IC Markets Asia Fundamental Forecast | 19 July 2024
What happened in the U.S. session?
As widely expected, the ECB maintained its three key interest rates unchanged, with the main refinancing rate held steady at 4.25%. The Governing Council noted that monetary policy is keeping financing conditions restrictive but domestic price pressures remain high, services inflation is elevated and headline inflation is likely to remain above the medium-term target of 2% well into next year. ECB President Lagarde stated that “the monetary policy decision had been unanimous and reiterated the central bank’s determination to be dependent on data, rather than on any single data point” and also mentioned that “the question of September and what we do in September is wide open”, remarks that signal the ECB’s refusal to pre-commit to a rate cut at the next meeting. The Euro was hovering above 1.0930 but it fell swiftly following President Lagarde’s press conference, dropping under 1.0900 by the end of this session.
Moving over to stateside, unemployment claims spiked from last week’s reading of 223K to 243K which was higher than the estimate of 229K. Claims have remained elevated over the past six weeks with the 4-week average now standing at 234K – a sign of potential softening in the U.S. labour market. Despite the weaker-than-expected economic data point, the dollar index (DXY) climbed from 103.80 to rise above the 104-level overnight.
What does it mean for the Asia Session?
As Asian markets digest the latest monetary policy actions by the ECB, the Euro continues to face overhead pressures as it slid towards 1.0890 while demand for the greenback gained further traction as the DXY moved above 104.20 to cause a pullback in gold. Spot prices for this precious metal hit a new all-time of $2,483.68/oz on Wednesday but it has since retreated away from this threshold to fall under $2,430/oz this morning.
The Dollar Index (DXY)
Key news events today
FOMC Member Williams Speaks (2:40 pm GMT)
What can we expect from DXY today?
Federal Reserve Bank of New York President John Williams will be participating in a panel discussion titled “A New Era for Monetary Policy” at the 15th Bretton Woods Conference in Peru where audience questions are expected. Following Fed Governor Christopher Waller’s remarks on Wednesday that the central bank is inching closer to its first interest rate cut while the economy was on track for a rare “soft landing”, Fed President Williams could also echo a similar sentiment later today – a move that could restrain the recent gains for the dollar.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the seventh meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks. Inflation has eased over the past year but remains elevated and in recent months, there has been modest further progress toward the Committee’s 2% inflation objective.
- Recent indicators suggest that economic activity has continued to expand at a solid pace while job gains have remained strong, and the unemployment rate has remained low.
- 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 and 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%.
- In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
- The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.
- Next meeting runs from 30 to 31 July 2024.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
FOMC Member Williams Speaks (2:40 pm GMT)
What can we expect from Gold today?
Federal Reserve Bank of New York President John Williams will be participating in a panel discussion titled “A New Era for Monetary Policy” at the 15th Bretton Woods Conference in Peru where audience questions are expected. Following Fed Governor Christopher Waller’s remarks on Wednesday that the central bank is inching closer to its first interest rate cut while the economy was on track for a rare “soft landing”, Fed President Williams could also echo a similar sentiment later today – a move that could restrain the recent gains for the dollar and potentially provide a floor for this precious metal.
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?
Stronger demand for the dollar drove the Aussie under 0.6730 overnight. This currency pair dipped under 0.6700 as Asian markets came online – these are the support and resistance levels for today.
Support: 0.6680
Resistance: 0.6740
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the ninth pause out of the last ten board meetings.
- Over the year to April, the monthly CPI indicator rose by 3.6% in headline terms, and by 4.1% excluding volatile items and holiday travel, which was similar to its pace in December 2023.
- The central forecasts published in May were for inflation to return to the target range of 2–3% in the second half of 2025 and to the midpoint in 2026 while there have been indications that momentum in economic activity is weak, including slow growth in GDP, a rise in the unemployment rate and slower-than-expected wages growth.
- Inflation is easing but has been doing so more slowly than previously expected and it remains high and the Board expects that it will be some time yet before inflation is sustainably in the target range.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.
