IC Markets Europe Fundamental Forecast | 8 May 2023
What happened in the Asia session?
The BoJ’s March Meeting Minutes indicate that the members are concerned about the potential acceleration of inflation, with several members emphasising the need for vigilance. The minutes reveal a high uncertainty surrounding Japan’s economy, with some members expressing optimism about the BoJ’s price objective being met. In contrast, others believe the balance of stimulus effects and costs should be scrutinised. The BoJ is closely monitoring inflation and the effectiveness of its stimulus measures, with large stimulus measures being maintained for the time being.
On the Aussie front, the lower-than-expected Building Approvals m/m may lead to a decrease in demand for the AUD, while steady business confidence may positively impact the AUD.
What does it mean for the Europe & US Sessions?
The Euro may react off 1.1050 if the upcoming German Industrial Production m/m falters or the US’s Final Wholesale Inventories m/m exceeds expectations significantly. Should the latter release work in favour of the USD, the Asia session outperformer, the Aussie, may retrace from an intermediate peak at 0.6770 and towards the round level support at 0.6700.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
The upcoming release of the Final Wholesale Inventories m/m for USD is expected to remain at 0.1%, which measures the change in the total value of goods held in inventory by wholesalers in the United States. A higher-than-expected figure may strengthen the USD, while a lower-than-expected figure may weaken it.
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?
The solid labour data from the US reveals positive trends in the job market and wage growth. This suggests an improvement in the US economy, which may boost consumer spending and confidence and strengthen the value of the US dollar in the short term. Consequently, the precious metal priced in USD may be negatively impacted.
Next 24 Hours Bias
Weak bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Two upcoming data releases will likely negatively impact the dollar (AUD): Building Approvals m/m and NAB Business Confidence. The forecasted Australian Building Approvals m/m figure is 3.0%, a decrease from the previous figure of 4.0%. Building approvals are a leading indicator of the economy’s health, and an increase in approvals is positive for the economy and can lead to a rise in the AUD. Another drop in the NAB Business Confidence index (previous -1) would suggest that businesses are less confident in the economy, potentially leading to a decrease in the value of 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?
Today, there are no major news events scheduled for the NZD. The direction of its price is likely to be influenced by the previously released data, including the Building Consents m/m figures, which show a 7.0% increase in the current period compared to a 9.4% decrease in the previous period. Additionally, the ANZ Commodity Prices m/m figures show a 1.7% decrease in the current period compared to a 1.3% increase in the previous period.
Central Bank Notes:
- OCR increased by 50bps from 4.75% to 5.25%
- Recent severe weather events in the North Island have led to higher prices, increasing the risk of inflation expectations exceeding the target range.
- New Zealand’s economic growth is expected to slow through 2023 due to the slowing global economy, reduced residential building activity, and the ongoing effects of monetary policy tightening.
- Next meeting is on 25 May 2023
Next 24 Hours Bias
Mixed
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The upcoming release of the Monetary Policy Meeting, Minutes in Japan will likely significantly impact the Japanese yen (JPY). The minutes provide insights into the Bank of Japan’s recent monetary policy decisions and discussions and may reveal clues about the BOJ’s plans and expectations for the Japanese economy. If the minutes suggest a more hawkish tone, the JPY may rise, while a more dovish tone could weaken 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 27 April 2023
Next 24 Hours Bias
Mixed
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The upcoming data releases for the EUR include the German Industrial Production m/m, which is expected to show a decline of 1.6% from the previous month, and the Sentix Investor Confidence report, which is expected to show a slight improvement with a reading of -7.9. A negative reading in the Sentix Investor Confidence report indicates a lack of confidence, which could result in a decrease in investment and slower economic growth. On the other hand, the negative impact of the German Industrial Production m/m data may outweigh the positive effects of the Sentix Investor Confidence report.
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
Mixed
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
There is no major news event for the CHF currency today, and the previously released data likely influence its price direction. The focus is on the CPI m/m, with a value of 0.0%, lower than the forecasted value for the current period being 0.2%, the same as the previous period. This development may decrease the CHF’s value against other major currencies.
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
Weak Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
UK banks will be closed in observance of the coronation of King Charles III. The usual effect of low liquidity and irregular volatility can be expected for the GBP.
Central Bank Notes:
- The BoE’s MPC increased the Bank Rate by 25bps to 4.25%, with a majority of 7-2 in favour of the hike
- The UK banking system is judged to be robust and resilient.
- CPI inflation increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- The MPC will continue to monitor inflationary pressures and adjust Bank Rate as necessary.
- Next meeting on 11 May 2023
Next 24 Hours Bias
Mixed
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
No major news event will affect the CAD today, so previously released data will likely influence its price direction. The latest data shows that the employment change in Canada for the current month was 41.4K, surpassing the forecasted 21.6K and the previous month’s 34.7K. The unemployment rate for the last recent months was 5.0%. As a result, the CAD currency may experience increased demand.
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 bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
The value of oil remains under pressure as the chance of a worldwide economic downturn persists and unfavourable emotions stemming from instability in US regional banks and weakened Chinese manufacturing operations.
Next 24 Hours Bias
Weak bearish
