IC Markets Europe Fundamental Forecast | 12 September 2023
What happened in the Asia session?
The NAB Business Confidence edged higher to 2 for the month of August while July’s reading was revised lower to 1. Although business conditions improved along with sales, confidence still remains at historically low levels. The Aussie rose as high as 0.6440 this morning before running out of steam and could potentially start to pull back during the latter part of the day.
What does it mean for the Europe & US sessions?
Although still in negative territory, the ZEW Economic Sentiment for the Euro Area increased to -5.5 in August which was the highest reading in four months. With the Eurozone Composite PMI contracting for the third month in a row in August, it should come as no surprise that the estimate of -6.2 for September points to a deeper negative reading. A weaker than expected reading could be bearish for the Euro.
The Dollar Index (DXY)
Key news events today
NFIB Small Business Index (10:00 am GMT)
What can we expect from DXY today?
Although the NFIB Small Business Index increased marginally in July, small business owners continue to manage a challenging economic environment, forming a dismal view on future sales growth and business conditions. The estimate for August points to a slight fall for this index, reflecting the bleak outlook by small business owners. A much weaker than expected reading could act as a bearish catalyst for the DXY.
Central Bank Notes:
- The federal funds rate target range will be 5.25% to 5.50%.
- The Committee is strongly committed to returning inflation to its 2.0% target.
- The Committee will adjust monetary policy if risks emerge that could hinder achieving its goals.
- Various factors will be considered, including labour market conditions, inflation pressures, inflation expectations, and international and financial developments.
- Next meeting runs from 19 to 20 September 2023.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The overnight price action in gold highlighted the temporary breakdown in negative correlation between this precious metal and the US dollar. However, the negative correlation appears to be coming to the forefront once again as gold prices stabilized around the $1,920/oz level this morning.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
NAB Business Confidence (1:30 am GMT)
What can we expect from AUD today?
The NAB Business Confidence edged higher to 2 for the month of August while July’s reading was revised lower to 1. Although business conditions improved along with sales, confidence still remains at historically low levels. The Aussie rose as high as 0.6440 this morning before running out of steam and could potentially start to pull back during the latter part of the day.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the third consecutive meeting.
- Inflation in Australia has passed its peak and is trending lower but needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 3 October 2023.
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?
The Kiwi rose as high as 0.5920 during the Asia session but has since started to pull back with demand for the US dollar picking up once again.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the 1% to 3% target range while supporting maximum sustainable employment.
- Headline inflation and inflation expectations have declined but the core reading remains too high.
- Next meeting is on 4 October 2023.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
PPI (11:50 pm GMT)
What can we expect from JPY today?
The Producer Price Index (PPI), which measures wholesale inflation, has been trending lower over the past seven months with July’s reading easing to 3.6% YoY. The estimate of 3.3% for August points to another month of slower inflation for the wholesale sector which leaves the Bank of Japan in no hurry to raise their key policy rate from -0.1%. After Bank of Japan’s Governor Kazuo Ueda’s surprise hawkish comments yesterday, USD/JPY tumbled as low as 145.90 before retracing as high as 146.95 during the US session. This currency pair is now pushing towards 147.00.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2.0%.
- 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 around +0.5%.
- Inflation is expected to decelerate temporarily but is projected to accelerate moderately later, supported by improvements in the output gap and inflation expectations.
- Japan’s economy is expected to recover gradually.
- Next meeting is on 22 September 2023.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
ZEW Economic Sentiment (9:00 am GMT)
What can we expect from EUR today?
Although still in negative territory, the ZEW Economic Sentiment for the Euro Area increased to -5.5 in August which was the highest reading in four months. With the Eurozone Composite PMI contracting for the third month in a row in August, it should come as no surprise that the estimate of -6.2 for September points to a deeper negative reading. A weaker than expected reading could be bearish for the Euro.
Central Bank Notes:
- The ECB raised the three key interest rates by 25 basis points.
- Economic growth projections have been slightly lowered.
- The Governing Council will ensure interest rates are sufficiently restrictive to achieve the inflation target and keep them at those levels as long as needed.
- Rate decisions will be data-dependent, considering inflation outlook, economic data, underlying inflation dynamics, and monetary policy transmission strength.
- Next meeting on 14 September 2023.
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Following the weakness in the US dollar, USD/CHF dropped as low as 0.8900 during the Asia session before consolidating around 0.8910. With no news on the calendar for the Swiss franc, USD/CHF could continue to trade around this level.
Central Bank Notes:
- SNB has tightened its monetary policy further, raising the SNB policy rate by 0.25 percentage points to 1.75%.
- The new forecast predicts average annual inflation at 2.2% for 2023 and 2024 and 2.1% for 2025. Without the rate increase, the estimates would be even higher.
- 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 GDP is projected to grow around 1.0% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
Claimant Count Change (6:00 am GMT)
Average Earnings Index (6:00 am GMT)
Unemployment Rate (6:00 am GMT)
What can we expect from GBP today?
The UK ‘s labour market data for the month of August will be released today which indicates a potential increase in the unemployment rate from 4.2% to 4.3% – the highest level since late-2021. However, the claimant count change points to just 17.1k people claiming unemployment benefits which would be quite a significant drop from July’s reading of 29k. An overall robust labour market report could function as a bullish catalyst for the Pound today.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.25 percentage points to 5.25%.
- One member preferred to maintain the Bank Rate at 5.0% while another two preferred to increase it by 0.5 percentage points.
- CPI inflation is expected to fall significantly to around 5% by the end of the year, accounted for by lower energy prices but services price inflation is projected to remain elevated in the near term.
- The updated projections show that CPI inflation is expected to decline to 2.0% and 1.9% at the two and three-year horizons respectively.
- Next meeting on 21 September 2023.
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?
Following the weakness in the US dollar, USD/CAD dropped as low as 1.3570 this morning – this currency pair could continue to slide lower today.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0%.
- Canada’s economy was more substantial than expected in the second quarter of 2023, with GDP growth of 3.3%.
- The Bank expects CPI inflation to ease to around 3.0% in the summer, but concerns have increased about inflation staying above the 2.0% target.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
OPEC Monthly Report (11:00 am GMT)
API Weekly Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
API and EIA oil inventories experienced larger than expected drawdowns last week which signal increased demand for this commodity in the US. Another higher-than-expected drawdown in API stockpiles is likely to keep crude prices buoyed, especially with Saud Arabia and Russia extending their respective production cuts till the end of the year.
Oil markets will also be focused on the upcoming monthly report from the Organization of Petroleum Exporting Countries (OPEC) which is due later today. The cartel is expected to offer more clues on oil supply, especially after the recent cuts by Saudi Arabia and Russia. Any forecasts on demand will also have an impact on crude prices. WTI oil hit a high of $87.60 per barrel overnight before pulling back slightly – it is now making another attempt towards this level.
Next 24 Hours Bias
Medium Bullish
