IC Markets Europe Fundamental Forecast | 15 March 2024
What happened in the Asia session?
The dollar index (DXY) hovered above 103.40 but could resume the upturn as European markets get underway. Gold found support above $2,160/oz and was edging higher while prices for crude oil remained elevated but pulled back slightly – WTI oil slid under $81.50 per barrel but could find support around the region of $81.
What does it mean for the Europe & US sessions?
The Empire State Manufacturing Index has declined over the past three months and February’s estimate of -7.0 points to another month of contraction. Manufacturing activity continued to edge slightly lower in New York State after contracting sharply in January while price increases picked up.
Meanwhile, the preliminary findings of the Consumer Sentiment survey for the month of March by the University of Michigan (UoM) will be released today as well. Overall sentiment edged lower in February but consumers appear to be assured that inflation will continue on a favourable trajectory. Year-ahead inflation inched up from 2.9% in January to 3.0% in February and it will be important to note whether this metric increases once again, especially after this week’s hotter-than-expected CPI and PPI readings. If the above data comes in strong, demand for the dollar could potentially pick up once again during the US session.
The Dollar Index (DXY)
Key news events today
Empire State Manufacturing Index (12:30 pm GMT)
UoM Consumer Sentiment (12:30 pm GMT)
The Empire State Manufacturing Index has declined over the past three months and February’s estimate of -7.0 points to another month of contraction. Manufacturing activity continued to edge slightly lower in New York State after contracting sharply in January while price increases picked up.
Meanwhile, the preliminary findings of the Consumer Sentiment survey for the month of March by the University of Michigan (UoM) will be released today as well. Overall sentiment edged lower in February but consumers appear to be assured that inflation will continue on a favourable trajectory. Year-ahead inflation inched up from 2.9% in January to 3.0% in February and it will be important to note whether this metric increases once again, especially after this week’s hotter-than-expected CPI and PPI readings. If the above data comes in strong, demand for the dollar could potentially pick up once again during the US session.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the fourth meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- Recent indicators suggest that economic activity has been expanding at a solid pace.
- Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low.
- Inflation has eased over the past year but remains elevated.
- In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2.0%.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.
- Next meeting runs from 19 to 20 March 2024.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
Empire State Manufacturing Index (12:30 pm GMT)
UoM Consumer Sentiment (12:30 pm GMT)
What can we expect from Gold today?
The Empire State Manufacturing Index has declined over the past three months and February’s estimate of -7.0 points to another month of contraction. Manufacturing activity continued to edge slightly lower in New York State after contracting sharply in January while price increases picked up.
Meanwhile, the preliminary findings of the Consumer Sentiment survey for the month of March by the University of Michigan (UoM) will be released today as well. Overall sentiment edged lower in February but consumers appear to be assured that inflation will continue on a favourable trajectory. Year-ahead inflation inched up from 2.9% in January to 3.0% in February and it will be important to note whether this metric increases once again, especially after this week’s hotter-than-expected CPI and PPI readings. If the above data comes in strong, demand for the dollar could potentially pick up once again to add further downward pressure on gold during the US session.
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?
Following yesterday’s hotter-than-expected PPI data, the Aussie plunged as low as 0.6570 overnight. It retraced higher towards the end of the US session but reversed to resume the downturn as Asian markets came online.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the sixth pause out of the last seven board meetings.
- Inflation continues to ease in the December quarter but remains high at 4.1% YoY.
- The central forecasts are for inflation to return to the target range of 2 to 3% in 2025, and to the midpoint in 2026.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.
- Next meeting is on 19 March 2024.
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 dived following yesterday’s hotter-than-expected PPI data, dropping as low as 0.6120 before stabilizing around this region by the end of the US session. However, overhead pressures remained and it proceeded to drop further at the beginning of the Asia session and was sliding towards the 0.6100-threshold.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fifth meeting in a row.
- The Committee remains confident that the current level of the OCR is restricting demand. However, a sustained decline in capacity pressures in the New Zealand economy is required to ensure that headline inflation returns to the 1 to 3% target.
- Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced.
- However, headline inflation remains above the 1 to 3% target band, limiting the Committee’s ability to tolerate upside inflation surprises.
- The outlook for the China economy, New Zealand’s top trading partner, remains particularly weak relative to recent historical norms, with structural factors constraining long-term growth.
- Next meeting is on 22 May 2024.
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?
Stronger PPI data out of the US lifted USD/JPY overnight as it broke above 148 to surge as high as 148.35. As Asian markets came online, this currency pair was rising once again and it is likely to move above 148.50 and beyond.
Central Bank Notes:
- The Bank will continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC), aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a sustainable and stable manner.
