IC Markets Asia Fundamental Forecast | 4 July 2024
What happened in the U.S. session?
The ADP employment report added 150K jobs in June versus the estimate of 163K as job creation slowed for the third consecutive month. Nela Richardson, Chief Economist at ADP, stated that “Job growth has been solid, but not broad-based. Had it not been for a rebound in hiring in leisure and hospitality, June would have been a downbeat month” – a sign that private employment was mixed and is beginning to show signs of initial cracks.
Looking at unemployment claims, the latest figure of 238K came in slightly higher than its estimate of 234K as well as the 4-week average of 235.5K. The elevated levels of claims for the month of June raises concerns that this metric could continue to tick higher in coming months, especially after the recent ADP report.
Meanwhile, the ISM Services PMI missed the market estimate of 52.6 as it fell into contraction, falling from 53.8 in the prior month to 48.8 in June. Sub-components such as business activity, new orders and backlog of orders all declined into contraction territory. In addition, the employment sub-component has now worryingly contracted for the fifth straight month to highlight the ongoing weakness in the U.S. labour market.
And finally, the minutes from June’s FOMC meeting showed that “the vast majority of participants assessed that growth in economic activity appeared to be gradually cooling, and most participants remarked that they viewed the current policy stance as restrictive“. Policymakers also stated that “they did not believe it is appropriate to lower the target range for the federal funds rate until additional information had emerged to give them greater confidence that inflation was moving sustainably toward the 2% target”.
Despite the somewhat hawkish rhetoric from the minutes, the weaker-than-anticipated macroeconomic data triggered a sharp sell-off in the dollar causing the dollar index (DXY) to dive from 105.65 to as low as 105.04 overnight and we can expect this index to remain suppressed today, especially with U.S. markets closed for Independence Day celebrations.
What does it mean for the Asia Session?
As Asian markets digest the latest U.S. macroeconomic data, the DXY was trading around 105.30 while spot prices for gold edged higher towards $2,365/oz. Trading volume should be steady during the Asian and European trading hours but it will most definitely thin out in the latter part of the day.
The Dollar Index (DXY)
Key news events today
Independence Day (U.S. National Holiday)
What can we expect from DXY today?
With U.S. markets closed for Independence Day, we can expect an extremely muted period once European markets come to a close in the latter part of Thursday. Trading activity and volume is expected to fall drastically during U.S. hours but they will resume in full force on Friday – these are the support and resistance levels for today.
Support: 104.30
Resistance: 106.10
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
Medium Bearish
Gold (XAU)
Key news events today
Independence Day (U.S. National Holiday)
What can we expect from Gold today?
With U.S. markets closed for Independence Day, we can expect an extremely muted period once European markets come to a close in the latter part of Thursday. Trading activity and volume is expected to fall drastically during U.S. hours but they will resume in full force on Friday – these are the support and resistance levels for today.
Support: $2,320/oz
Resistance: $2,390/oz
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie surged to an overnight high of 0.6733 before pulling back slightly by the end of the U.S. session. This currency pair was trading around 0.6715 as Asian markets came online – these are the support and resistance levels for today.
Support: 0.6685
Resistance: 0.6740
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
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Intense selling in the greenback caused the Kiwi to spike to an overnight high of 0.6128 before retracing slightly lower by the end of the U.S. session. This currency pair was trading around 0.6110 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.6075
Resistance: 0.6145
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the seventh meeting in a row and agreed that interest rates need to remain at a restrictive level for a sustained period to ensure annual headline CPI inflation returns to the 1 to 3% target range.
- Restrictive monetary policy is contributing to an easing in capacity pressures while headline inflation, core inflation, and most measures of inflation expectations are continuing to decline. However, domestic inflation has fallen more slowly than expected and headline CPI inflation remains above the Committee’s target band.
- Higher dwelling rents, insurance costs, council rates, and other domestic services price inflation have resulted in a slow decline in domestic inflation, posing a risk to inflation expectations.
