IC Markets Europe Fundamental Forecast | 16 May 2023
What happened in the Asia session?
The Westpac Consumer Sentiment index decreased by 7.9% from the previous reading of 9.4%, indicating reduced consumer confidence. This could lead to a weaker AUD as investors become cautious about the economy. The RBA minutes revealed that the board considered pausing or hiking the policy interest rate by 25 basis points in May.
What does it mean for the Europe & US Sessions?
Lower-than-expected Claimant Count Change in the UK could see the Cable surpass the recent intra-day highs near 1.2540 to advance higher towards 1.2600. Otherwise, the GBP/USD pair could develop a bearish reaction below 1.2500.
Likewise, higher-than-expected Canadian CPI could lead to a swift drop in the Loonie to 1.2400. Alternatively, the USD/CAD pair could reach recent highs of around 1.2560.
The Dollar Index (DXY)
Key news events today
Core Retail Sales m/m
Retail Sales m/m
What can we expect from DXY today?
The forecasted figures suggest a 0.5% increase in Core Retail Sales and a 0.8% rise in Retail Sales. The previous data showed a decline of -0.8% for Core Retail Sales and -1.0% for Retail Sales. If the actual data meets or exceeds the forecast, it may indicate improved consumer spending and economic activity, strengthening the USD.
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 bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The US Empire State Manufacturing Index has reported a significant contraction in manufacturing activity, suggesting a bleak outlook for the sector, negatively impacting the USD. This downturn could drive investors towards safe-haven assets like gold, increasing demand and potentially increasing prices.
Next 24 Hours Bias
Weak bullish
The Australian Dollar (AUD)
Key news events today
Monetary Policy Meeting Minutes
What can we expect from AUD today?
If the current upward trend continues, the AUD could benefit from the recent 9.4% rise in consumer sentiment. Additionally, the AUD’s direction may be influenced by the release of the RBA’s meeting minutes on monetary policy, mainly if there are indications of adjustments to interest rates or quantitative easing measures. A positive economic outlook and a more aggressive approach from the RBA could enhance the AUD’s strength, whereas unfavourable data or a cautious stance may undermine it.
Central Bank Notes:
- The Official Cash Rate was increased by 25 basis points to 3.85%.
- Inflation in Australia has passed its peak but remains high at 7%, and it may take some time to return to the target range.
- GDP is forecast to increase by 1.25% this year and around 2% over the year to mid-2025.
- Next meeting on 6 June 2023
Next 24 Hours Bias
Weak bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Upcoming data releases from China could impact the NZD. The forecasted figures show a 5.7% growth in Fixed Asset Investment ytd/y, a 10.9% growth in Industrial Production y/y, a 22.0% growth in Retail Sales y/y, and a consistent Unemployment Rate of 5.3%. Positive outcomes in these data could strengthen the NZD, indicating a robust Chinese economy and potentially increasing demand for New Zealand’s exports.
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?
Today, no major news events are affecting the Japanese yen. Therefore, upcoming data releases will likely determine the JPY’s price direction. These include the Preliminary GDP Price Index y/y, which is expected to increase by 2.0% (previous: 1.2%), the Preliminary GDP q/q, forecasted to rise by 0.2% (previous: 0.0%), and the Revised Industrial Production m/m, which is anticipated to remain unchanged at 0.8%.
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 15 June 2023
Next 24 Hours Bias
Mixed
The Euro (EUR)
Key news events today
German ZEW Economic Sentiment
What can we expect from EUR today?
The upcoming release of the German ZEW Economic Sentiment data, with a forecasted value of -5.4, is expected to impact the Euro (EUR) currency significantly. If the actual data meets or exceeds the forecast, indicating a pessimistic sentiment, it could weaken the Euro.
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 15 June 2023
Next 24 Hours Bias
Weak bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Today, no important news affects the CHF. As a result, its price direction is expected to be influenced by upcoming data releases. The Trade Balance is forecasted to be 3.73 billion CHF, lower than the previous figure of 4.53 billion CHF. This decrease suggests a potential decline in Swiss exports or an increase in imports.
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
Weak bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The forecasted Claimant Count Change of 31.2K is higher than the previous figure of 28.2K. If the actual data release confirms the predicted increase in the number of people claiming unemployment benefits (Claimant Count), it suggests a weakening labour market and potential economic challenges. This could lead to negative sentiment towards the GBP, as investors may interpret it as a sign of economic slowdown or increased uncertainty.
Central Bank Notes:
- The MPC of the BoE voted 7-2 to increase Bank Rate by 0.25 percentage points to 4.5%.
- The updated projections show that CPI inflation is expected to decline slightly above 1% at the two and three-year horizons, below the 2% target.
- CPI increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- Next meeting on 22 June 2023
Next 24 Hours Bias
Weak bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The CPI m/m is forecasted to remain steady at 0.5%. Secondly, the Median CPI y/y is predicted to decrease from 4.6% to 4.3%. Lastly, the Trimmed CPI year-on-year is also expected to fall from 4.4% to 4.1%. If the CPI m/m stability and the slowing of inflation indicated by the Median and Trimmed CPI y/y are signs of a stable or growing economy, the CAD may strengthen. Conversely, the CAD could weaken if these are interpreted as signs of a slowing economy and a hold on interest rate hikes.
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 could continue to face downward pressure due to concerns about fuel demand in the United States and China, the top global oil consumers. These worries may overshadow the positive impact of OPEC+ cuts and the resumption of US purchases for strategic reserves.
Next 24 Hours Bias
Weak bearish
