IC Markets Asia Fundamental Forecast | 24 July 2023
What happened in the US session?
The US calendar was barren last Friday, 21st July, but the dollar index (DXY) ended the trading week on a strong note. DXY gained 114 pips or just over 1.1% to break a two-week losing streak as weaker-than-expected unemployment claims in the US provided a major catalyst for dollar bulls on Thursday, 20th July.
What does it mean for the Asia Session?
There will be not one but three major central banks announcing their respective interest rate decisions starting with the Federal Reserve on 26th July, the European Central Bank (ECB) on 27th July and ending with the Bank of Japan (BoJ) on the 28th. The Federal Reserve and ECB are widely expected to raise rates by 25 bps while no change is anticipated from the BoJ, holding rates at -0.1%. The DXY is trading around a major resistance level at 101.10 as Asia kicks off the new trading week.
The Dollar Index (DXY)
Key news events today
Composite PMIs (1:45 pm GMT)
What can we expect from DXY today?
The flash Composite PMI for July will be released today where the preliminary report is likely to show the services sector expanding while manufacturing remains in the doldrums since October 2022. Overall economic activity has been pulled by the services sector but the peak could have been formed in the month of May – the flash reading is likely to confirm this trend as the services sector is likely to expand but at a slower pace.
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
Weak Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Gold climbed as high as $1,990/oz last Thursday before weaker-than-expected unemployment claims in the US caused gold to retreat from this level. This precious metal opened around $1,960/oz this morning and is rising as the sell-off in the US dollar gains traction.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Composite PMIs (11:00 pm GMT 23rd July)
What can we expect from AUD today?
The flash Composite PMI report showed the services sector falling into contraction for the first time in four months, which dragged the Composite reading down to 48.3 which is a 7-month low. Manufacturing activity remains under pressure as this index has been contracting nearly every month in 2023.
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
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
Trade Balance (10:45 pm GMT 23rd July)
What can we expect from NZD today?
New Zealand’s trade surplus narrowed to NZD$9M, shrinking for the second month in a row as imports outpaced exports. This downtrend in surplus initially acted as a catalyst for the sell-off on the Kiwi dollar this morning as it towards 0.6150 but it has since reversed to rebound higher.
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
Weak Bullish
The Japanese Yen (JPY)
Key news events today
Composite PMIs (12:30 am GMT)
What can we expect from JPY today?
The flash Composite PMI report showed overall output continuing to rise but new order growth slowed sharply, potentially pointing to a slowdown in the Composite reading for the month of August. As usual, the services sector is pulling up overall growth while manufacturing remains under pressure.
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
Composite PMIs (8:00 am GMT)
What can we expect from EUR today?
The flash Composite PMI for July is likely to show the services sector expanding at a slower rate with manufacturing contracting since July 2022. The Composite reading fell into contraction for the month of June as the Eurozone economy stalled – a second consecutive month of contraction at the Composite level appears to be a high probability.
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
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
After last Thursday’s weaker-than-expected unemployment claims in the US sent USDCHF surging towards 0.8700, this currency pair is now pulling back as selling pressure for the US dollar picks up 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
Composite PMIs (8:30 am GMT)
What can we expect from GBP today?
Just like its European compatriots, the services sector in the UK has been doing most of the heavy lifting with regards to overall economic growth and the flash reading for the month of July is unlikely to show any different outcome.
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
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
After ending the previous week with a strong finish, USDCAD has started the new trading session in the same vein despite the US dollar being generally weak. With the FOMC meeting on the horizon, this currency pair could remain elevated.
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
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude prices were buoyed by the prospect of further stimulus from China as WTI closed above $76.50 last Friday. Although API and EIA had weaker than expected drawdowns last week, the forecast for this week indicates another round of further drawdowns. Crude prices could continue to climb higher this week as traders anticipate confirmation of additional stimulus measures by China.
Next 24 Hours Bias
Weak Bullish