- GDP declined by 0.1% in the December 2023 quarter with economic growth having now been negative for four of the past five quarters. High interest rates have reduced household spending, as well as residential and business investment, despite very strong population growth. Recent indicators of economic activity have been weak, as expected.
- 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?
The huge dollar sell-off overnight finally caused USD/JPY to lose steam as it retreated away from the 162-level. This currency pair was edging lower towards 161 as Asian markets came online – these are the support and resistance levels for today.
Support: 160.30
Resistance: 162.00
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 Euro hit an overnight high of 1.0816 before retreating away from this level by the end of the U.S. session. This currency pair was trading around 1.0790 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 1.0770
Resistance: 1.0850
Central Bank Notes:
- The Governing Council today decided to lower the three key ECB interest rates by 25 basis points after nine months of holding rates steady.
- Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 4.25%, 4.50% and 3.75% respectively, with effect from 12 June 2024.
- Since September 2023, inflation has fallen by more than 2.5% and the inflation outlook has improved markedly while underlying inflation has also eased, reinforcing the signs that price pressures have weakened, and inflation expectations have declined at all horizons.
- At the same time, despite the progress over recent quarters, domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year – the latest Eurosystem staff projections for both headline and core inflation have been revised up for 2024 and 2025 compared with the March projections.
- Projections now show headline inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026 while economic growth is expected to pick up to 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026.
- The Council also confirmed that it will reduce the Eurosystem’s holdings of securities under the pandemic emergency purchase programme (PEPP) by €7.5 billion per month on average over the second half of the year.
- 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 18 July 2024.
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
CPI (6:030 am GMT)
What can we expect from CHF today?
Consumer inflation in Switzerland has moderated significantly lower over the last six months with headline and core CPI coming in at 1.4% and 1.2% respectively YoY in May. After rising 0.3% in each of the previous two months, June’s estimate of 0.1% points to a small monthly gain which should show overall inflation readings continuing to moderate lower. Should inflation come in ‘soft’ once more, the franc will likely weaken further to potentially boost USD/CHF before the start of the European trading hours.
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 Bullish
The Pound (GBP)
Key news events today
Parliamentary Elections (All Day)
What can we expect from GBP today?
The 2024 general election is scheduled for today in the U.K. where the incumbent Conservative party is expected to lose its majority seat in government to the Labour party, a feat that last occurred 14 years ago. The outcome of this election could cause wild swings for the Pound so traders should be mindful when navigating markets today – polling stations will be open from 6 am to 9 pm GMT.
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
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Intense selling in the greenback caused USD/CAD to tumble from 1.3680 and fall as low as 1.3617 overnight. This currency pair was trading around 1.3630 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 1.3610
Resistance: 1.3650
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 25 basis points to 4.75% while continuing its policy of balance sheet normalization.
- Canada’s economic growth resumed in the first quarter of 2024 after stalling in the second half of last year. At 1.7%, first-quarter GDP growth was slower than forecast in the MPR but consumption growth was solid at about 3%, and business investment and housing activity also increased.
- Inflation remains above the 2% target and shelter price inflation is high but total CPI inflation has declined consistently over the course of this year, and indicators of underlying inflation increasingly point to a sustained easing.
- CPI inflation has eased from 3.4% in December to 2.7% in April while the preferred measures of core inflation have come down from about 3.5% last December to about 2.75% in April and the 3-month rate of core inflation slowed from about 3.5% in December to under 2% in March and April.
- In the labour market, businesses are continuing to hire workers as employment has been growing, but at a slower pace than the working-age population while elevated wage pressures look to be moderating gradually.
- The Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- 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 24 July 2024.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events
What can we expect from Oil today?
Following the strong drawdown in API stockpiles, the EIA crude oil inventories also followed suit with a decline of 12.2M barrels of crude from storage to signal strong U.S. demand for this commodity. However, soft economic data out of the U.S. and China raised several concerns over long-term demand for crude. WTI oil rebounded from $84 per barrel to touch $84.54 during the U.S. session and was edging lower towards $83.50 as Asian markets came online.
Next 24 Hours Bias
Weak Bearish
