers will look a lot like they did during the 1930s, when the rate peaked out at close to 25%,

However, he said the nature of the current distress coupled with the dynamism of the U.S. and the strength of its financial system should pave the way for a significant rebound.

Asked by host Scott Pelley whether unemployment would be 20% or 25%, Powell said, "I think there're a range of perspectives. But those numbers sound about right for what the peak may be." Pressed on whether the U.S. is headed for a "second depression," he replied, "I don't think that's a likely outcome at all. There're some very fundamental differences."

He said that growth could return in the third quarter.

"I think there's a good chance that there'll be positive growth in the third quarter. And I think it's a reasonable expectation that there'll be growth in the second half of the year," Powell said. "I would say though we're not going to get back to where we were quickly. We won't get back to where we were by the end of the year. That's unlikely to happen."

• CNBC reports that approximately two months after the coronavirus outbreak caused a nearly nationwide lockdown, 48 states have eased shelter-in-place restrictions - only Massachusetts and Connecticut kept strict lockdown rules in place - in an attempt to reinvigorate their local economies. An NBC News survey of 33 states and Washington, D.C., found the lockdown will cost states hundreds of billions of dollars in revenue in the upcoming fiscal year. States that are projected to see the biggest drop in revenue include New York, California, Alaska, New Jersey, New Mexico and Wyoming, NBC News reported.

• Global cases: More than 4.7 million

• Global deaths: At least 315,225

• Most cases reported: United States (More than 1.4 million), Russia (281,752), United Kingdom (244,995), Brazil (241,080), Spain (230,698).

EUR/USD

Resistance levels (open interest**, contracts)

$1.0934 (1566)

$1.0902 (861)

$1.0877 (622)

Price at time of writing this review: $1.0819

Support levels (open interest**, contracts):

$1.0786 (1203)

$1.0768 (2260)

$1.0743 (2266)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 5 is 89441 contracts (according to data from May, 15) with the maximum number of contracts with strike price $1,0700 (4734);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2340 (649)

$1.2273 (322)

$1.2223 (262)

Price at time of writing this review: $1.2096

Support levels (open interest**, contracts):

$1.2064 (1016)

$1.2045 (1050)

$1.2022 (1643)

Comments:

- Overall open interest on the CALL options with the expiration date June, 5 is 23518 contracts, with the maximum number of contracts with strike price $1,3500 (3410);

- Overall open interest on the PUT options with the expiration date June, 5 is 28954 contracts, with the maximum number of contracts with strike price $1,3500 (3095);

- The ratio of PUT/CALL was 1.23 versus 1.17 from the previous trading day according to data from May, 15

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.