- Next meeting is on 6 August 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 fell quite sharply falling under 0.6050 as demand for the greenback picked up overnight. This currency pair continued to slide lower towards 0.6020 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.6035
Resistance: 0.6090
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the eighth meeting in a row and agreed that restrictive monetary policy is reducing domestic demand and consumer price inflation.
- The Committee is confident that inflation will return to within its 1-3% target range over the second half of 2024.
- The decline in inflation reflects receding domestic pricing pressures, as well as lower inflation for goods and services imported into New Zealand while recent monthly Selected Price Indexes suggest weakening in some of the more volatile inflation components, while survey measures of cost pressures and pricing intentions have continued to decline.
- Non-performing bank loans and corporate insolvencies have increased from low levels in line with declining economic activity while bank credit growth also remains very subdued, in line with weakness in the domestic economy and low business and consumer confidence.
- Next meeting is on 14 August 2024.
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?
Stronger demand for the dollar lifted USD/JPY above the 157-level overnight. This bullish momentum remains intact as this currency pair continued climbing higher towards 157.50 as Asian markets came online – these are the support and resistance levels for today.
Support: 155.75
Resistance: 158.80
Central Bank Notes:
- The Bank considers that the policy framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control and the negative interest rate policy to date have fulfilled their roles. With the price stability target of 2%, it will conduct monetary policy as appropriate, guiding the short-term interest rate as a primary policy tool.
- The Bank of Japan decided on the following measures:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1% while continuing its Japanese government bonds (JGB) purchases in accordance with the decisions made at the March 2024 MPM.
- The Bank decided, by an 8-1 majority vote, that it would reduce its purchase amount of JGBs thereafter to ensure that long-term interest rates would be formed more freely in financial markets.
- Underlying CPI inflation is expected to increase gradually, since it is projected that the output gap will improve and that medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify.
- In the second half of the projection period of the April 2024 Outlook for Economic Activity and Prices (Outlook Report), it is likely to be at a level that is generally consistent with the price stability target of 2%.
- The year-on-year rate of increase in the CPI (all items less fresh food), has been in the range of 2.0-2.5% recently, as services prices have continued to rise moderately, reflecting factors such as wage increases, although the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices have waned. Inflation expectations have risen moderately.
- Japan’s economy has recovered moderately, although some weakness has been seen in part while is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions.
- Next meeting is on 31 July 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?
As widely expected, the ECB maintained its three key interest rates unchanged, with the main refinancing rate held steady at 4.25%. The Governing Council noted that monetary policy is keeping financing conditions restrictive but domestic price pressures remain high, services inflation is elevated and headline inflation is likely to remain above the medium-term target of 2% well into next year. As Asian markets digest the latest monetary policy actions by the ECB, the Euro continues to face overhead pressures as it slid towards 1.0890 – these are the support and resistance levels for today.
Support: 1.0860
Resistance: 1.0950
Central Bank Notes:
- The Governing Council today decided to keep the three key ECB interest rates unchanged in July, following a 25 basis points cut in June.
- Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 4.25%, 4.50% and 3.75% respectively.
- Monetary policy is keeping financing conditions restrictive but at the same time, domestic price pressures are still high, services inflation is elevated and headline inflation is likely to remain above the target well into next year.
- While some measures of underlying inflation ticked up in May owing to one-off factors, most measures were either stable or edged down in June.
- The incoming information indicates that the euro area economy grew in the second quarter, but likely at a slower pace than in the first quarter.
- Services continue to lead the recovery, while industrial production and goods exports have been weak – investment indicators point to muted growth in 2024, amid heightened uncertainty.
- The Eurosystem no longer reinvests all of the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP), reducing the PEPP portfolio by €7.5 billion per month on average and the Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024.
- The Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim and is not pre-committing to a particular rate path.
- Next meeting is on 12 September 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 demand for the dollar lifted USD/CHF above the 0.8850-level overnight. This bullish momentum remains intact as this currency pair continued climbing higher towards 0.8900 as Asian markets came online – these are the support and resistance levels for today.
