IC Markets Europe Fundamental Forecast | 30 August 2023
What happened in the Asia session?
Australia’s CPI data for the month of July eased further to 4.9% YoY from 5.4% YoY in June. Australian CPI peaked at 8.4% YoY in December of 2022 and has been retreating quite steadily ever since. As soon as this latest CPI print hit the news wires, the Aussie dollar fell sharply from 0.6480 to 0.6450. With inflation continuing to ease, the Reserve Bank of Australia (RBA) is likely to keep the cash rate on hold at 4.10% at next week’s RBA cash rate statement announcement – a move that will add further downward pressure on the Aussie.
What does it mean for the Europe & US sessions?
Flash CPI data from Spain and Germany will be released during the European trading hours while traders will also be awaiting the ADP employment report from the US. All of these events are likely to drive the moves for the US dollar index (DXY) and the Euro – higher volatility should be expected during these news events.
The Dollar Index (DXY)
Key news events today
ADP Employment Report (12:15 pm GMT)
GDP (12:30 pm GMT)
What can we expect from DXY today?
The US ADP employment report has shown much stronger-than-expected job gains in June & July and another strong print for August could be bullish for the DXY once more. Q2 GDP figures for the US will also be released with the advance estimate in July showing a 2.4% growth – the updated result is not likely to deviate much from this advance estimate.
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
Weak Bearish
Gold (XAU)
Key news events today
ADP Employment Report (12:15 pm GMT)
What can we expect from Gold today?
The US ADP employment report has shown much stronger-than-expected job gains in June & July and another strong print for August could be bullish for the DXY once more and thus put pressure on gold prices during the US session.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
CPI (1:30 am GMT)
What can we expect from AUD today?
Australia’s CPI data for the month of July eased further to 4.9% YoY from 5.4% YoY in June. Australian CPI peaked at 8.4% YoY in December of 2022 and has been retreating quite steadily ever since. With inflation continuing to ease, the Reserve Bank of Australia (RBA) is likely to keep the cash rate on hold at 4.10% at next week’s RBA cash rate statement announcement – a move that will add further downward pressure on the Aussie.
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 was one of the worst performing currencies this morning as it broke under 0.5950 and is likely to remain under pressure.
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
Medium Bearish
The Japanese Yen (JPY)
Key news events today
Retail Sales (11:50 pm GMT)
What can we expect from JPY today?
Retail sales grew 5.9% YoY in June as sales expanded for the 16th consecutive month while August’s estimate points to a slightly slower pace of growth at 5.5% YoY. USD/JPY dropped as low as 145.70 in the aftermath of a slowdown in US job openings but found support around 145.90 to climb above 146.00 this morning.
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
Weak Bullish
The Euro (EUR)
Key news events today
Spanish CPI (7:00 am GMT)
German CPI (12:00 pm GMT)
What can we expect from EUR today?
Flash consumer inflation for Germany and Spain for the month of August will be released today. After decreasing steadily for the past 12 months, Spain’s CPI edged higher from 1.9% YoY in June to 2.3% YoY in July. Although off its peak of 8.8%, Germany’s CPI is still high by historical standards with July’s reading coming in at 6.2% YoY. Another round of higher readings in Spain and Germany could keep the ECB pondering for another rate hike in September. Meanwhile, the Euro spiked 1.0890 overnight and could remain elevated today.
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
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
USD/CHF fell as low as 0.8780 overnight in the aftermath of a slowdown in US job openings and could remain under pressure 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
Medium Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound jumped above 1.2650 in the aftermath of a slowdown in US job openings and could remain elevated 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
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
With demand for the US dollar plunging overnight, USD/CAD dropped as low as 1.3550. This currency pair retraced higher this morning but it could eventually reverse to resume the downturn.
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
Weak Bearish
Oil
Key news events today
Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
API stockpiles surprised market expectations as nearly 11.5M barrels were drained – this was a huge drop in inventory levels versus the estimated drawdown of only 2.9M barrels. EIA crude oil inventories are expected to fall by 2.2M barrels and another large drawdown will buoy crude oil prices further. WTI oil surged higher on a falling US dollar with prices breaking past $81 per barrel. After two weeks of decline, crude prices look set to climb higher this week.
Next 24 Hours Bias
Medium Bullish
