IC Markets Asia Fundamental Forecast | 28 July 2023
What happened in the US session?
As widely expected, the ECB raised its main refinancing rate by 25 bps to bring it up to 4.25% while President Christine Lagarde stated their resolve to bring inflation down to their 2% target. In addition, she mentioned that the ECB is open to a pause in September which sent dovish waves through the market for the Euro.
Meanwhile, the advance US GDP estimate for the first quarter printed at 2.4% YoY, much higher than the previous estimate of 2.0% YoY while unemployment claims also came in lower than its forecast – both data points acting as a major catalyst for the dollar bulls.The dollar index (DXY) surged from 100.65 to a session-high of 101.80.
What does it mean for the Asia Session?
Focus will now shift onto the Bank of Japan (BoJ) as they release their monetary policy statement later today. Although the BoJ does not officially disclose the release time of the rate announcement and the press conference, we can expect the statement to be released between 2 and 4 am GMT followed by the conference approximately one to two hours later.
The Dollar Index (DXY)
Key news events today
PCE Price Index (12:30 pm GMT)
UoM Consumer Sentiment Index (2:00 pm GMT)
What can we expect from DXY today?
Traders will be keeping a close eye on the headline and core PCE Price figures for the month of June. The headline reading is likely to show further easing of inflation while the core could finally edge lower – it has remained stubbornly sticky for the past six months. Meanwhile, the revised and final survey on Consumer Sentiment Index by the University of Michigan will also be published which is likely to show an overall improvement in sentiment levels as well as a decrease in inflation expectations. If overall PCE inflation eases and inflation expectations decline, the US dollar could come under heavy selling pressure later today.
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
Medium Bullish
Gold (XAU)
Key news events today
PCE Price Index (12:30 pm GMT)
What can we expect from Gold today?
A much stronger than expected GDP reading and a weak unemployment claims figure sent gold prices crashing overnight. This precious metal nose dived from $1,979/oz to as low as $1,944/oz in a space of two hours. Selling pressures could remain for most part of the day but that could all change should the PCE Price index show overall inflation decelerating in the US – this data point could potentially provide the catalyst that is required by the gold bugs.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
Retail Sales (1:30 am GMT)
What can we expect from AUD today?
Retail sales in Australia surprised to the downside as monthly retails sales declined 0.8% MoM in June versus the estimate of 0%. This was a relatively big drop in sales, especially when compared to May’s gains of 0.8%. Adding this weak retail sales print to robust GDP figures and lower unemployment claims in the US, the Aussie dollar has plunged over 100 pips since the US session and could continue to slide lower.
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
Strong Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Following robust economic data out of the US overnight, the Kiwi dollar dropped nearly 100 pips as well. The disappointing Australian retail sales figures are also weighing on this currency pair and it is likely to remain under pressure.
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
BoJ Monetary Policy Statement (Tentative)
BoJ Press Conference (Tentative)
What can we expect from JPY today?
The Bank of Japan (BoJ) likes to keep markets guessing about the release time of its monetary policy statement but we can expect that it should drop around 4:00 am GMT, followed by the press conference which usually takes place one to two hours after the statement release. The BoJ is all but certain to maintain its ultra-dovish monetary policy stance and this could provide lift to USDJPY as the trading week comes to a close.
In addition, the BoJ is set to discuss a yield curve control (YCC) tweak to allow rates to go above 0.5%. This news event sent traders scrambling for the Japanese yen as it creates a real risk to the yen carry trade. Expect USDJPY and especially the yen-crosses to be under heavy selling pressures 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
Medium Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
Following the ECB rate announcement and press conference, the Euro shed nearly 180 pips as it dived as low as 1.0966 as the potential pause by the ECB in September sent dovish vibes through the market. Combining this with robust economic US data, the Euro was hit hard overnight.
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 14 September 2023.
Next 24 Hours Bias
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Robust GDP figures and weak unemployment claims from the US sent USDCHF flying as high as 0.8690 overnight and this currency pair looks to break above 0.8700 this morning.
- 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 Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The British pound literally got pounded overnight as stronger than expected economic data in the US sent GBPUSD crashing under 1.2800, losing nearly 190 pips in the process. The pound is likely to remain fragile for most parts 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
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
GDP (12:30 pm GMT)
What can we expect from CAD today?
Canada’s GDP is expected to grow 0.3% MoM and GDP growth could be slowing. Recent Ivey PMI data shows economic activity continuing to expand but the growth rate is slowing substantially. Combined with robust economic data in the US overnight, USDCAD surged past 1.3240, gaining almost 80 pips in the process. This pair is likely to remain elevated for most parts of 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 Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Robust GDP figures from the US bode well for crude oil demand in the world’s largest economy but the strength of the US dollar is also capping the gains on crude prices. WTI oil climbed above the $80-mark for the first time since mid-April. Crude prices all but certain to end the trading week on a high note as they clock five consecutive weeks of gains with WTI trading around $79.50 per barrel this morning.
Next 24 Hours Bias
Medium Bullish
