IC Markets Europe Fundamental Forecast | 13 December 2023
What happened in the Asia session?
With the final FOMC meeting of 2023 looming in the background, currency markets moved in an extremely narrow range with the dollar index (DXY) ranging between 103.80 and 103.90 while spot gold and WTI crude oil prices traded under $1,980/oz and $69.00 per barrel respectively. It was a quiet trading session but activity is all but certain to pick up during the US session.
What does it mean for the Europe & US sessions?
All eyes and ears will be glued to the upcoming FOMC statement press release as well as Federal Reserve Chair Jerome Powell’s press conference. It is widely expected that the Fed will keep the benchmark interest rate on hold once more at 5.25% to 5.50% for the third consecutive meeting and any neutral-sounding remarks by Fed Chair Powell during the press conference could spark a major sell-off in the greenback.
The Dollar Index (DXY)
Key news events today
PPI (1:30 pm GMT)
FOMC Statement (7:00 pm GMT)
FOMC Press Conference (7:30 pm GMT)
What can we expect from DXY today?
The Producer Price Index (PPI) – which measures wholesale inflation – has retreated significantly on an annualised basis and November’s forecast of 1.0% YoY points to another month of slower prices. However, all eyes and ears will be glued to the upcoming FOMC statement press release as well as Federal Reserve Chair Jerome Powell’s press conference.
It is widely expected that the Fed will keep the benchmark interest rate on hold once more at 5.25% to 5.50% for the third consecutive meeting and any neutral-sounding remarks by Fed Chair Powell during the press conference could spark a major sell-off in the greenback.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the second meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- The Committee will continue to assess additional information and its implications for monetary policy.
- In determining the extent of additional policy firming that may be appropriate to return inflation to 2.0% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
- Next meeting runs from 12 to 13 December 2023.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
PPI (1:30 pm GMT)
FOMC Statement (7:00 pm GMT)
FOMC Press Conference (7:30 pm GMT)
What can we expect from Gold today?
The Producer Price Index (PPI) – which measures wholesale inflation – has retreated significantly on an annualised basis and November’s forecast of 1.0% YoY points to another month of slower prices. However, all eyes and ears will be glued to the upcoming FOMC statement press release as well as Federal Reserve Chair Jerome Powell’s press conference.
It is widely expected that the Fed will keep the benchmark interest rate on hold once more at 5.25% to 5.50% for the third consecutive meeting and any neutral-sounding remarks by Fed Chair Powell during the press conference could spark a major sell-off in the greenback and thus boost gold prices.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Following a stall in US CPI readings, the Aussie hit a low of 0.6545 overnight. This currency retraced slightly higher at the start of today’s Asia session but downward pressures remain.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the fifth pause out of the last six board meetings.
- Inflation in Australia has passed its peak but is still too high and the progress in bringing inflation back to the target range of 2% to 3% was looking slower than earlier forecast.
- Any further tightening of monetary policy to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.
- Next meeting is on 6 February 2024.
Next 24 Hours Bias
Medium Bearish
The Kiwi Dollar (NZD)
Key news events today
GDP (9:45 pm GMT)
What can we expect from NZD today?
After advancing 0.9% QoQ in the second quarter of 2023, New Zealand’s economy is projected to grow just 0.2% in the third quarter. The effect of higher interest rates has negatively impacted economic growth and a weaker-than-expected figure could spark a sell-off for the Kiwi later today.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fourth meeting in a row.
- The Committee is confident that the current level of the OCR is restricting demand. However, ongoing excess demand and inflationary pressures are of concern, given the elevated level of core inflation.
- If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further.
- The Committee agreed that interest rates will need to remain at a restrictive level for a sustained period of time, so that consumer price inflation returns to target and to support maximum sustainable employment.
- Next meeting is on 28 February 2024.
Next 24 Hours Bias
Strong Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Following a stall in US CPI readings, USD/JPY hit a high of 145.80 overnight. This currency pair drifted slightly lower at the start of today’s Asia session but it could remain elevated today.
Central Bank Notes:
- The Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a stable manner.
