IC Markets Europe Fundamental Forecast | 14 July 2023
What happened in the Asia session?
The revised industrial production figures from Japan showed output activity decreasing by 2.2% MoM, more than the forecast of -1.6%. Despite the Bank of Japan maintaining their ultra dovish monetary policy stance to boost growth, the Japanese yen has gained significantly versus its peers over the past six trading sessions with USDJPY hitting a low of 137.25 today.
What does it mean for the Europe & US sessions?
The dollar index (DXY) dropped to a low of 99.60 this morning before retracing slightly higher. The only notable economic event today will be the preliminary consumer sentiment survey from the University of Michigan which will also reveal the level of inflation expectations. Another lower reading could likely add to further downward pressures for the DXY.
The Dollar Index (DXY)
Key news events today
UoM Consumer Sentiment Index (2:00 pm GMT)
What can we expect from DXY today?
The University of Michigan will release their preliminary findings on consumer sentiment and inflation expectations for the month of July. Consumer sentiment has been rising over the past couple of months and we could see this trend continuing while inflation expectations have been sliding lower. Another lower than expected reading from the inflation perspective is likely to act as a catalyst for a weaker US dollar.
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
UoM Consumer Sentiment Index (2:00 pm GMT)
What can we expect from Gold today?
The University of Michigan will release their preliminary findings on consumer sentiment and inflation expectations for the month of July. Consumer sentiment has been rising over the past couple of months and we could see this trend continuing while inflation expectations have been sliding lower. Another lower than expected reading from the inflation perspective is likely to spur demand for gold once more.
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?
US dollar weakness has sent the Aussie as high as 0.6890 and could eventually break above a key resistance level at 0.6900 today – the last time this pair broke above this region was in mid-June but it did not manage to hold its ground.
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 1 August 2023
Next 24 Hours Bias
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
Maori New Year.
What can we expect from NZD today?
It is a national holiday in New Zealand today as the country celebrates Matariki, the Maori new year. Meanwhile, the Kiwi is surging to new highs as it broke above a key resistance at 0.6400 – a level last seen in January earlier this year.
Central Bank Notes:
- The Monetary Policy Committee held the OCR steady at 5.50%
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the annualized target range of 1% to 3% while supporting maximum sustainable employment
- The Committee reached consensus to leave the OCR unchanged at 5.50%
- Interest rates must remain restrictive to ensure inflation returns to the target range while supporting maximum sustainable employment
- Next meeting is on 16 August 2023
Next 24 Hours Bias
Medium Bullish
The Japanese Yen (JPY)
Key news events today
Industrial Production (4:30 am GMT)
What can we expect from JPY today?
The yen is seeing significant gains versus almost all of its peers as the value of the US dollar falls off a cliff. USDJPY is currently trading around 137.70 after making a push towards 137.25 this morning.
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 28 July 2023
Next 24 Hours Bias
Medium Bearish
The Euro (EUR)
Key news events today
Trade Balance (9:00 am GMT)
What can we expect from EUR today?
Trade balance in the Eurozone had been improving steadily since the last quarter of 2022 before running into deficit once more in the month of June. However, the Euro smashed through 1.1200 with ease overnight as consumer and wholesale inflation figures in the US continue to highlight the disinflationary trends, causing major weakness in the US dollar.
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
PPI (6:30 am GMT)
What can we expect from CHF today?
The PPI reading, which measures wholesale inflation, decreased 0.3% YoY in the month of May as manufacturing in the Eurozone continues to contract as a whole. The forecast for the month of July indicates a small growth of just 0.2% YoY. Meanwhile, the franc has seen significant inflows causing USDCHF to tumble below 0.8600 overnight – a push towards 0.8550 is on the cards for this pair today at the very least.
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 Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Just like its European neighbours, the pound is climbing rapidly as it broke through 1.3100 and is likely to ascend towards 1.3150 today as markets see no love for the US dollar.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
As disinflationary trends gain further traction in the US and with the Bank of Canada raising interest rates at its recent monetary policy meeting this week, the Loonie has made serious ground versus the US dollar. USDCAD could fall under 1.3100 and beyond later today.
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 6 September 2023
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Once again, the weakness in the US dollar and the extension of production cuts by key OPEC members are providing huge tailwinds to crude oil prices as WTI surged past $77 per barrel overnight. Prices have retreated but markets can expect crude prices to end the week on a high note despite inventory increasing for both the API and EIA stockpiles.
Next 24 Hours Bias
Weak Bullish
