IC Markets Europe Fundamental Forecast | 22 April 2024
What happened in the Asia session?
It was a relatively quiet session as the dollar index (DXY) briefly dipped under 106 and was hovering around this region as European markets prepared to come online. Spot prices for gold dropped as low as $2,362/oz before stabilizing around $2,370/oz. This newly-formed positive correlation between these two asset classes remains intact thus far and is likely to remain so for the rest of the day.
What does it mean for the Europe & US sessions?
The Industrial Product Price Index (IPPI) – which measures factory gate and producer prices – and the Raw Materials Price Index will provide further insight into the level of inflation in Canada’s manufacturing and industrial production sectors. Although inflation has retreated quite steadily over the past ten to twelve months, inflationary pressures are beginning to take root as evident in the recent month-over-month IPPI and RMPI. Should these indices beat market expectations, it could function as a near-term bullish catalyst for the Loonie and potentially cause USD/CAD to pull back further today.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
The DXY slid lower at today’s open with this index dipping under 106. The dollar and gold are exhibiting positive correlation today, something that usually does not occur regularly – traders should be aware of this correlation and take note when normalcy resumes i.e. dollar and gold expressing negative correlation once again.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the fifth meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and judges that the risks to achieving its employment and inflation goals are moving into better balance.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks; inflation has eased over the past year but remains elevated.
- Recent indicators suggest that economic activity has been expanding at a solid pace while job gains have remained strong, and the unemployment rate has remained low.
- In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks and does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.
- 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 April to 1 May 2024.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
After hitting the all-time high of $2,432.02/oz in the second week of April, prices for spot gold were retreating at today’s open. This precious metal gapped lower to open at $2,382/oz and edged lower to trade around $2,375/oz at the beginning of the Asia session.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Demand for the Aussie picked up strongly at the open as it bounced strongly off the 0.6410-level. This currency pair was rising towards 0.6460 as Asian markets came online and it could continue to retrace higher as the day progresses.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the seventh pause out of the last eight board meetings.
- The headline monthly CPI indicator was steady at 3.4% over the year to January, with momentum easing over recent months, driven by moderating goods inflation. Services inflation remains elevated, and is moderating at a more gradual pace.
- The central forecasts are for inflation to return to the target range of 2–3% in 2025, and to the midpoint in 2026.
- While recent data indicate that inflation is easing, it remains high. The Board expects that it will be some time yet before inflation is sustainably in the target range.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.
- Next meeting is on 7 May 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?
Demand for the Kiwi was strong at the open causing it to bounce strongly off the 0.5880-level. This currency pair was rising towards 0.5930 at the beginning of the Asia session and it is expected to remain elevated today.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the sixth meeting in a row.
- The Committee remains confident that the current level of the OCR is contributing to an easing in capacity pressures to ensure inflation returns to target.
- However, current consumer price inflation remains above the Committee’s 1 to 3% target range. A restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation.
- The Committee discussed upside risks to the inflation outlook: persistent services inflation remains a risk and goods price inflation remains elevated while anticipated near-term increases to local government rates, insurance, and utility costs, could also further slow the decline in headline inflation.
- The Committee discussed downside risks to the inflation outlook: ongoing restrictive monetary policy in an environment of weak global growth could lead to a more rapid decline in inflation than expected. Business and consumer confidence remain particularly weak which could lead to more unemployment and financial stress than expected while structural challenges facing the economy in China remain a concern given its importance for the global economy and for New Zealand’s trade.
- Next meeting is on 10 July 2024.
Next 24 Hours Bias
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Despite the Bank of Japan (BoJ) hiking its key policy rate at the previous central bank meeting and inflationary pressures starting to take root in Japan, the yen remains weak as USD/JPY hit a high of 154.83 last week. This currency pair gapped lower this morning to open at 154.38 but it rebounded above 154.70 as Asian markets came online. Tailwinds remain for USD/JPY but traders should watch out for any potential intervention measures by the BoJ which could cause sharp drops for this currency pair as well as the yen crosses.
Central Bank Notes:
- The Bank considers that the policy framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control and the negative interest rate policy to date have fulfilled their roles. With the price stability target of 2%, it will conduct monetary policy as appropriate, guiding the short-term interest rate as a primary policy tool.
- The Bank of Japan decided on the following measures:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1% while continuing its JGB purchases with broadly the same amount as before.
- In addition, the Bank will discontinue purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) and will also gradually reduce the amount of purchases of CP and corporate bonds and will discontinue the purchases in about one year.
- Underlying CPI inflation is likely to increase gradually toward achieving the price stability target of 2%, 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 26 April 2024.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
ECB President Lagarde Speaks (3:30 pm GMT)
What can we expect from EUR today?
