IC Markets Asia Fundamental Forecast | 21 July 2023
What happened in the US session?
Not only did unemployment claims in the US print below the forecast of 239k, the figure of 228k was also lower than the previous week’s reading. This marked the second week in a row where claims have been lower than the forecast and are trending lower, which suggest that the US labour market is still robust and acts a catalyst for higher demand for the US dollar – this caused the dollar index (DXY) surged from 100.35 to 100.95 overnight.
What does it mean for the Asia Session?
The DXY gapped lower early this morning but as Asian participants digest the latest claims figures from the US, we could expect another round of demand for the greenback. In addition, today’s economic calendar is pretty bare for all three sessions with only retail sales from the UK and Canada being the notable events. Thus, last night’s unemployment numbers could have a lasting impact on markets as the trading week comes to a close.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
With unemployment claims continuing to trend lower for the second consecutive week, demand for the greenback appears to be strong and the DXY looks set to break its two-week losing streak as markets come to a close on the last trading day of the week.
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 Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Weaker-than-expected unemployment claims in the US caused gold to dive from $1,980/oz to as low as $1,965/oz. However, gold prices found support around this level and are rebounding at the start of the Asia session with prices pushing towards $1,9745/oz.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
After being battered by the strength of the US dollar overnight, the Aussie dollar bounced quite strongly off the 0.6760-level. Could this currency pair retrace higher before resuming the downtrend as the day progresses?
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 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 tumbled before finding support around 0.6220 to rebound higher as the Asia session kicked off. With practically an empty calendar, expect the Kiwi to trade in tandem with the Aussie dollar.
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 Bullish
The Japanese Yen (JPY)
Key news events today
National CPI (11:50 pm GMT 20th July)
What can we expect from JPY today?
Inflation in Japan peaked in January of this year and has been ranging between 3.1% and 3.5% on average for the past four months. The latest readings for the month of June show both the headline and core CPI coming in at 3.3% YoY, printing higher than their respective forecasts. With other major economies showing strong disinflationary trends, could Japan buck the trend in the coming months?
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 Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
As widely expected, consumer confidence in the Eurozone continues to improve. However, claims data from the US took centre stage as the Euro plunged to hit 1.1120 overnight before retracing higher this morning. This currency pair could climb higher in the first half of the day before potentially reversing to resume the downtrend.
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 Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Switzerland’s trade surplus dropped to CHF3.3B in June from CHF4.4B in the previous month as exports fell while imports rose but weaker-than-expected unemployment claims in the US sent USDCHF soaring past 0.8680 overnight. However, this currency pair is now drifting lower towards 0.8650.
- 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
Retail Sales (6:00 am GMT)
What can we expect from GBP today?
Retail sales grew 0.3% MoM in May and the estimate of 0.2% for the month of June would mean sales growing for the third consecutive month. Retail sales have only declined once in 2023, falling 1.2% MoM in March. Just like its European neighbours, the pound plunged to a low of 1.2840 with weak claims figures acting as a major catalyst for demand for the US dollar. This currency pair is now retracing higher climbing towards 1.2890 but could resume the downtrend in the latter part of the day.
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
Retail Sales (12:30 pm GMT)
What can we expect from CAD today?
Retail sales in Canada have been mixed as sales declined in two out of the past four months. With the estimate for May indicating a growth of 0.5% MoM, this would mark the first time that sales have grown in consecutive months this year. This currency pair surged towards 1.3200 overnight fueled by weaker-than-expected unemployment figures from the US but is now pulling back towards 1.3160. It could slide lower during the Asia session before resuming the uptrend in the latter part of the day.
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
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Despite the weaker-than-expected drawdowns in US inventory levels, crude oil prices remain buoyed by the prospect of potential stimulus by China to stimulate its sluggish economy. WTI oil rebounded strongly after hitting a low of $74.50 per barrel overnight and is now driving towards the $76.50-mark.
Next 24 Hours Bias
Strong Bullish
