IC Markets Europe Fundamental Forecast | 10 July 2023
What happened in the Asia session?
The latest inflation data out of China continues to trend lower which indicates a lack of demand from both consumers and producers. The CPI registered a reading of 0% YoY, lower than the estimate of 0.2% while the PPI continues to decelerate further as it decreased 5.4% YoY. The dollar index (DXY) bounced quite strongly this morning but it seems to have run into resistance around the 102.50-mark.
What does it mean for the Europe & US sessions?
Despite the ADP report highlighting robust job gains last Thursday, it was the NFP figures that acted as a major catalyst for the direction of the US dollar last Friday. DXY dropped as low as 102.20 and after this morning’s strong rise, dollar weakness could re-emerge as Europe comes online.
The Dollar Index (DXY)
Key news events today
FOMC Member Barr Speaks (2:00 pm GMT)
What can we expect from DXY today?
FOMC Member Michael Barr is scheduled to participate in a panel discussion about bank supervision, regulation, and capital requirements at the Bipartisan Policy Center, in Washington DC. Questions from the audience expected and he could have a hawkish outlook with regards to monetary policy.
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 Bearish
Gold (XAU)
Key news events today
FOMC Member Barr Speaks (2:00 pm GMT)
What can we expect from Gold today?
FOMC Member Michael Barr is scheduled to participate in a panel discussion about bank supervision, regulation, and capital requirements at the Bipartisan Policy Center, in Washington DC. Questions from the audience expected and he could have a hawkish outlook with regards to monetary policy.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The miss in US NFPs last Friday lit a fire under the Aussie to momentarily surge past 0.6700. This pair retreated towards 0.6650 as markets opened today but it has found support around this level for now.
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
Medium Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Just like its neighbour, the Kiwi rose strongly last Friday as it broke above 0.6200 on the back of weaker-than-expected NFP data in the US. As markets opened early this morning, the Kiwi has fallen below 0.6200 before finding support around 0.6170.
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 Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Despite the general weakness in the US dollar this morning, USDJPY climbed after finding support around 142.10. As most of the major Asia-Pacific indices kicked off the new trading week in the green, risk-off sentiment appeared to be dissipating with USDJPY going above 143.00 for a very brief period of time. However, demand for the Japanese yen looks to be picking as we head into the European session.
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 Bearish
The Euro (EUR)
Key news events today
Sentix Investor Confidence (8:30 am GMT)
What can we expect from EUR today?
The Sentix Investor Confidence has been falling since March raising concerns about the economy as the index signals recessionary tendencies led by the weakness in the German economy. Despite the bleak outlook for the Eurozone, the Euro rose strongly last Friday to move above 1.0970 and is likely to remain elevated as last Friday’s NFP miss is weighing on DXY.
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 Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
the Swiss unemployment rate remains unchanged at 2.0% for the month of June while its foreign currency reserves continue to slide lower, with the latest reading at CHF725B. With the US dollar selling-off hard last Friday, USDCHF dived below 0.8900. This pair found support around 0.8890 this morning but it could resume the downtrend as the day progresses.
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
Weak Bearish
The Pound (GBP)
Key news events today
BoE Gov Bailey Speaks (7:00 pm GMT)
What can we expect from GBP today?
Bank of England Governor Andrew Bailey will be speaking at the Financial and Professional Services Dinner in London. Although it is unclear on which topics he will be covering during his speech, his remarks are bound to have some impact on the pound. With demand for the US dollar waning, Governor Bailey’s remarks could provide further a catalyst for the recent rise in the pound.
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
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Canada’s labour force survey last Friday for the month of June showed employment gaining by 60k jobs while the unemployment rate rose to 5.4% from 5.2%. USDCAD fell hard from 1.3370 to 1.3270 as the combination of a relatively strong Canadian employment survey with the NFP miss in the US triggered strong demand 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
Chinese CPI & PPI (1:30 am GMT)
What can we expect from Oil today?
The miss in NFP figures provided another tailwind for crude prices along with additional supply cut announcements from Saudi Arabia, Russia and Algeria during last week’s OPEC seminar. WTI oil prices climbed above $73.50 per barrel region and remain elevated despite the latest inflation data out of China continuing to trend lower which indicates a lack of demand from both consumers and producers.
Next 24 Hours Bias
Medium Bullish