- The Bank of Japan decided on the following measures:
- YCC: Negative interest rate of -0.1% on policy-rate balances and purchase of Japanese government bonds to keep 10-year JGB yields at around 0% while regarding the upper bound of 1.0% for 10-year JGB yields as a reference in its market operations.
- Inflation expectations are expected to rise moderately toward the end of the projection period, with continued improvement in the output gap and changes in firms’ wage- and price-setting behaviour and in labour-management wage negotiations.
- Japan’s economy is likely to continue recovering moderately for the time being, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies.
- Next meeting is on 19 March 2024.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro plunged following yesterday’s stronger-than-expected PPI data as it dived from 1.0945 and broke under 1.0900 to hit a low of 1.0880. It stabilized around this region by the end of the US session but proceeded to drop lower at the beginning of the Asia session – downward pressures are expected to remain today.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a fourth consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- Since the last Governing Council meeting in January, inflation has declined further while the latest ECB staff projections show inflation has been revised down, in particular for 2024, which mainly reflects a lower contribution from energy prices.
- The projections for inflation excluding energy and food have also been revised down and average 2.6% for 2024, 2.1% for 2025 and 2.0% for 2026. Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages.
- Financing conditions are restrictive and the past interest rate increases continue to weigh on demand, which is helping push down inflation. Staff have revised down their growth projection for 2024 to 0.6%, with economic activity expected to remain subdued in the near term.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.
- Next meeting is on 11 April 2024.
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?
Stronger PPI data out of the US boosted USD/CHF overnight as it surged from 0.8780 to a high of 0.8840. This currency pair pulled back slightly as Asian markets came online but then proceeded to rise strongly once more to head towards the 0.8850-level.
Central Bank Notes:
- The SNB kept the policy rate unchanged at 1.75% for a second consecutive meeting in December.
- The inflation forecast puts average annual inflation at 2.1% for 2023, 1.9% for
2024 and 1.6% for 2025.
- GDP growth is likely to be weak in the coming quarters; subdued demand from abroad and the tighter financing conditions are having a dampening effect.
- Switzerland’s GDP is likely to grow by around 1% this year. For 2024, the SNB currently expects growth of between 0.5% and 1%.
- Next meeting is on 21 March 2024.
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 Pound dived following yesterday’s stronger-than-expected PPI data as it plunged from 1.2810 to hit a low of 1.2730. It stabilized around this region by the end of the US session and retraced slightly higher but it then proceeded to resume the downturn at the beginning of the Asia session – selling pressures are expected to remain today.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6-to-3 to maintain its Official Bank Rate at 5.25% for the fourth consecutive meeting.
- Two members preferred to increase the Bank Rate by 0.25% to 5.50% while one member preferred to reduce Bank Rate by 0.25% to 5.00%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation increasing from 3.9% in November to 4.0% in December 2023 while wage growth has eased across a number of measures and is projected to decline further in coming quarters, although still elevated.
- This downside news has been broad-based, reflecting lower fuel, core goods and services price inflation.
- CPI inflation is projected to be 2.3% in two years’ time and 1.9% in three years.
- Next meeting is on 21 March 2024.
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Following hotter-than-expected PPI data out of the US, USD/CAD received a huge boost as it broke above the threshold of 1.3500 to surge as high as 1.3540. As Asian markets came online, this currency pair was rising once again and it is likely to climb above 1.3550 today.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the fourth meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy grew in the fourth quarter by more than expected, although the pace remained weak and below potential.
- CPI inflation eased to 2.9% in January as goods price inflation moderated further but shelter price inflation remains elevated and is the biggest contributor to inflation.
- Underlying inflationary pressures persist: year-over-year and three-month measures of core inflation are in the 3.0% to 3.5% range, and the share of CPI components growing above 3.0% declined but is still above the historical average. The Bank continues to expect inflation to remain close to 3.0% during the first half of this year before gradually easing.
- The Governing Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation and wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- Next meeting is on 10 April 2024.
Next 24 Hours Bias
Medium Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Prices for crude oil were lifted following an upgrade on demand growth forecast by the International Energy Agency (EIA). The EIA raised its forecast for world oil demand in 2024, saying it will rise by 1.3M barrels per day (bpd), up by 110,000 bpd from January. The agency also forecasted first-quarter global demand growth to rise higher than initially anticipated, citing 1.7M bpd because of an improved outlook in the U.S. and firmer bunkering demand due to longer voyages by vessels as they seek to avoid passing through the Red Sea. WTI oil surged past a recent key resistance at $81 per barrel overnight – although this commodity pulled back slightly as Asian markets came online, strong tailwinds remain for crude and it is all but certain to post another strong week of gains.
Next 24 Hours Bias
Medium Bullish
