IC Markets Asia Fundamental Forecast | 20 July 2023
What happened in the US session?
Not only did building permits and housing starts for the US residential construction sector come in lower than their respective forecasts for the month of June, the figures were also lower than the previous month’s readings. After stabilizing at the end of 2022 and then edging higher in the first half of 2023, could activity in this sector finally be running into a brick wall? The dollar index (DXY) climbed past 100.50 briefly overnight before erasing most of the gains that were made during the US session.
What does it mean for the Asia Session?
The DXY continues to fall as Asia came online. Coupled with weak fundamental data from the residential construction sector, DXY could tumble below 100 by mid-day Asia.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
Last week’s unemployment claims of 237k printed well under the forecast of 251k but the estimate for the current week is set at 239k. Although the unemployment rate in the US is low based on historical standards, we could see claims inching higher. Should claims print higher than its forecast. we can expect the DXY to fall towards 99.60 once more.
Central Bank Notes:
- The federal funds rate target range will be 5 to 5-1/4 per cent.
- The Committee is strongly committed to returning inflation to its 2% 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 is on 26 July 2023
Next 24 Hours Bias
Strong Bearish
Gold (XAU)
Key news events today
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
Gold found support around $1,972/oz region during the US session before moving higher to rise above $1,980/oz during the Asia session. Although the unemployment rate in the US is low based on historical standards, we could see unemployment claims inching higher later today. Should claims print higher than its forecast, we could expect gold to finally rise towards $2,000/oz.
Next 24 Hours Bias
Strong Bullish
The Australian Dollar (AUD)
Key news events today
Labour Force Report (1:30 am GMT)
What can we expect from AUD today?
The Australian unemployment rate has remained relatively steady since July 2022 and the latest forecast indicates a reading of 3.6% for the second consecutive month. Employment change has been pretty robust for three out of the last four months but the current forecast points to a meagre gain of only 15.4k jobs when compared to May’s figures of 75.9k.
Central Bank Notes:
- The RBA did not raise the cash rate and kept the target at 4.10%.
- Inflation in Australia has passed its peak but remains high at 7% and needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 1 August 2023
Next 24 Hours Bias
Strong Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi found support around 0.6240 overnight and bounced off this level this morning. This currency pair is now heading towards 0.6280 as demand for the US dollar wanes today.
Central Bank Notes:
- The Monetary Policy Committee has raised the OCR from 5.25% to 5.50%
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the target range while supporting maximum sustainable employment
- The Committee voted by a majority of five to two to increase the OCR by 25 basis points to 5.50%
- Interest rates must remain restrictive to ensure inflation returns to the target range while supporting maximum sustainable employment
- Next meeting is on 16 August 2023
Next 24 Hours Bias
Strong Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Japan’s trade balance has been improving quite steadily since the start of the year and yesterday’s numbers confirmed the same trend. Although the country is still running a deficit, the overall direction is encouraging for policymakers. As demand for the US dollar is weak this morning, USDJPY is falling towards 139.00.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2%
- 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%.
- 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 28 July 2023
Next 24 Hours Bias
Medium Bearish
The Euro (EUR)
Key news events today
Consumer Confidence (2:00 pm GMT)
What can we expect from EUR today?
Inflation in the Eurozone remained relatively unchanged as headline CPI printed at 5.5% YoY, inline with the estimate but the core reading of 5.5% YoY came in higher than the forecast and previous month’s figure of 5.3% YoY. Although remaining in negative territory, consumer confidence in the Eurozone has been improving steadily since October of 2022 – the latest estimate shows an unchanged reading of -16 for the month of June. The Euro is rising strongly this morning as the greenback sells off hard, pushing towards 1.1250.
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 27 July 2023
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
Trade Balance (6:00 am GMT)
What can we expect from CHF today?
Switzerland’s trade balance surprised strongly to the upside for the month of May. Another surprise trade surplus could drive USDCHF lower as the US dollar looks fragile this morning.
- 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% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Weak Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Consumer and wholesale inflation in the UK continues to retreat steadily with all key metrics printing lower than their respective estimates as well as the previous month’s reading. Despite strong disinflationary trends growing in the UK, the pound is rising strongly as the US dollar drops like a rock this morning.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.5 percentage points to 5%.
- Two members preferred to maintain the Bank Rate at 4.5%.
- CPI inflation is expected to fall significantly due to developments in energy prices.
- The updated projections show that CPI inflation is expected to decline slightly above 1% at the two and three-year horizons, below the 2% target.
- Next meeting on 3 August 2023
Next 24 Hours Bias
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
After rebounding strongly over the last four trading days, USDCAD is tumbling towards 1.3100 as the greenback loses its shine today. This currency pair looks certain to retest the swing-low of 14th July.
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% in the summer, but concerns have increased about inflation staying above the 2% target.
- Next meeting on 6 September 2023
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
EIA crude oil inventories fell much lower than the estimate of 2M barrels, with only 700k barrels being drawn down. Despite both the API And EIA inventory drawdowns missing their respective estimates, crude oil prices remain elevated with WTI oil managing to stay above the $75 per barrel.
Next 24 Hours Bias
Weak Bullish