- The Bank of Japan decided on the following measures:
- Yield curve control: Negative interest rate of -0.1% on policy-rate balances and purchase of Japanese government bonds to keep 10-year JGB yields at around 0% while regarding the upper bound of 1.0% for 10-year JGB yields as a reference in its market operations.
- Medium- to long-term inflation expectations have risen moderately. Even as actual inflation decelerates, inflation expectations are expected to rise moderately toward the end of the projection period, with the output gap turning positive and changes in firms’ wage- and price-setting behaviour and in labour-management wage negotiations. This will likely lead to a sustained rise in prices accompanied by wage increases.
- Japan’s economy is likely to continue recovering moderately for the time being, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies.
- Next meeting is on 19 December 2023.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
Industrial Production (10:00 am GMT)
What can we expect from EUR today?
Industrial production in the Eurozone has been mixed over the past five months with September seeing a fall of 1.1% MoM. October’s forecast of -0.3% points to another month of decline, albeit a minor one. Higher rates have negatively impacted industrial activity for most parts of 2023. The Euro could continue to edge lower should industrial production print another round of weaker figures.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged.
- Inflation is still expected to stay too high for too long, and domestic price pressures remain strong.
- The Governing Council’s past interest rate increases continue to be transmitted forcefully into financing conditions.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 14 December 2023.
Next 24 Hours Bias
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Following a stall in US CPI readings, USD/CHF rebounded from a low of 0.8722 overnight. This currency pair drifted slightly lower at the start of today’s Asia session but it is likely to climb higher today.
Central Bank Notes:
- The SNB unexpectedly kept the policy rate unchanged at 1.75% in September.
- Inflation forecasts remain unchanged at 2.2% for both 2023 and 2024 while it was lowered from 2.1% to 1.9% for 2025.
- SNB predicts modest growth for the rest of the year due to subdued foreign demand, loss of purchasing power from inflation, and stricter financial conditions.
- The projection for GDP growth this year remained unchanged at 1.0%.
- Next meeting is on 14 December 2023.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
GDP (7:00 am GMT)
What can we expect from GBP today?
After posting growth over the last two months, economic activity in the UK is expected to contract by 0.1% MoM in October. Services activity has led overall growth thus far and is likely to be the strongest sector once again. Should the monthly GDP reading surprise to the upside, it could provide a much-needed boost for the Pound.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6-to-3 to maintain its Official Bank Rate at 5.25%.
- Three members preferred to increase the Bank Rate by 0.25 percentage points to 5.5%.
- CPI inflation remains well above the 2% target, but is expected to continue to fall sharply, to 4¾% in 2023 Q4, 4½% in 2024 Q1 and 3¾% in 2024 Q2.
- This decline is expected to be accounted for by lower energy, core goods and food price inflation and, beyond January, by some fall in services inflation.
- The mean projection for CPI inflation is 2.2% and 1.9% at the two and three-year horizons respectively.
- Next meeting is on 14 December 2023.
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Following a stall in US CPI readings, USD/CAD hit a high of 1.3618 overnight. This currency pair drifted under the 1.3600-level at the start of today’s Asia session but was rising strongly towards this threshold once again.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the third meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled through the middle quarters of 2023 with real GDP contracting at a rate of 1.1% in the third quarter, following a growth of 1.4% in the second quarter.
- The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices, leading to the easing of CPI inflation to 3.1% YoY in October.
- The Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed and would also like to see further and sustained easing in core inflation.
- Next meeting is on 24 January 2024.
Next 24 Hours Bias
Medium Bullish
Oil
Key news events today
EIA Crude Oil Inventories (3:30 pm GMT)
What can we expect from Oil today?
Despite the stronger-than-expected drawdown in API stockpiles overnight, crude oil prices remain under significant downward pressure due to oversupply concerns and weaker global demand. WTI oil hit a low of $68.40 per barrel during the US session and this commodity is likely to edge lower today. The EIA inventory forecast points to a drawdown of 1.5M barrels of crude and a larger drawdown could temporarily stall the slide in oil prices later today.
Next 24 Hours Bias
Medium Bearish
