IC Markets Asia Fundamental Forecast | 26 July 2024
What happened in the U.S. session?
The advance estimate for second quarter GDP beat market forecasts of 2.0% with a reading of 2.8% as consumer spending grew due to a rebound in goods consumption along with an increase in wholesale trade and retail trade industries. In addition, non-residential investment accelerated while defence government spending also grew. After slowing quite significantly from 3.4% in Q4-23 to 1.4% in Q1-24, economic growth appears to have bounced back in the second quarter of this year.
Meanwhile, unemployment claims printed slightly lower than its estimate of 237K with a reading of 235K. However, this figure remains elevated and continues to trend in line with its 4-week average of 234.5K, suggesting a potential weakness in the labour market. The dollar index (DXY) was trading around 104.20 prior to the release of these economic data points but it experienced wild swings overnight – surging as high as 104.45 before reversing sharply to drop as low as 104.17. This index finally stabilized around 104.35 by the end of this session.
What does it mean for the Asia Session?
Tokyo’s core CPI has now accelerated for the third consecutive month as it jumped from 1.6% in April to 2.2% YoY in July. Inflationary pressures are building and it could pave the way for the Bank of Japan (BoJ) to move ahead with a rate hike at next week’s monetary policy announcement. The yen has gained nearly 4.3% over the past three weeks as USD/JPY fell under 152.50 yesterday. This currency pair has since retraced higher to hover around 153.90 but overhead pressures remain.
The Dollar Index (DXY)
Key news events today
PCE Price Index (12:30 pm GMT)
What can we expect from DXY today?
After easing on a monthly and annualised basis in May, the PCE Price Index – which is the Federal Reserve’s preferred gauge of inflation – is expected to post a slightly stronger monthly gain in prices for the month of June. However, should PCE prices also moderate lower as per the latest CPI results two weeks ago, it will likely trigger a strong sell-off in the greenback later today.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the seventh 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 have moved toward better balance over the past year.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks. Inflation has eased over the past year but remains elevated and in recent months, there has been modest further progress toward the Committee’s 2% inflation objective.
- Recent indicators suggest that economic activity has continued to expand 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 assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
- The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.
- Next meeting runs from 30 to 31 July 2024.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
PCE Price Index (12:30 pm GMT)
What can we expect from Gold today?
After easing on a monthly and annualised basis in May, the PCE Price Index – which is the Federal Reserve’s preferred gauge of inflation – is expected to post a slightly stronger monthly gain in prices for the month of June. However, should PCE prices also moderate lower as per the latest CPI results two weeks ago, it will likely trigger a strong sell-off in the greenback later today – a move that should spur this precious metal.
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?
The Aussie has shed 3.5% over the last couple of weeks as it dived from 0.6783 in mid-July to as low as 0.6514 overnight before retracing higher. This currency pair was trading around 0.6550 as Asian markets came online – these are the support and resistance levels for today.
Support: 0.6465
Resistance: 0.6580
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the ninth pause out of the last ten board meetings.
- Over the year to April, the monthly CPI indicator rose by 3.6% in headline terms, and by 4.1% excluding volatile items and holiday travel, which was similar to its pace in December 2023.
- The central forecasts published in May were for inflation to return to the target range of 2–3% in the second half of 2025 and to the midpoint in 2026 while there have been indications that momentum in economic activity is weak, including slow growth in GDP, a rise in the unemployment rate and slower-than-expected wages growth.
- Inflation is easing but has been doing so more slowly than previously expected and it remains high and 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 6 August 2024.
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?
Significant weakness in the Kiwi has caused it to decline nearly 4.3% over the past three weeks. This currency pair hit a low of 0.5882 overnight before stabilizing around this level. Overhead pressures remain and further downside can be expected for the Kiwi – these are the support and resistance levels for today.
Support: 0.5875
Resistance: 0.5950
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the eighth meeting in a row and agreed that restrictive monetary policy is reducing domestic demand and consumer price inflation.
