IC Markets Europe Fundamental Forecast | 27 July 2023
What happened in the Asia session?
After falling under 100.70 right at the start of the Asia session, the dollar index (DXY) found support around 100.80 before retracing to climb higher. It is currently trading around 100.95 as Europe starts to wake up.
What does it mean for the Europe & US sessions?
Following the Federal Reserve’s FOMC statement release overnight, the ECB will now take centre stage today as they are widely expected to raise their main refinancing rate by 25 bps to bring it up to 4.25%. Following the statement, ECB President Christine Lagarde will be delivering her remarks during the press conference where we could potentially see the Euro make further gains.
The Dollar Index (DXY)
Key news events today
GDP (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
The US will release its advance estimate for first quarter GDP figures today. With the third estimate previously showing a growth of 2.0% YoY, we can expect the advance estimate to print close to this figure. Unemployment claims have been trending lower over the past two weeks, coming in lower than their respective forecasts. However, claims are forecasted to hit 234k, which is higher than last week’s reading of 228k. Should claims figures come in higher than the estimate, the sell-off in the US dollar is likely to accelerate.
Central Bank Notes:
- The federal funds rate target range will be 5.25% to 5.50%.
- 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 runs from 19 to 20 September 2023.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
Gold prices surged from $1,967/oz to as high as $1,978/oz as markets inferred Chairman Jerome Powell’s FOMC press conference as dovish. As market participants from Asia and Europe digest the latest FOMC outcome, they provided additional fuel for gold to touch $1,982/oz before starting to pullback. Unemployment claims in the US are forecasted to hit 234k, which is higher than last week’s reading of 228k. Should claims figures come in higher than the estimate, the demand for this precious metal is likely to accelerate.
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?
As the US dollar sold off hard overnight, the Aussie dollar rallied strongly to hit 0.6782 and climbed as high as 0.6820 during the Asia session. This currency pair has now reversed to fall quite sharply as Europe comes online.
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
No major news events.
What can we expect from NZD today?
Just like its neighbour, the Kiwi dollar rallied strongly this morning as it was one of the best performing currencies versus the US dollar. This currency pair managed to break through the key resistance level of 0.6240 during the Asia session to go as high as 0.6270 but it is now starting to retreat off this morning’s high.
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
No major news events.
What can we expect from JPY today?
Despite the ongoing monetary policy divergence between the Federal Reserve and the Bank of Japan, USDJPY tumbled despite Chairman Jerome Powell raising the interest rates up to 5.50%. This currency pair broke under 140 to fall as low as 139.40 but it has since reversed to bounce higher as the Asia session comes to an end.
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
ECB Monetary Policy Statement (12:15 pm GMT)
ECB Press Conference (12:45 pm GMT)
What can we expect from EUR today?
The ECB will be following in the footsteps of the Federal Reserve as they too are widely expected to raise their main refinancing rate by 25 bps to bring it up to 4.25%. Following the statement, ECB President Christine Lagarde will be delivering her remarks during the press conference where she could jawbone the Euro to greater heights. The Euro momentarily broke above 1.1100 overnight but has since reversed to drop below this level.
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?
Following the FOMC statement and press conference, USDCHF dived under 0.8600 as the US dollar sold off hard. After retracing higher at the start of the Asia session, this currency pair has resumed its downward slide to slide as low as 0.8580.
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
No major news events.
What can we expect from GBP today?
Just like the Euro, the pound rallied strongly following the latest FOMC meeting. It broke through a key resistance level at 1.2960 to climb as high as 1.2975 but has since pulled back from this morning’s high.
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?
With market participants digesting the FOMC press conference as dovish, USDCAD fell sharply overnight but has since found support around the 1.3165-mark to rebound higher.
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?
Following the increase in API stockpiles, EIA crude oil inventories decreased by only 600k versus the forecasted drawdown of 2.2M barrels. However, the hard sell-off in the US dollar provided sufficient lift to crude oil prices despite the Federal Reserve raising the Federal Funds Rate once more. Although the data for inventory levels were mixed this week, the prospect of further stimulus measures from China coupled with the fragility of the US dollar have buoyed crude prices with WTI oil pushing towards the $79.50 per barrel region.
Next 24 Hours Bias
Medium Bullish
