IC Markets Europe Fundamental Forecast | 11 January 2024
What happened in the Asia session?
Australia posted a trade surplus of A$11.4B in November, widening by as much as 48% over the previous month. It was the largest surplus since March 2023 as exports rose while imports slumped. Outbound shipments to the country’s largest trading partner, China, rose 1.7% MoM to a five-month high of A$17.5B. The Aussie climbed as high as 0.6725 before pulling back from this level.
What does it mean for the Europe & US sessions?
Both headline and core CPI readings have moderated significantly since mid-2022. Should inflationary pressures in the US continue to retreat, it could add downward pressure on the dollar. Otherwise, any increase in prices could trigger strong demand for the greenback.
Meanwhile, unemployment claims have trended lower since mid-November. A continued fall in claims is likely to function as an additional catalyst for the dollar bulls, especially if the latest result prints lower than the forecast of 209k.
The Dollar Index (DXY)
Key news events today
CPI (1:30 pm GMT)
Unemployment Claims (1:30 pm GMT)
What can we expect from DXY today?
Both headline and core CPI readings have moderated significantly since mid-2022. Should inflationary pressures in the US continue to retreat, it could add downward pressure on the dollar. Otherwise, any increase in prices could trigger strong demand for the greenback.
Meanwhile, unemployment claims have trended lower since mid-November. A continued fall in claims is likely to function as an additional catalyst for the dollar bulls, especially if the latest result prints lower than the forecast of 209k.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the third meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- The Committee will continue to assess additional information and its implications for monetary policy.
- In determining the extent of any additional policy firming that may be appropriate to return inflation to 2.0% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
- 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 30 to 31 January 2024.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
CPI (1:30 pm GMT)
Unemployment Claims (1:30 pm GMT)
What can we expect from Gold today?
Both headline and core CPI readings have moderated significantly since mid-2022. Should inflationary pressures in the US continue to retreat, it could add downward pressure on the dollar. Otherwise, any increase in prices could trigger strong demand for the greenback.
Meanwhile, unemployment claims have trended lower since mid-November. A continued fall in claims is likely to function as an additional catalyst for the dollar bulls, especially if the latest result prints lower than the forecast of 209k. In all, it could be a pretty volatile period for gold prices during the US session.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Trade Balance (12:30 am GMT)
What can we expect from AUD today?
Australia posted a trade surplus of A$11.4B in November, widening by as much as 48% over the previous month. It was the largest surplus since March 2023 as exports rose while imports slumped. Outbound shipments to the country’s largest trading partner, China, rose 1.7% MoM to a five-month high of A$17.5B. The Aussie climbed as high as 0.6725 before pulling back from this level.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the fifth pause out of the last six board meetings.
- Inflation in Australia has passed its peak but is still too high and the progress in bringing inflation back to the target range of 2% to 3% was looking slower than earlier forecast.
- Any further tightening of monetary policy to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.
- Next meeting is on 6 February 2024.
Next 24 Hours Bias
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi has found decent support around the 0.6220-region since the beginning of the year and is once again bouncing off this level. With demand for the dollar waning, the Kiwi could continue to climb higher today.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fourth meeting in a row.
- The Committee is confident that the current level of the OCR is restricting demand. However, ongoing excess demand and inflationary pressures are of concern, given the elevated level of core inflation.
- If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further.
- The Committee agreed that interest rates will need to remain at a restrictive level for a sustained period of time, so that consumer price inflation returns to target and to support maximum sustainable employment.
- Next meeting is on 28 February 2024.
Next 24 Hours Bias
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Despite the overnight weakness in the dollar, USD/JPY hit a high of 145.80 before running out of steam and pulling back as Asian markets came online. This currency pair was sliding lower towards 145.50 and could drift lower as the day progresses.
Central Bank Notes:
- The Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a stable manner.
- 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 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 have risen moderately with underlying CPI inflation likely to increase gradually towards achieving the price stability target, as the output gap turns positive and as medium- to long-term inflation expectations and wage growth rise.
- 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 23 January 2024.
Next 24 Hours Bias
Medium Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro has failed to break above 1.0970 for most parts of this week but it appears that it will finally break above this resistance during the Asia session and make a run towards the key threshold of 1.1000.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a second consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- While inflation has dropped in recent months, it is likely to pick up again temporarily in the near term.
- Underlying inflation has eased further but domestic price pressures remain elevated, primarily owing to strong growth in unit labour costs.
- The past interest rate increases continue to be transmitted forcefully to the economy as tighter financing conditions are dampening demand, and this is helping to push down inflation.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 25 January 2024.
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?
Despite the overnight weakness in the dollar, USD/CHF hit a high of 0.8530 before running out of steam and pulling back as Asian markets came online. This currency pair was sliding lower towards 0.8500 and could break under this key threshold as the day progresses.
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 Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound has failed to break above 1.2765 for most parts of this week but it appears that it will finally break above this resistance during the Asia session and make a run towards the 1.2800-threshold.
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%.
- Three members preferred to increase the Bank Rate by 0.25 percentage points to 5.5%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation falling sharply from 6.7% in September to 4.6% in October while services price inflation declined to 6.6%.
- The decline in CPI inflation over recent months could largely be attributed to falls in energy, food, and core goods price inflation, as external cost pressures had continued to abate. Services price inflation had remained elevated, however.
- The mean projection for CPI inflation is 2.2% and 1.9% at the two- and three-year horizons, respectively.
- Next meeting is on 1 February 2024.
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?
Thus far, the threshold of 1.3400 has restrained any further gains for USD/CAD this week and this currency pair was sliding lower at the start of the Asia session. It is expected to drift lower as the day progresses.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the third meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled through the middle quarters of 2023 with real GDP contracting at a rate of 1.1% in the third quarter, following a growth of 1.4% in the second quarter.
- The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices, leading to the easing of CPI inflation to 3.1% YoY in October.
- The Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed and would also like to see further and sustained easing in core inflation.
- Next meeting is on 24 January 2024.
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
EIA crude oil inventories registered a surprise build of 1.3M barrels versus the estimate of a 0.7M drawdown, erasing the early gains seen at the start of the US session. Concerns over crude demand in the US coupled with fears that global oil consumption will moderate lower in 2024 is keeping the pressure on prices while potential geopolitical risks could randomly inject volatility for this commodity.
Next 24 Hours Bias
Weak Bullish
