IC Markets Europe Fundamental Forecast | 5 July 2023
What happened in the Asia session?
Retail sales in Australia grew marginally, rising 0.7% MoM. Although sales have been weak since February of 2023, this was the strongest month of growth thus far. The Caixin China Services PMI report showed growth for the service sector cooling to a 5-month low – business activity and new orders are still expanding but at slower rates while cost pressures remain relatively muted.
What does it mean for the Europe & US sessions?
The findings in this morning’s Caixin Chinese Services PMI report should paint a similar scenario for the services PMI reports for the Eurozone and the UK. Economic growth in most of the developed countries has been led by the services sector in the first half of 2023 but now it appears that this sector is beginning to take its foot off the pedal. On a positive note, inflationary pressures as a whole have been receding, especially at the wholesale- and producer-level.
The Dollar Index (DXY)
Key news events today
FOMC Meeting Minutes (6:00 pm GMT)
FOMC Member Williams Speaks (8:00 pm GMT)
What can we expect from DXY today?
US markets fully re-open today and all eyes will be on the latest minutes from June’s FOMC meeting followed by FOMC member John Williams’ participation in a fireside chat, “Monetary Policy: Lessons and Challenges”, at the Annual Meeting of the Central Bank Research Association, in New York.
Central Bank Notes:
- The federal funds rate target range will be 5 to 5-1/4 per cent.
- The Committee is strongly committed to returning inflation to its 2% 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 is on 26 July 2023
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
FOMC Meeting Minutes (6:00 pm GMT)
FOMC Member Williams Speaks (8:00 pm GMT)
What can we expect from Gold today?
Gold has run into resistance around the $1,930/oz region once more as demand for the US dollar picks up this morning. With demand for DXY picking up during the Asia session, gold could drift lower towards $1,910/oz again. Markets will be closely watching the latest minutes from June’s FOMC meeting followed by FOMC member John Williams’ participation in a fireside chat, “Monetary Policy: Lessons and Challenges”, at the Annual Meeting of the Central Bank Research Association, in New York – events that are bound to have a major impact on gold prices as the US session begins later today.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
Retail Sales (1:30 am GMT)
What can we expect from AUD today?
Retail sales figures for the month of May showed sales growing marginally at 0.7% MoM. Although sales have been weak since February of 2023, this was the strongest month of growth this far.
Central Bank Notes:
- The RBA increased the cash rate target by 25 basis points to 4.10%.
- Inflation in Australia has passed its peak but remains high at 7% and needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 4 July 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?
The Kiwi traded between 0.65180 and 0.6210 overnight as markets were relatively muted. With US markets fully re-opening today, we can expect trading activity to pick up as the day progresses.
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
No major news events.
What can we expect from JPY today?
The divergence in monetary policy between the Federal Reserve and the Bank of Japan continues to push USDJPY higher. We can expect this pair to test the 145-level again, especially if the FOMC meeting minutes and FOMC member John Williams’ participation in a fireside chat are hawkish.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2%
- 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%.
- 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 27 July 2023
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
Services PMI (8:00 am GMT)
PPI (9:00 am GMT)
What can we expect from EUR today?
The services sector in the Eurozone has been leading overall economic growth since the start of the year. The latest reading is likely to show this sector expanding once more but at a slower rate than the previous month’s.
The Producer Price Index (PPI) has been decelerating sharply on a monthly basis as the European manufacturing sector remains entrenched in a prolonged downturn. On the upside, slower manufacturing activity helps to alleviate the overall inflationary pressures in the EU.
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 27 July 2023
Next 24 Hours Bias
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The FOMC meeting minutes and FOMC member John Williams’ participation in a fireside chat are likely to have an impact on the US dollar and provide a clear direction for USDCHF in the latter part of the day.
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% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Medium Bullish
The Pound (GBP)
Key news events today
Services PMI (8:30 am GMT)
What can we expect from GBP today?
Just like its European neighbors, the services sector in the UK has been leading overall economic growth in most developed economies. The latest reading is likely to show this sector expanding but at a slower rate than the previous month’s.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.5 percentage points to 5%.
- Two members preferred to maintain the Bank Rate at 4.5%.
- CPI inflation is expected to fall significantly due to developments in energy prices.
- 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.
- Next meeting on 3 August 2023
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The FOMC meeting minutes and FOMC member John Williams’ participation in a fireside chat are likely to have an impact on the US dollar and will provide direction for USDCAD in an otherwise quiet calendar for the Loonie.
Central Bank Notes:
- The Bank of Canada increased its target for the overnight rate to 4.75%.
- Canada’s economy was more substantial than expected in the first quarter of 2023, with GDP growth of 3.1%.
- The Bank expects CPI inflation to ease to around 3% in the summer, but concerns have increased about inflation staying above the 2% target.
- Next meeting on 12 July 2023
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
OPEC Seminar (5th to 6th July)
API Weekly Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
The 8th OPEC International Seminar kicks off today in Vienna, Austria, and we can expect crude prices to be relatively volatile over the next couple of days. The API crude oil stock will also be released later today and a third consecutive weekly drawdown could provide an additional catalyst for oil bulls.
Next 24 Hours Bias
Weak Bullish
