IC Markets Europe Fundamental Forecast | 24 May 2023
What happened in the Asia session?
RBNZ Governor Adrian Orr delivered a dovish 25 bps rate hike and noted satisfactory economic data, a less pressured labour market, and house prices closer to sustainable levels. He expressed confidence in getting on top of inflation.
What does it mean for the Europe & US Sessions?
A higher-than-expected UK CPI data set could rejuvenate hopes of the BoE maintaining a hawkish stance and proper the Cable towards 1.2500. Alternatively, the GBP/USD pair could face downward pressure to 1.2350.
The Dollar Index (DXY)
Key news events today
FOMC Meeting Minutes
What can we expect from DXY today?
The release of the FOMC Meeting Minutes, which provide insights into the discussions and decisions of the US central bank, will significantly impact the USD. Positive comments on economic growth, inflation, or employment can boost the USD, while a cautious or pessimistic tone can weaken it.
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
Mixed
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The release of the FOMC Meeting Minutes, which provide insights into the discussions and decisions of the US central bank, will significantly impact the USD and, consequently, the price of gold. Positive remarks on economic growth, inflation, or employment can boost the USD, leading to a potential decline in gold prices. Conversely, a cautious or pessimistic tone can weaken the USD, making gold more attractive and potentially increasing its value. The relationship between the USD and gold is often inversely correlated.
Next 24 Hours Bias
Mixed
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
A reading close to 0.0% on the Australian MI Leading Index m/m would indicate an insignificant change compared to the previous month. The impact on the AUD currency will likely be limited, as a neutral economic outlook suggests no significant improvement or deterioration.
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
Mixed
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
If the RBNZ decides to increase the Official Cash Rate above 5.50%, it would suggest a more hawkish stance towards monetary policy, potentially strengthening the NZD. The RBNZ Monetary Policy Statement, Rate Statement, and Press Conference will provide insights into the central bank’s outlook and intentions, influencing market expectations and the demand for 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
Weak bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Tokyo Core CPI y/y is forecasted to decrease from 3.5% to 3.4%. Meanwhile, the Services Producer Price Index y/y is expected to decline from 1.6% to 1.4%. Positive outcomes in these releases could strengthen the yen, while lower figures may weaken it.
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
Weak bearish
The Euro (EUR)
Key news events today
German Ifo Business Climate
What can we expect from EUR today?
The upcoming German ifo Business Climate data, with a forecasted value of 93.0 and a previous reading of 93.6, could strengthen the EUR if the index surpasses the predicted value and exceeds the last reading. Conversely, suppose the index falls short of the forecasted value or is lower than the previous reading. In that case, it may weaken the EUR, suggesting a decrease in business confidence and dampening economic growth prospects.
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?
A hawkish tone from SNB Governing Board member Andréa Maechler in today’s speech could strengthen the CHF. Conversely, a dovish stance may weaken 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
CPI y/y
What can we expect from GBP today?
The forecasted UK CPI y/y data suggests a decrease in inflation, with a previous rate of 10.1% and a forecasted rate of 8.2%. This could negatively impact the GBP’s value as the BoE may be inclined to keep interest rates steady.
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 upcoming data release of Canadian Corporate Profits, previously at 7.3%, is closely watched by global markets. If figures exceed or match the previous quarter, the Canadian dollar could strengthen, indicating a robust economy. Conversely, lower figures could signal a slowdown, potentially weakening the CAD.
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
Mixed
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Saudi Arabia has warned speculators in the oil market ahead of the OPEC+ meeting. This development could sustain an increase in US gasoline futures. Meanwhile, the API has reported a third-straight weekly draw in oil inventories, further boosting market sentiment.
Next 24 Hours Bias
Weak bullish