ECB President Christine Lagarde is due to speak at Yale University in the US where she could drop further clues on the direction of future monetary policy action in the Euro Area. The Euro has shed almost 1.8% or 190 pips over the last couple of weeks as demand for the dollar jumped significantly. This currency pair opened at around 1.0650 to climb higher towards 1.0670 at the beginning of the Asia session.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a fifth consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- Inflation has continued to fall, led by lower food and goods price inflation with most measures of underlying inflation easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits.
- Financing conditions remain restrictive and the past interest rate increases continue to weigh on demand, which is helping to push down inflation but domestic price pressures are strong and are keeping services price inflation high.
- The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and if the Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.
- Next meeting is on 6 June 2024.
Next 24 Hours Bias
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The Swiss franc strengthened significantly last week causing USD/CHF to tumble as low as 0.9011, losing almost 100 pips before reversing sharply to erase nearly all the initial loss. This currency pair closed at 0.9101 last Friday and opened to edge higher this morning and is likely to remain elevated today.
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points, going from 1.75% to 1.50% in March.
- For some months now, inflation has been back below 2% and thus in the range the SNB equates with price stability.
- According to the new forecast, inflation is also likely to remain in this range over the next few years.
- The forecast puts average annual inflation at 1.4% for 2024, 1.2% for 2025 and 1.1% for 2026, based on the assumption that the SNB policy rate is 1.5% over the entire forecast horizon.
- Swiss GDP growth was moderate in the fourth quarter of last year and it is likely to remain modest in the coming quarters.
- Overall, Switzerland’s GDP is likely to grow by around 1% this year.
- Next meeting is on 20 June 2024.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
After falling 2.1% over the last couple of weeks, the Pound looks to have found support around 1.2360 as it bounced quite strongly off this level at today’s open. GBP/USD was trading around 1.2390 as Asian markets came online and could continue to climb higher as the day progresses.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8-to-1 to maintain its Official Bank Rate at 5.25% for the fifth consecutive meeting.
- One member preferred to reduce the Bank Rate by 25 basis points to 5.0%.
- Twelve-month CPI inflation fell to 3.4% in February from 4.0% in January and December while Services consumer price inflation has declined but remains elevated, at 6.1% in February.
- CPI inflation is projected to fall to slightly below the 2% target in 2024 Q2, marginally weaker than previously expected owing to the freeze in fuel duty announced in the Budget.
- In the February Report projection, CPI inflation had been expected to fall temporarily to the 2% target in 2024 Q2 before increasing again in Q3 and Q4, to around 2.75%.
- Having declined through the second half of last year, UK GDP and market sector output are expected to start growing again during the first half of this year while the fiscal measures in Spring Budget 2024 are likely to increase the level of GDP by around 0.25% over coming years.
- Next meeting is on 9 May 2024.
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
IPPI (12:30 pm GMT)
RMPI (12:30 pm GMT)
What can we expect from CAD today?
The Industrial Product Price Index (IPPI) – which measures factory gate and producer prices – and the Raw Materials Price Index will provide further insight into the level of inflation in Canada’s manufacturing and industrial production sectors. Although inflation has retreated quite steadily over the past ten to twelve months, inflationary pressures are beginning to take root as evident in the recent month-over-month IPPI and RMPI. Should these indices beat market expectations, it could function as a near-term bullish catalyst for the Loonie and potentially cause UDS/CAD to pull back further today.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the fifth meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled in the second half of last year and the economy moved into excess supply but economic growth is forecasted to pick up in 2024. Overall, the Bank forecasts GDP growth of 1.5% in 2024, 2.2% in 2025, and 1.9% in 2026.
- CPI inflation slowed to 2.8% in February, with easing in price pressures becoming more broad-based across goods and services. However, shelter price inflation is still very elevated, driven by growth in rent and mortgage interest costs.
- Core measures of inflation, which had been running around 3.5%, slowed to just over 3% in February, and 3-month annualized rates are suggesting downward momentum. The Bank expects CPI inflation to be close to 3% during the first half of this year, move below 2.5% in the second half, and reach the 2% inflation target in 2025.
- The Governing Council is particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months and the Council will be looking for evidence that this downward momentum is sustained.
- Next meeting is on 5 June 2024.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Prices for crude oil declined over the last couple of weeks with WTI oil losing 4.3% over this period. WTI oil dropped as low as $81.70 per barrel last week and this downward slide looks to have resumed at today’s open. Despite the ongoing geopolitical tensions in the Middle East, downward pressures are building due to weaker crude demand in the US as observed in the inventory builds reported by the API and EIA in recent weeks.
Next 24 Hours Bias
Weak Bearish
