IC Markets Europe Fundamental Forecast | 26 May 2023
What happened in the Asia session?
The Tokyo Core CPI came in at 3.2% year-on-year, lower than the forecasted 3.4% and the previous rate of 3.5%. The weaker-than-expected data could negatively impact the Japanese Yen as it might lead to a more dovish stance from the Bank of Japan, possibly resulting in continued low-interest rates.
What does it mean for the Europe & US Sessions?
The recent rise in the DXY may see profit-taking deepening if the US Core PCE Price Index m/m comes in significantly lower than 0.3%. A drop towards 103.40 would not be surprising. Otherwise, stubborn inflation in the US may propel the Dollar Index higher towards 105.00
The Dollar Index (DXY)
Key news events today
Core PCE Price Index m/m
What can we expect from DXY today?
The forecasted and previous data for the Core PCE Price Index m/m indicate a 0.3% change. As a result, the upcoming release of this data is only expected to impact the USD if a substantial deviation occurs significantly. Since this gauge is the Fed’s favourite measure of inflation, a lower-than-expected figure will likely weaken the USD as the central bank can justify recent dovish comments on the interest rate hike path.
Central Bank Notes:
- The committee raised the target range for the federal funds rate to 5 to 5-1/4 per cent. The U.S. banking system is sound and resilient.
- Tighter credit conditions for households and businesses may weigh on economic activity, hiring, and inflation.
- The committee is committed to returning inflation to its 2% objective
- The committee will adjust monetary policy as appropriate if risks emerge that could impede the attainment of goals
- Next meeting is on 14 June 2023
Next 24 Hours Bias
Mixed
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
If the Core PCE Price Index m/m is lower than expected, it could weaken the USD and align with recent dovish comments from the Fed. This could positively affect the price of gold as it would suggest a reduced likelihood of monetary policy tightening, which can be favourable for gold.
Next 24 Hours Bias
Mixed
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The upcoming release of Australia’s Retail Sales data is expected to show a 0.3% increase month-on-month (m/m), a slight drop compared to the previous figure of 0.4%. If the actual data meets or falls below the forecasted growth rate, it could weaken market sentiment and lead to a drop in the AUD.
Central Bank Notes:
- The Official Cash Rate was increased by 25 basis points to 3.85%.
- Inflation in Australia has passed its peak but remains high at 7%, and it may take some time to return to the target range.
- GDP is forecast to increase by 1.25% this year and around 2% over the year to mid-2025.
- Next meeting on 6 June 2023
Next 24 Hours Bias
Weak bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
No major news is expected for the NZD today, but its price direction is likely influenced by the recent dovish RBNZ decision to raise the OCR from 5.25% to 5.50%.
Central Bank Notes:
- The Monetary Policy Committee has raised the OCR from 5.25% to 5.50%
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the target range while supporting maximum sustainable employment
- The Committee voted by a majority of five to two to increase the OCR by 25 basis points to 5.50%
- Interest rates must remain restrictive to ensure inflation returns to the target range while supporting maximum sustainable employment
- Next meeting is on 12 July 2023
Next 24 Hours Bias
Weak bearish
The Japanese Yen (JPY)
Key news events today
Tokyo Core CPI y/y
What can we expect from JPY today?
The upcoming data releases for the JPY include the Tokyo Core CPI y/y, forecasted to decrease from 3.5% to 3.4%, and the Services Producer Price Index (SPPI) y/y, predicted to fall from 1.6% to 1.4%. If the actual data matches the forecasts, the impact on the JPY may be limited. A significantly lower-than-expected CPI may weigh on the JPY, while a lower-than-expected SPPI by a wide margin could hurt the currency.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2%
- Japan’s economy is expected to recover gradually
- The bank will not hesitate to take additional easing measures if necessary
- Next meeting is on 15 June 2023
Next 24 Hours Bias
Weak bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
Today, no major news event impacts the EUR. The previously released data for Germany shows a contraction of -0.3% in the Final GDP q/q, indicating a decline in economic output. The German GfK Consumer Climate index improved slightly from -25.8 to -24.2, suggesting a somewhat more optimistic outlook among German consumers. These figures will likely influence the direction of the EUR price today in the absence of significant news events.
Central Bank Notes:
- The ECB has decided to raise the three key interest rates by 25 basis points as the inflation outlook continues to be too high for too long.
- The ECB will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Renewed financial market tensions and Russia’s war against Ukraine remain significant economic downside risks.
- The continued resilience of the labour market could lead to higher growth than anticipated.
- Next meeting on 15 June 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?
No major news events are scheduled for release from Switzerland today.
Central Bank Notes:
- Raised policy rate to 1.5% to counter inflationary pressure and ensure price stability. The SNB may need to raise the policy rate further in the future
- The SNB is providing liquidity assistance to Credit Suisse, and the crisis has been halted
- The new inflation forecast assumes a policy rate of 1.5% and puts average annual inflation at 2.6% for 2023 and 2.0% for 2024 and 2025.
- Mortgage and real estate market vulnerabilities persist
- Next meeting on 22 June 2023
Next 24 Hours Bias
Mixed
The Pound (GBP)
Key news events today
Retail Sales m/m
What can we expect from GBP today?
The upcoming release of the UK’s Retail Sales m/m data is forecasted to show a growth of 0.3%, following a previous decline of -0.9%. This positive change suggests increased consumer spending and economic activity within the retail sector. The GBP is expected to benefit from the improved data.
Central Bank Notes:
- The MPC of the BoE voted 7-2 to increase Bank Rate by 0.25 percentage points to 4.5%.
- The updated projections show that CPI inflation is expected to decline slightly above 1% at the two and three-year horizons, below the 2% target.
- CPI increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- Next meeting on 22 June 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?
No major news event today impacts the currency, meaning the price direction will likely draw from previously released data. The Canadian dollar may face bearish pressure due to a recent contraction in quarterly corporate profits.
Central Bank Notes:
- Bank of Canada holds its target for the overnight rate at 4.5%
- Labour markets remain tight with persistent price pressures, especially for services
- Economic growth in Q1 looks to be stronger than projected; to be weak through the remainder of this year before strengthening gradually next year
- Prepared to increase the policy rate further to return inflation to the 2% target.
- Next meeting on 7 June 2023
Next 24 Hours Bias
Weak bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Russian Deputy Prime Minister, Alexander Novak, downplayed the likelihood of further production cuts by the OPEC+ alliance at their upcoming meeting. The OPEC+ meeting, anticipated to address production adjustments, had previously fuelled optimism and supported oil prices. However, with Novak’s dismissal of additional cuts, a decline in oil prices is likely.
Next 24 Hours Bias
Weak bearish
