IC Markets Asia Fundamental Forecast | 17 July 2023
What happened in the US session?
The University of Michigan released its preliminary findings on consumer sentiment and inflation expectations for the month of July in the US last Friday. Consumer sentiment rose for the second month in a row while the year-ahead inflation expectations were almost unchanged, inching up from 3.3% to 3.4%. The sharp rise in sentiment was attributable to the continued slowdown in inflation, observed in the recent CPI and PPI data, and a robust labour market. The dollar index (DXY) tumbled 2.2% last week, shedding 230 pips in the process as strong disinflationary trends weighed heavily on the DXY over the past two weeks.
What does it mean for the Asia Session?
The DXY is currently trading around 100 as markets re-opened this morning. After last week’s bruising sell-off, we could see DXY edge higher as the big figure of 100 could provide some support and the possibility of short-covering taking place on the US dollar shorts.
China will also be releasing its GDP figures along with other key data such as industrial production and retail sales this morning. Stronger-than-estimate readings would signal manufacturing activity starting to pick up and could buoy crude prices today.
The Dollar Index (DXY)
Key news events today
Empire State Manufacturing Index (12:30 pm GMT)
What can we expect from DXY today?
Manufacturing activity has been contracting nationwide in the US for the past eight months while activity in the state of New York has also been depressed apart from the months of April and June, where manufacturing growth saw short-lived expansions. Could July’s reading finally show this sector expanding for the second month in a row? This would mark the first time since December 2021 that activity has expanded in successive months.
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
Weak Bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Gold jumped as high as $1,963/oz last week, gaining over 1.6% or 3,000 pips as the sell-off in the US dollar provided a huge tailwind for this precious metal. As DXY could retrace higher in the near-term, spot prices for gold could come under pressure.
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?
US dollar weakness sent the Aussie within a whisker of 0.6900 last week but it is looking fragile as the new trading week gets underway with this pair falling towards 0.6800 as Asia markets come online.
Central Bank Notes:
- The RBA did not raise the cash rate and kept the target at 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 Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
New Zealand markets re-opened this morning after their long weekend as the Kiwis celebrated Matariki, the Maori new year, last Friday. The Kiwi broke above 0.6400 last week but the pair is now pulling back along with its Pacific neighbour.
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 16 August 2023
Next 24 Hours Bias
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Despite the Bank of Japan’s ultra dovish monetary policy stance, the Japanese yen saw massive inflows last week as the DXY cratered. USDJPY lost approximately 4.0% or 580 pips since Thursday, 6th July, but this currency pair found strong support last Friday. However, the downtrend looks to have resumed as markets opened today..
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
Weak Bearish
The Euro (EUR)
Key news events today
ECB President Lagarde Speaks (8:15 am GMT)
What can we expect from EUR today?
ECB President Christine Lagarde will be delivering her opening remarks at the ECB conference in Frankfurt, Germany, where her comments could continue to keep the Euro elevated after climbing past 1.1200 last week.
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
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Just like the Japanese yen, the Swiss franc also saw heavy inflows as this currency pair dropped as low as 0.8570 last week before finding support around 0.8600. As the new trading week begins, USDCHF could retrace higher as some demand for the US dollar returns.
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 Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Just like the Euro, the pound soared past 1.3100 as the US dollar fell on strong disinflationary CPI and PPI data in the US. As the DXY could retrace higher in the near-term, we could see the pound pulling back initially today.
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 Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
As disinflationary trends gained further traction in the US while the Bank of Canada raised interest rates at last week’s monetary policy meeting, the Loonie gained significantly causing USDCAD to fall under 1.3100 briefly. However, this pair rebounded strongly last Friday to climb above 1.3200.
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 Bullish
Oil
Key news events today
Chinese GDP & Industrial Production (2:00 am GMT)
What can we expect from Oil today?
China has not reopened in the manner that many economists and analysts alike thought it would. Many had predicted this industrial and manufacturing would arise from its self-imposed lockdowns with a vigour to revitalize global demand and economic growth but that has failed to materialize thus far. This has also caused crude prices to remain relatively subdued despite key OPEC members extending their respective production cuts. WTI oil closed just above $75 per barrel last week and could come under selling pressure once more should China’s economic data disappoint once more.
Next 24 Hours Bias
Medium Bearish
