IC Markets Europe Fundamental Forecast | 5 May 2023
What happened in the Asia session?
The RBA has indicated that further monetary policy tightening may be required to reach their inflation and employment targets within a reasonable timeframe. The RBA has forecasted a peak interest rate of 3.75% and expects to ease it to 3% by mid-2025. The potential tightening caused the AUD to appreciate despite weaker Caixin Services PMI from China.
What does it mean for the Europe & US Sessions?
The Swiss franc could take over the British pound as the lead against the USD if the former’s CPI exceeds the expected 0.2% m/m. A downward spike in the USD/CHF pair towards the lows from November 2022 at 0.8760 may materialise. Alternatively, US dollar bulls could retaliate if the NFP proves favourable. In this scenario, the pair could approach the round figure at 0.8900.
The Dollar Index (DXY)
Key news events today
Average Hourly Earnings m/m
Non-Farm Employment Change
Unemployment Rate
What can we expect from DXY today?
The forecasted and previous data suggest that the Average Hourly Earnings m/m is expected to remain stable at 0.3%. Meanwhile, the Non-Farm Employment Change is forecasted to decrease to 180K from the previous reading of 236K. Finally, the Unemployment Rate is predicted to increase slightly to 3.6% from the last reading of 3.5%. Should market expectations be met, the impact on the USD will be bearish as a decrease in the Non-Farm Employment Change may suggest a slowdown in the US economy.
Central Bank Notes:
- The committee raised the target range for the federal funds rate to 5 to 5-1/4 per cent. The U.S. banking system is sound and resilient.
- Tighter credit conditions for households and businesses may weigh on economic activity, hiring, and inflation.
- The committee is committed to returning inflation to its 2% objective
- The committee will adjust monetary policy as appropriate if risks emerge that could impede the attainment of goals
- Next meeting is on 14 June 2023
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The ECB’s recent rate hike is toned down from 50bps a clip to 25bps. Since the smaller pace in rate hikes means less opportunity cost for investors of the non-interest-yielding asset, the price of Gold should continue to rise.
Next 24 Hours Bias
Weak bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
A positive outlook in the RBA Monetary Policy Statement, such as increased economic growth and inflation expectations, can lead to a rise in demand for the Australian dollar and vice versa.
Central Bank Notes:
- Kept the cash rate unchanged at 3.60%
- Full impact of previous interest rate hikes is yet to be felt.
- Inflation in Australia has peaked, and the central forecast is to decline this year, at around 3% in mid-2025.
- Further tightening of monetary policy may be necessary to achieve the 2 – 3% inflation target
- Next meeting on 2 May 2023
Next 24 Hours Bias
Mixed
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The NZD’s price is expected to be influenced by previously released data, including the Building Consents m/m and ANZ Commodity Prices m/m figures. The Building Consents m/m figure is 7.0%, and the previous figure is -9.4%. The ANZ Commodity Prices m/m figure is -1.7%, while the last figure is 1.3%. These figures suggest a mixed impact on the NZD.
Central Bank Notes:
- OCR increased by 50bps from 4.75% to 5.25%
- Recent severe weather events in the North Island have led to higher prices, increasing the risk of inflation expectations exceeding the target range.
- New Zealand’s economic growth is expected to slow through 2023 due to the slowing global economy, reduced residential building activity, and the ongoing effects of monetary policy tightening.
- Next meeting is on 25 May 2023
Next 24 Hours Bias
Mixed
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Due to bank holidays, no significant news is expected from Japan today.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2%
- Japan’s economy is expected to recover gradually
- The bank will not hesitate to take additional easing measures if necessary
- Next meeting is on 27 April 2023
Next 24 Hours Bias
Mixed
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The upcoming data releases for the EUR currency based on forecasted and previous data may have a mixed impact. Notably, German Factory Orders m/m is predicted to decrease by -2.4% from the last 4.8% increase, potentially indicating a slowdown in the German manufacturing sector. Retail Sales m/m is forecasted to decrease by -0.2% from the previous -0.8%, potentially indicating increased consumer spending in the Eurozone.
Central Bank Notes:
- The ECB has decided to raise the three key interest rates by 25 basis points as the inflation outlook continues to be too high for too long.
- The ECB will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Renewed financial market tensions and Russia’s war against Ukraine remain significant economic downside risks.
- The continued resilience of the labour market could lead to higher growth than anticipated.
- Next meeting on 4 May 2023
Next 24 Hours Bias
Mixed
The Swiss Franc (CHF)
Key news events today
CPI m/m
What can we expect from CHF today?
If the forecasted Swiss CPI m/m data is higher than the previous data (both at 0.2%), inflation is increasing, which may lead to an increase in interest rates by the SNB to curb inflation. This, in turn, could lead to a rise in the value of the CHF.
On the other hand, if the forecasted CPI m/m data is lower than the previous data, it may indicate a decrease in inflation and a potential reduction in interest rates, which could lead to a decline in the value of the Swiss Franc.
Central Bank Notes:
- Raised policy rate to 1.5% to counter inflationary pressure and ensure price stability. The SNB may need to raise the policy rate further in the future
- The SNB is providing liquidity assistance to Credit Suisse, and the crisis has been halted
- The new inflation forecast assumes a policy rate of 1.5% and puts average annual inflation at 2.6% for 2023 and 2.0% for 2024 and 2025.
- Mortgage and real estate market vulnerabilities persist
- Next meeting on 22 June 2023
Next 24 Hours Bias
Mixed
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The upcoming Construction PMI data release, forecasted at 50.9, may indicate an expansion in the construction sector, potentially leading to a stronger GBP. However, if the actual data falls short of the forecasted figure, it may suggest a slowdown in the industry, leading to a weaker GBP.
Central Bank Notes:
- The BoE’s MPC increased the Bank Rate by 25bps to 4.25%, with a majority of 7-2 in favour of the hike
- The UK banking system is judged to be robust and resilient.
- CPI inflation increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- The MPC will continue to monitor inflationary pressures and adjust Bank Rate as necessary.
- Next meeting on 11 May 2023
Next 24 Hours Bias
Mixed
The Canadian Dollar (CAD)
Key news events today
Employment Change,
Unemployment Rate
What can we expect from CAD today?
The upcoming data releases for Canada’s Employment Change and Unemployment Rate are expected to have a bearish impact on the CAD.
The forecasted values for Employment Change are 22.6K, which is lower than the previous value of 34.7K, indicating a potential slowdown in job growth.
Likewise, the forecasted value for the Unemployment Rate is 5.1%, slightly higher than the previous value of 5.0%, suggesting a slight increase in unemployment.
Central Bank Notes:
- Bank of Canada holds its target for the overnight rate at 4.5%
- Labour markets remain tight with persistent price pressures, especially for services
- Economic growth in Q1 looks to be stronger than projected; to be weak through the remainder of this year before strengthening gradually next year
- Prepared to increase the policy rate further to return inflation to the 2% target.
- Next meeting on 7 June 2023
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Oil prices are currently facing pressure due to various factors, including the possibility of a global economic slowdown and negative sentiment caused by US regional bank turmoil. Moreover, China’s manufacturing activity has declined, with its Manufacturing PMI falling to 49.5 in April, down from 50 in March and 51.6 in February, indicating a slowdown in the largest Asian economy. China is a major oil consumer, and a decline in its manufacturing sector could lead to reduced demand for crude oil, further impacting oil prices.
Next 24 Hours Bias
Weak bearish