- The Committee is confident that inflation will return to within its 1-3% target range over the second half of 2024.
- The decline in inflation reflects receding domestic pricing pressures, as well as lower inflation for goods and services imported into New Zealand while recent monthly Selected Price Indexes suggest weakening in some of the more volatile inflation components, while survey measures of cost pressures and pricing intentions have continued to decline.
- Non-performing bank loans and corporate insolvencies have increased from low levels in line with declining economic activity while bank credit growth also remains very subdued, in line with weakness in the domestic economy and low business and consumer confidence.
- Next meeting is on 14 August 2024.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
Tokyo Core CPI (11:30 pm GMT 25th July)
What can we expect from JPY today?
Tokyo’s core CPI has now accelerated for the third consecutive month as it jumped from 1.6% in April to 2.2% YoY in July. Inflationary pressures are building and it could pave the way for the Bank of Japan (BoJ) to move ahead with a rate hike at next week’s monetary policy announcement. The yen has gained nearly 4.3% over the past three weeks as USD/JPY fell under 152.50 yesterday. This currency pair has since retraced higher to hover around 153.90 but overhead pressures remain.
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 Japanese government bonds (JGB) purchases in accordance with the decisions made at the March 2024 MPM.
- The Bank decided, by an 8-1 majority vote, that it would reduce its purchase amount of JGBs thereafter to ensure that long-term interest rates would be formed more freely in financial markets.
- Underlying CPI inflation is expected to increase gradually, since it is projected that the output gap will improve and that medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify.
- In the second half of the projection period of the April 2024 Outlook for Economic Activity and Prices (Outlook Report), it is likely to be at a level that is generally consistent with the price stability target of 2%.
- The year-on-year rate of increase in the CPI (all items less fresh food), has been in the range of 2.0-2.5% recently, as services prices have continued to rise moderately, reflecting factors such as wage increases, although the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices have waned. Inflation expectations have risen moderately.
- Japan’s economy has recovered moderately, although some weakness has been seen in part while is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions.
- Next meeting is on 31 July 2024.
Next 24 Hours Bias
Weak Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The German ifo Business Climate deteriorated further in July as it fell from 88.9 in the previous month to 87.0 as the German economy remains in the doldrums. Business sentiment for all the major sectors such as services, trade and construction declined – with the manufacturing sector falling significantly more than the others. The Euro pulled back to a low of 1.0825 yesterday before ranging between this lower bound and 1.0865 overnight – these are the support and resistance levels for today.
Support: 1.0810
Resistance: 1.0895
Central Bank Notes:
- The Governing Council today decided to keep the three key ECB interest rates unchanged in July, following a 25 basis points cut in June.
- Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 4.25%, 4.50% and 3.75% respectively.
- Monetary policy is keeping financing conditions restrictive but at the same time, domestic price pressures are still high, services inflation is elevated and headline inflation is likely to remain above the target well into next year.
- While some measures of underlying inflation ticked up in May owing to one-off factors, most measures were either stable or edged down in June.
- The incoming information indicates that the euro area economy grew in the second quarter, but likely at a slower pace than in the first quarter.
- Services continue to lead the recovery, while industrial production and goods exports have been weak – investment indicators point to muted growth in 2024, amid heightened uncertainty.
- The Eurosystem no longer reinvests all of the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP), reducing the PEPP portfolio by €7.5 billion per month on average and the Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024.
- The Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim and is not pre-committing to a particular rate path.
- Next meeting is on 12 September 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?
Demand for the greenback waned overnight as USD/CHF briefly dipped under the threshold of 0.8800 before retracing higher by the end of the U.S. session. This currency pair was trading around 0.8810 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.8780
Resistance: 0.8880
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points for the second consecutive meeting, going from 1.50% to 1.25% in June.
- The underlying inflationary pressure has decreased again compared to the previous quarter but inflation had risen slightly since the last monetary policy assessment, and stood at 1.4% in May.