Support: 0.8820
Resistance: 0.8900
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points for the second consecutive meeting, going from 1.50% to 1.25% in June.
- The underlying inflationary pressure has decreased again compared to the previous quarter but inflation had risen slightly since the last monetary policy assessment, and stood at 1.4% in May.
- The inflation forecast puts average annual inflation at 1.3% for 2024, 1.1% for 2025 and 1.0% for 2026, based on the assumption that the SNB policy rate is 1.25% over the entire forecast horizon.
- Swiss GDP growth was moderate in the first quarter of 2024 with the services sector continuing to expand, while manufacturing stagnated.
- Growth is likely to remain moderate in Switzerland in the coming quarters as the SNB anticipates GDP growth of around 1% this year while currently expecting growth of around 1.5% for 2025.
- Next meeting is on 26 September 2024.
Next 24 Hours Bias
Medium Bullish
The Pound (GBP)
Key news events today
Retail Sales (6:00 am GMT)
What can we expect from GBP today?
Retail sales in the U.K. have been quite abysmal as consumer spending fell in seven out of the past 11 months. June’s estimate of -0.6% points to another month of weaker sales and should the result print even lower, selling pressures for the Cable are bound to intensify before the start of the European trading hours.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 7-to-2 to maintain its Official Bank Rate at 5.25% for the seventh consecutive meeting.
- Two members preferred to reduce the Bank Rate by 25 basis points to 5%, an increase of one from the previous meeting.
- Twelve-month CPI inflation fell to 2.0% in May from 3.2% in March, close to the May Monetary Policy Report projection. CPI inflation is expected to rise slightly in the second half of this year, as declines in energy prices last year fall out of the annual comparison.
- Reflecting a margin of slack in the economy, CPI inflation had been projected to be 1.9% in two years’ time and 1.6% in three years.
- UK GDP appears to have grown more strongly than expected during the first half of this year. Business surveys, however, remain consistent with a slower pace of underlying growth, of around 0.25% per quarter.
- UK real GDP had increased by 0.6% in 2024 Q1, 0.2% stronger than had been expected in the May Monetary Policy Report and Bank staff now expect GDP growth of 0.5% in 2024 Q2 as a whole, stronger than the 0.2% rate that had been incorporated in the May Report.
- The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation.
- Next meeting is on 1 August 2024.
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
Retail Sales (12:30 pm GMT)
What can we expect from CAD today?
After a strong rebound of 0.7% in April, retail sales in Canada are now expected to fall 0.5% MoM in May – this would mark the largest monthly decline since March 2023. The Loonie could face strong overhead pressures and potentially lift USD/CAD even higher during the U.S. session.
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 25 basis points to 4.75% while continuing its policy of balance sheet normalization.
- Canada’s economic growth resumed in the first quarter of 2024 after stalling in the second half of last year. At 1.7%, first-quarter GDP growth was slower than forecast in the MPR but consumption growth was solid at about 3%, and business investment and housing activity also increased.
- Inflation remains above the 2% target and shelter price inflation is high but total CPI inflation has declined consistently over the course of this year, and indicators of underlying inflation increasingly point to a sustained easing.
- CPI inflation has eased from 3.4% in December to 2.7% in April while the preferred measures of core inflation have come down from about 3.5% last December to about 2.75% in April and the 3-month rate of core inflation slowed from about 3.5% in December to under 2% in March and April.
- In the labour market, businesses are continuing to hire workers as employment has been growing, but at a slower pace than the working-age population while elevated wage pressures look to be moderating gradually.
- The Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- Recent data has increased the council’s confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain.
- Next meeting is on 24 July 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 pulled back sharply on Thursday due to a combination of the stronger dollar and weak consumer sentiment. WTI oil had hit a high of $83.80 per barrel before reversing – this benchmark experienced wild swings overnight before continuing to slide lower towards the $82-mark and is all but certain to close in the red for the second straight week.
Next 24 Hours Bias
Medium Bearish
