IC Markets Europe Fundamental Forecast | 19 December 2023
What happened in the Asia session?
The Bank of Japan (BoJ) released its statement for the final meeting of 2023 at around 2:49 am GMT where they kept their policy rate steady at -0.1% and maintained their ultra-dovish stance as expected. The BoJ will continue to purchase 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. Following this press release, USD/JPY spiked as high as 143.75 and is likely to climb higher today.
What does it mean for the Europe & US sessions?
The final reading for November’s CPI, due to be released today, is expected to show headline CPI easing to 2.4% YoY from 2.9% YoY in the previous month while core CPI slowing to 3.6% YoY from 4.2% YoY. Inflationary pressures are clearly receding in the Eurozone and a softer than expected reading could dampen the Euro.
The Dollar Index (DXY)
Key news events today
Building Permits (1:30 pm GMT)
What can we expect from DXY today?
Building permits, which measure the future level of home construction activity, have been moving sideways in the second half of 2023. The estimate of 1.46M permits for the month of November points to a continuation of this trend. Should permits print lower than expected, such a result could function as a bearish catalyst for the dollar.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the third 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 any 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.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.
- Next meeting runs from 30 to 31 January 2024.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
Building Permits (1:30 pm GMT)
What can we expect from Gold today?
Building permits, which measure the future level of home construction activity, have been moving sideways in the second half of 2023. The estimate of 1.46M permits for the month of November points to a continuation of this trend. Should permits print lower than expected, such a result could function as a bearish catalyst for the dollar and thus boost gold prices.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Monetary Policy Meeting Minutes (12:30 am GMT)
What can we expect from AUD today?
The Reserve Board of Australia (RBA) released its minutes from the final monetary policy meeting of 2023 that took place on the 5th of December. The minutes showed the board considered hiking again but opted to pause given that there was no material change with regards to the outlook on the faster pace of global disinflation while realizing that there is a possibility of a larger than expected rise in the unemployment rate.
Members also acknowledged that consumption growth had been quite weak as the impact of higher interest rates weighed on household finances. Overall, the tone of the minutes was mildly hawkish, causing the Aussie to rise from 0.6700 to a high of 0.6720. Given that the Federal Reserve appears to have shifted to a dovish stance, the Aussie could remain elevated today.
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 Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
New Zealand’s trade deficit shrank once more to $1.2B in November from $1.7B in the previous month. Exports continue to decline, led by a fall in outbound shipment of aluminium and aluminium articles, wine, and crude oil. Once again, China led the monthly fall in exports followed by Japan.
New Zealand’s trade balance has been in a deficit over the past six months, highlighting the weakness in global demand. Despite macro fundamentals remaining weak for New Zealand, the Kiwi remains lifted as a dovish Federal Reserve provides a significant tailwind for this currency.
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
Medium Bullish
The Japanese Yen (JPY)
Key news events today
BoJ Monetary Policy Statement (2:49 am GMT)
BoJ Press Conference (Tentative)
What can we expect from JPY today?
The Bank of Japan (BoJ) released its statement for the final meeting of 2023 at around 2:49 am GMT where they kept their policy rate steady at -0.1% and maintained their ultra-dovish stance as expected. The BoJ will continue to purchase 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. Following this press release, USD/JPY spiked as high as 143.75 and is likely to climb higher 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.
- Inflation expectations have risen moderately with underlying CPI inflation likely to increase gradually towards achieving the price stability target, as the output gap turns positive and as medium- to long-term inflation expectations and wage growth rise.
- 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 23 January 2024.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
CPI (10:00 am GMT)
What can we expect from EUR today?
The final reading for November’s CPI, due to be released today, is expected to show headline CPI easing to 2.4% YoY from 2.9% YoY in the previous month while core CPI slowing to 3.6% YoY from 4.2% YoY. Inflationary pressures are clearly receding in the Eurozone and a softer than expected reading could dampen the Euro.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a second consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- While inflation has dropped in recent months, it is likely to pick up again temporarily in the near term.
- Underlying inflation has eased further but domestic price pressures remain elevated, primarily owing to strong growth in unit labour costs.
- The past interest rate increases continue to be transmitted forcefully to the economy as tighter financing conditions are dampening demand, and this is helping to push down inflation.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 25 January 2024.
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
Trade Balance (7:00 am GMT)
What can we expect from CHF today?
Switzerland’s trade surplus narrowed to CHF3.4B in October from CHF5.0B in the previous month as a sharp decrease in sales of chemicals and pharmaceuticals caused this drop. Should the trade balance widen in November, this could provide a strong boost for the Swiss franc and thus drive USD/CHF lower.
Central Bank Notes:
- The SNB kept the policy rate unchanged at 1.75% for a second consecutive meeting in December.
- The inflation forecast puts average annual inflation at 2.1% for 2023, 1.9% for
2024 and 1.6% for 2025.
- GDP growth is likely to be weak in the coming quarters; subdued demand from abroad and the tighter financing conditions are having a dampening effect.
- Switzerland’s GDP is likely to grow by around 1% this year. For 2024, the SNB currently expects growth of between 0.5% and 1%.
- Next meeting is on 21 March 2024.
Next 24 Hours Bias
Weak Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
After coming within a whisker of the 1.2800-threshold last week, the Pound has given up nearly half of its gains to trade around 1.2650 as Asian markets came online. This currency appears to have found support around this region for now but overhead pressures remain.
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, with twelve-month CPI inflation falling sharply from 6.7% in September to 4.6% in October while services price inflation declined to 6.6%.
- The decline in CPI inflation over recent months could largely be attributed to falls in energy, food, and core goods price inflation, as external cost pressures had continued to abate. Services price inflation had remained elevated, however.
- The mean projection for CPI inflation is 2.2% and 1.9% at the two- and three-year horizons respectively.
- Next meeting is on 1 February 2024.
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
CPI (1:30 pm GMT)
What can we expect from CAD today?
Inflation in Canada has been moderating lower steadily throughout 2023 and the estimates for November should show this trend continuing. Softer-than-expected readings could cause USD/CAD to find a temporary bottom after the recent sell-off.
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
Weak Bearish
Oil
Key news events today
API Weekly Crude Oil Stock (9:30 pm GMT)
What can we expect from Oil today?
Crude oil prices spiked briefly overnight as news of attacks on container ships and tankers in the Red Sea came to light. Missile and drone attacks on several vessels in the Red Sea prompted several shipping companies to divert their vessels away from this region, pointing to a much longer route around the Cape of Good Hope to avoid the Suez Canal. WTI oil jumped as high as $74.60 per barrel but reversed sharply to trade around $73.00 as Asian markets came online.
Next 24 Hours Bias
Weak Bearish
