IC Markets Europe Fundamental Forecast | 3 July 2023
What happened in the Asia session?
Manufacturing activity in China remains subdued but the latest reading points to a slower rise as output expanded marginally while demand growth was mild. However, business confidence slipped to a 8-month low while input prices fell at the quickest rate since January of 2016. In addition, the Australian manufacturing sector downturn continues to persist in June as new orders and output remain in contraction while price pressures ease further.
What does it mean for the Europe & US sessions?
The DXY bears reappeared with force for the first time since mid-June during the Asia session. As markets digest the softer inflation print from the US, the sell-off in the greenback could accelerate further. However, DXY is rising strongly prior to European markets coming online as it rose from 102.86 to climb above 103.20.
The Dollar Index (DXY)
Key news events today
ISM Manufacturing PMI (2:00 pm GMT)
What can we expect from DXY today?
ISM Manufacturing PMI data will be released later today and it is likely to indicate that the American manufacturing sector is contracting for the seventh consecutive month while inflationary pressures continue to dissipate – both factors contributing towards a negative outlook for the U.S. dollar. However, demand for the US dollar has picked up as markets head into the European open.
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
No major news events.
What can we expect from Gold today?
Softer readings from the PCE Price Index and the University of Michigan’s inflation expectations lit a fire under gold to send it soaring beyond $1,920/oz briefly last Friday. Spot prices pulled back marginally at today’s open but resumed their ascend during the Asia’s trading hours. However, gold prices are now falling as demand for the US dollar appears to be seeping back in.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Manufacturing PMI (11:00 pm GMT 2nd July)
What can we expect from AUD today?
The Australian manufacturing sector downturn persists in June as new orders and output continue to remain in contraction territory while price pressures ease further. Despite faltering economic activity, the Aussie rose strongly during Asian trading hours as softer inflation data from the U.S. caused a major sell-off in the greenback.
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 Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Just like its Pacific neighbour, the Kiwi starts the new trading week as one of the strongest performing currencies. Despite gaping lower at the open, NZDUSD has bounced strongly and broke above 0.6150 briefly before pulling back slightly.
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
Medium Bullish
The Japanese Yen (JPY)
Key news events today
Manufacturing PMI (12:30 am GMT)
What can we expect from JPY today?
The final manufacturing PMI data highlighted renewed deterioration for this sector as both output and new orders pulled back while input prices rose at the slowest rate in 28 months. Both these conditions allow the Bank of Japan to maintain its dovish monetary policy stance causing USDJPY to bounce early this morning. Despite the general weakness in the U.S. dollar, this currency pair should remain elevated as the new trading week kicks off.
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
Manufacturing PMI (8:00 am GMT)
What can we expect from EUR today?
The final manufacturing PMI data for the month of June will be released today and is all but certain to highlight this sector as a principal area of weakness. One positive outcome should be the continued easing of inflationary pressures in this sector.
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
Manufacturing PMI (7:30 am GMT)
What can we expect from CHF today?
Manufacturing activity has been contracting since January of this year while inflation pressures have been easing. As the greenback sold off aggressively last week, USDCHF hit 0.8940 and continues to remain under heavy pressure as trading kicked off early this morning.However, this currency pair has reversed strongly to climb as high as 0.8980 in the latter part of Asia trading hours.
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
Manufacturing PMI (8:30 am GMT)
What can we expect from GBP today?
The U.K. is also set to release the final figures for its manufacturing sector which has been mirroring its European neighbours. Economic activity in the U.K has not been robust and GBPUSD looks fragile going into the European open.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase Bank Rate by 0.5 percentage points to 5%.
- Two members preferred to maintain 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
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
After the initial sell-off at the start of the day, USDCAD has bounced from 1.3240 to move as high as 1.3270 as demand for the US dollar appears to grow as we head into the European open.
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
Caixin Manufacturing PMI (1:45 am GMT)
What can we expect from Oil today?
Despite the continued slowdown in manufacturing activity in China, crude prices remain elevated. WTI oil has climbed steadily over the last three trading sessions and today is no different with prices climbing higher during Asia’s trading hours. There was a slight pull back during the latter part of Asian trading session but prices could remain above $70 per barrel.
Next 24 Hours Bias
Medium Bullish