- The inflation forecast puts average annual inflation at 1.3% for 2024, 1.1% for 2025 and 1.0% for 2026, based on the assumption that the SNB policy rate is 1.25% over the entire forecast horizon.
- Swiss GDP growth was moderate in the first quarter of 2024 with the services sector continuing to expand, while manufacturing stagnated.
- Growth is likely to remain moderate in Switzerland in the coming quarters as the SNB anticipates GDP growth of around 1% this year while currently expecting growth of around 1.5% for 2025.
- Next meeting is on 26 September 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?
Cable has drifted lower this week before finally dropping below the threshold of 1.2900 overnight. This currency pair was trading around 1.2860 as Asian markets came online and is expected to edge lower as the day progresses – these are the support and resistance levels for today.
Support: 1.2780
Resistance: 1.2940
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 7-to-2 to maintain its Official Bank Rate at 5.25% for the seventh consecutive meeting.
- Two members preferred to reduce the Bank Rate by 25 basis points to 5%, an increase of one from the previous meeting.
- Twelve-month CPI inflation fell to 2.0% in May from 3.2% in March, close to the May Monetary Policy Report projection. CPI inflation is expected to rise slightly in the second half of this year, as declines in energy prices last year fall out of the annual comparison.
- Reflecting a margin of slack in the economy, CPI inflation had been projected to be 1.9% in two years’ time and 1.6% in three years.
- UK GDP appears to have grown more strongly than expected during the first half of this year. Business surveys, however, remain consistent with a slower pace of underlying growth, of around 0.25% per quarter.
- UK real GDP had increased by 0.6% in 2024 Q1, 0.2% stronger than had been expected in the May Monetary Policy Report and Bank staff now expect GDP growth of 0.5% in 2024 Q2 as a whole, stronger than the 0.2% rate that had been incorporated in the May Report.
- The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation.
- Next meeting is on 1 August 2024.
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Recent weakness in the Loonie has propelled USD/CAD higher as it rose from 1.3600 to an overnight high of 1.3850. However, this currency pair retreated away from this level and was trading around 1.3810 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 1.3780
Resistance: 1.3850
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 25 basis points to 4.50% while continuing its policy of balance sheet normalization.
- Canada’s economic growth likely picked up to about 1.5% through the first half of this year and is forecasted to increase in the second half of 2024 and through 2025.
- Overall, the Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.4% in 2026, reflecting stronger exports and a recovery in household spending and business investment as borrowing costs ease.
- CPI inflation moderated to 2.7% in June after increasing in May as broad inflationary pressures eased.
- The Bank’s preferred measures of core inflation have been below 3% for several months and the breadth of price increases across components of the CPI is now near its historical norm but shelter price inflation remains high, driven by rent and mortgage interest costs, and is still the biggest contributor to total inflation.
- These preferred measures of core inflation are expected to slow to about 2.5% in the second half of 2024 and ease gradually through 2025 and CPI inflation is expected to come down below core inflation in the second half of this year, largely because of base year effects on gasoline prices.
- There are signs of slack in the labour market with the unemployment rate rising to 6.4%, as employment continues to grow more slowly than the labour force and job seekers taking longer to find work. Wage growth is showing some signs of moderation, but remains elevated.
- The Governing Council’s future monetary policy decisions will be guided by incoming information and assessment of their implications for the inflation outlook.
- Recent data has increased the council’s confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain.
- Next meeting is on 4 September 2024.
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Stronger-than-anticipated GDP output in the U.S. for the second quarter of this year triggered a massive demand for crude oil – the advance estimate showed the American economy rebounding strongly from 1.4% in Q1-24 to 2.8% YoY. WTI oil was hovering $77.50 per barrel before spiking as high as $79.70 – strong tailwinds remain in place and this commodity is likely to climb higher as the day progresses. However, crude prices look set to notch a third straight week of decline.
Next 24 Hours Bias
Weak Bullish
