IC Markets Europe Fundamental Forecast | 25 August 2023
What happened in the Asia session?
After gapping higher this morning, the dollar index (DXY) continued to rise to hit a high of 104.25. The first major resistance for the DXY comes in at 104.50, a level that is likely to be tested today.
What does it mean for the Europe & US sessions?
Germany, Europe’s industrial powerhouse, is all but certain to have fallen into a technical recession. The final GDP reading for the second quarter of 2023 is set to be released and will confirm the second consecutive quarter of negative growth.
Meanwhile, the ifo Business Climate for Germany also points to a fourth consecutive month of decline in August as key metrics such as new orders and capacity utilization both declined in the previous month. With Germany being assigned the tag ‘the sick man of Europe’ once more, this could add further downward pressure on the Euro especially after a surge in demand for the US dollar overnight.
Federal Reserve Chairman Jerome Powell will be speaking at the Jackson Hole Symposium later today. Although his focus will be on the theme “Structural Shifts in the Global Economy”, any comments or remarks by him on topics such as inflation and monetary policy are likely to have a profound impact on the demand for the greenback and thus drive the direction for the DXY.
The Dollar Index (DXY)
Key news events today
FOMC Member Harker Speaks (1:00 pm and 1:40 pm GMT)
UoM Consumer Sentiment Index (2:00 pm GMT)
Fed Chair Powell Speaks (2:05 pm GMT)
What can we expect from DXY today?
Following yesterday’s CNBC interview, Federal Reserve Bank of Philadelphia President Patrick Harker will be engaging in two more interviews today – the first conducted by Bloomberg TV followed by Yahoo Finance Live after. Once again, his comments and remarks could have an impact on the demand for the US dollar.
The final survey results for the Consumer Sentiment Index by the University of Michigan will be released today. Consumer confidence rebounded fairly strongly over the last couple of months and August’s findings should show sentiment remaining elevated.
Federal Reserve Chairman Jerome Powell will be speaking at the Jackson Hole Symposium later today. Although his focus will be on the theme “Structural Shifts in the Global Economy”, any comments or remarks by him on topics such as inflation and monetary policy are likely to have a profound impact on the demand for the greenback and thus drive the direction for the DXY.
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 2.0% 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
Strong Bullish
Gold (XAU)
Key news events today
FOMC Member Harker Speaks (1:00 pm and 1:40 pm GMT)
Fed Chair Powell Speaks (2:05 pm GMT)
What can we expect from Gold today?
Following yesterday’s CNBC interview, Federal Reserve Bank of Philadelphia President Patrick Harker will be engaging in two more interviews today – the first conducted by Bloomberg TV followed by Yahoo Finance Live after. Once again, his comments and remarks could have an impact on the demand for the US dollar.
Federal Reserve Chairman Jerome Powell will be speaking at the Jackson Hole Symposium later today. Although his focus will be on the theme “Structural Shifts in the Global Economy”, any comments or remarks by him on topics such as inflation and monetary policy are likely to have a profound impact on the demand for the greenback and thus drive the direction for gold prices.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie tumbled to a low of 0.6410 overnight but has found support around this level this morning. Downward pressures are likely to remain as demand for the US dollar picked up on the back of lower unemployment claims and a hawkish interview by Federal Reserve Bank of Philadelphia President Patrick Harker.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the second consecutive meeting.
- Inflation in Australia has passed its peak and is trending lower but needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 5 September 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?
The Kiwi tumbled to a low of 0.5920 overnight but has found support around this level this morning. Downward pressures are likely to remain as demand for the US dollar picked up on the back of lower unemployment claims and a hawkish interview by Federal Reserve Bank of Philadelphia President Patrick Harker.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the 1% to 3% target range while supporting maximum sustainable employment.
- Headline inflation and inflation expectations have declined but the core reading remains too high.
- Next meeting is on 4 October 2023.
Next 24 Hours Bias
Strong Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Tokyo core CPI printed at 2.8% YoY for the month of August – a reading which was lower than the estimate of 2.9% as well as the previous month’s reading of 3.0%. With key inflation metrics in Japan such as this Tokyo core CPI showing signs of retreat, it gives the Bank of Japan further impetus to maintain its ultra-dovish monetary policy stance. With demand for the US dollar surging overnight, USD/JPY raced past 146.00 with ease and is likely to remain elevated today.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2.0%.
- 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 +0.5%.
- 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 22 September 2023.
Next 24 Hours Bias
Strong Bullish
The Euro (EUR)
Key news events today
German GDP (6:00 am GMT)
German ifo Business Climate (8:00 am GMT)
What can we expect from EUR today?
Germany, Europe’s industrial powerhouse, is all but certain to have fallen into a technical recession. The final GDP reading for the second quarter of 2023 is set to be released and will confirm the second consecutive quarter of negative growth.
Meanwhile, the ifo Business Climate for Germany also points to a fourth consecutive month of decline in August as key metrics such as new orders and capacity utilization both declined in the previous month. With Germany being assigned the tag ‘the sick man of Europe’ once more, this could add further downward pressure on the Euro especially after a surge in demand for the US dollar 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
Strong Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
USD/CHF jumped as high as 0.8850 overnight as demand for the US dollar picked up on the back of lower unemployment claims and a hawkish interview by Federal Reserve Bank of Philadelphia President Patrick Harker. This currency pair is expected to remain elevated today.
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 1.0% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Strong Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound dived under 1.2600 overnight as demand for the US dollar picked up on the back of lower unemployment claims and a hawkish interview by Federal Reserve Bank of Philadelphia President Patrick Harker. This currency pair is expected to remain under pressure today.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.25 percentage points to 5.25%.
- One member preferred to maintain the Bank Rate at 5.0% while another two preferred to increase it by 0.5 percentage points.
- CPI inflation is expected to fall significantly to around 5% by the end of the year, accounted for by lower energy prices but services price inflation is projected to remain elevated in the near term.
- The updated projections show that CPI inflation is expected to decline to 2.0% and 1.9% at the two and three-year horizons respectively.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Strong Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Following the surge in demand for the US dollar, USD/CAD reversed strongly from yesterday’s low of 1.3510 to bounce as high as 1.3590. Lower unemployment claims and a hawkish interview by Federal Reserve Bank of Philadelphia President Patrick Harker functioned as a bullish catalyst overnight. This currency pair is expected to remain elevated 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 3.0% in the summer, but concerns have increased about inflation staying above the 2.0% target.
- Next meeting on 6 September 2023.
Next 24 Hours Bias
Strong Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Despite larger than expected drawdowns in both API and EIA crude oil inventories, crude prices came under pressure from a surge in the value of the US dollar overnight. Crude prices have declined for the second week in a row but WTI oil prices have bounced off yesterday’s low at $77.60 to climb above the $79 per barrel region. Crude prices could climb higher as the final day of trading comes to a close but a second consecutive week of decline is all but certain for this commodity.
Next 24 Hours Bias
Weak Bullish
