IC Markets Europe Fundamental Forecast | 10 May 2023
What happened in the Asia session?
The data released for Japan’s Leading Indicators reported a value of 97.5%, lower than the forecasted value of 97.9% and the previous value of 98.0%. This may be perceived as negative news for the Japanese economy, which could result in a decrease in demand for JPY and a depreciation of its value.
What does it mean for the Europe & US Sessions?
The US CPI data set release will be the main event in the US session. Before the US consumer figures, German CPI m/m is expected to remain at 0.4%, which may lead to a gyration of the EUR/USD around a 23.6% Fibonacci retracement level at 1.0970. Upside and downside targets in the event of data deviation are 1.1000 and 1.0940, respectively.
The Dollar Index (DXY)
Key news events today
CPI m/m
CPI y/y
Core CPI m/m
What can we expect from DXY today?
The upcoming release of the US CPI m/m is expected to increase 0.4% from the previous month’s 0.1%, while the annual variant is predicted to remain steady at 5.0%. The core CPI rate excludes volatile items and is expected to decline from 0.4% to 0.3%. A higher CPI rate indicates an increase in the cost of goods and services and may lead to a rise in the USD as the Fed has to maintain higher rates for longer to tame inflation.
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?
An elevated US CPI may lead to an increase in the USD and a drop in the appeal of gold as an investment. If the actual data corresponds to the projected figures, there will probably be a temporary drop in the price of gold. Nevertheless, the effect on gold could be restrained if the new data is similar to the previous readings.
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 China’s New Loans and M2 Money Supply y/y data could impact the AUD. The forecasted value for New Loans is 1400B, lower than the previous value of 3890B. This may suggest a decrease in demand for Australian exports to China, negatively impacting the AUD. However, the forecasted value for M2 Money Supply y/y is 12.5%, slightly lower than the previous 12.7%, which could positively impact the AUD if the Chinese central bank tightens its monetary policy.
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
Mixed
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
There is no significant news event for the New Zealand dollar (NZD) today, so its price direction is likely to be influenced by upcoming data releases. The previous FPI m/m data indicated a 0.8% increase in food prices, suggesting a potential rise in inflation that may lead to a future interest rate hike. If it shows a positive trend, the NZD could be strengthened. Conversely, a decline or no change in the FPI m/m data may weaken the NZD.
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?
Japan’s projected leading indicators stand at 97.9%, marginally lower than the initial value of 98.0%. Despite the significance of leading indicators in forecasting economic patterns, the minor alteration in the predicted figure is unlikely to impact the JPY substantially.
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
Mixed
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The German Final CPI is expected to remain unchanged at 0.4%, and the Italian Industrial Production is forecasted to increase by 0.2% compared to the previous month’s decrease of -0.2%. The German 30-y Bond Auction is expected to have a bond yield of 2.31%, and the bid-to-cover ratio is forecasted to be 1.1. The impact of these data releases on the EUR may be moderate.
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 Bullish
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 affecting the Swiss Franc today. As a result, the direction of the CHF’s price is expected to be influenced by the upcoming speech of the Swiss National Bank (SNB) Chairman, Thomas Jordan. Traders will be closely watching his statements for any indications of any forthcoming changes in monetary policy or concerns about the Swiss economy.
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
No major news events.
What can we expect from GBP today?
If demand for the UK 10-year auction exceeds the previous yield of 3.59 with a bid-to-cover ratio of 3.0, it may lead to increased demand for GBP as investors seek to participate in the higher yield.
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?
A negative forecast of -2.3% (previous 8.6%) for the Canadian Building Permits m/m suggests a decrease in permits for new construction, potentially leading to a slowdown in economic activity and a negative impact on the CAD.
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?
The UAE Energy Minister stated that while short-term fluctuations in oil supply and demand do not concern the UAE, the country is focused on making long-term investments to increase its oil capacity. The announcement suggests that the UAE is committed to maintaining its position as a significant producer of crude oil. The move may also impact global oil prices, given that the country’s production levels reached 3.2 million barrels per day in 2022.
Next 24 Hours Bias
Mixed
