IC Markets Europe Fundamental Forecast | 5 September 2023
What happened in the Asia session?
As widely expected, the Reserve Bank of Australia (RBA) kept its cash rate on hold at 4.10% for the third meeting in a row. The statement indicated that this decision to hold rates once more will provide further time for the RBA to assess the impact of higher interest rates and outlook for the Australian economy. Inflation has passed its peak with the recent monthly CPI indicator easing to 4.9% YoY. However, inflation is still too high and will remain so for some time, the statement added. The Aussie dropped as low as 0.6415 in the aftermath of the announcement but could move higher on the back of a relatively hawkish statement.
What does it mean for the Europe & US sessions?
The final services and Composite PMIs for the Eurozone and the UK will be released during the European trading hours. With the flash surveys pointing to a contraction in services activity, overall economic growth for Europe as a whole does appear to be slowing down – weaker than expected PMI readings are likely to weigh on both the Euro and the Pound.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
US markets will resume regular trading hours today after yesterday’s Labor Day holiday and we can expect trading volume to revert back to the usual level of activity later today. The DXY traded above 104.00 this morning and appears to be waiting for the next catalyst to trigger a move in either direction.
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 Bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Gold prices have ranged approximately between $1,935/oz and $1,950/oz since 29th August. With no major catalyst on the horizon, prices could trade within these bounds today – this precious metal is currently trading around the $1,940/oz region.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
RBA Cash Rate Statement (4:30 am GMT)
What can we expect from AUD today?
The Reserve Bank of Australia (RBA) kept its cash rate on hold at 4.10% for the third meeting in a row. The statement indicated that this decision to hold rates once more will provide further time for the RBA to assess the impact of higher interest rates and outlook for the Australian economy. Inflation has passed its peak with the recent monthly CPI indicator easing to 4.9% YoY. However, inflation is still too high and will remain so for some time, the statement added. The Aussie dropped as low as 0.6415 in the aftermath of the announcement but could move higher on the back of a relatively hawkish statement.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the third 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 3 October 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 weakest currencies this morning along with the Aussie dollar. With the RBA meeting coming up at 4:30 am GMT, the Kiwi could follow the direction of its Pacific neighbour.
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
No major news events.
What can we expect from JPY today?
With demand for the US dollar picking up this morning, USD/JPY is rising towards 147.00 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
Medium Bullish
The Euro (EUR)
Key news events today
Services PMI (8:00 am GMT)
What can we expect from EUR today?
The services sector in the Eurozone fell into contraction for the first time in eight months when the flash report was released on 23rd August. The final forecast For August’s survey also points to reading below 50 which signals contraction for this sector. A weaker than expected reading could cause the Euro to weaken.
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 Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
What can we expect from CHF today?
Swiss GDP stalled for the second time in three quarters as trade volumes fell considerably, with both imports and exports sinking in the second quarter. Combined with stronger demand for the greenback today, USD/CHF climbed above 0.8850 this morning and is likely to remain elevated.
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 Bullish
The Pound (GBP)
Key news events today
Services PMI (8:30 am GMT)
What can we expect from GBP today?
UK’s services activity also fell into contraction territory for the first time in seven months when the flash report was released on 23rd August. The final forecast For August’s survey also points to reading below 50 which signals contraction for this sector. A ‘softer’ reading is likely to cause the Pound to weaken.
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 Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
With renewed demand for the US dollar emerging today, USD/CAD climbed above 1.3600 and could 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
Medium Bullish
Oil
Key news events today
China Caixin Services PMI (1:45 am GMT)
What can we expect from Oil today?
Services PMI in China printed at 51.8, signalling an eight consecutive month of expansion. However, August’s reading was lower than the estimate of 53.6 as well as the previous month as business activity and new orders both showed slower increases. The Composite PMI also showed overall activity in China expanding but at the softest rate since January. Insufficient domestic demand and weak expectations acted as a bearish catalyst for crude prices this morning with WTI oil slipping towards $85.00 but prices have since stabilized around $85.50 per barrel.
Next 24 Hours Bias
Weak Bearish
