IC Markets Europe Fundamental Forecast | 11 July 2023
What happened in the Asia session?
The NAB Business Confidence showed business conditions were relatively unchanged over the previous month while future expectations improved slightly – the Aussie touched 0.6695 before pulling back from this level.
What does it mean for the Europe & US sessions?
With pressures mounting on the US dollar, the pound could break above 1.2900 if the latest labour market data from the UK indicate robust figures while the Euro could remain above 1.1000 should the ZEW Economic Sentiment surveys print better than their respective forecasts for both the Eurozone and Germany.
The Dollar Index (DXY)
Key news events today
NFIB Small Business Index (10:00 am GMT)
What can we expect from DXY today?
The NFIB Small Business Index, which measures the level of optimism among small business owners in the US, has been trending lower since the start of the year. In the previous month’s report, business owners expressed concerns for future business conditions while supply chain disruptions and labour shortage continue to hamper small firms, although less severe than the previous year. Following the miss in last week’s NFP figures, DXY weakness is likely to persist today.
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
Medium Bearish
Gold (XAU)
Key news events today
NFIB Small Business Index (10:00 am GMT)
What can we expect from Gold today?
With demand for the US dollar fading since last Friday, gold prices are expected to remain elevated and drift higher towards the $1,930/oz region.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
NAB Business Confidence (1:30 am GMT)
What can we expect from AUD today?
The NAB Business Confidence showed business conditions were relatively unchanged over the previous month while future expectations improved slightly. With the sell-off in DXY gaining traction, the Aussie is expected to remain elevated.
Central Bank Notes:
- The RBA increased the cash rate target by 25 basis points to 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 4 July 2023
Next 24 Hours Bias
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Just like its neighbour, the Kiwi initially rose strongly against the US dollar but now is retreating sharply to drop as low as 0.6200. Do take note that the RBNZ will be making its official cash rate announcement and releasing its statement on the 12th, where they are widely expected to keep rates on hold at 5.5%.
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 12 July 2023
Next 24 Hours Bias
Medium Bearish
The Japanese Yen (JPY)
Key news events today
Machinery Orders (11:50 pm GMT)
PPI (11:50 pm GMT)
What can we expect from JPY today?
Japan’s machinery orders have been mixed for most parts of 2023 while PPI, which measures wholesale inflation, has been retreating sharply on an annualised basis. Meanwhile, demand for the Japanese yen has increased following the miss in US NFP reading and increased volatility in US markets last week.
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 27 July 2023
Next 24 Hours Bias
Medium Bearish
The Euro (EUR)
Key news events today
ZEW Economic Sentiment (9:00 am GMT)
What can we expect from EUR today?
The ZEW Economic Sentiment fell for the past two months and another negative reading has been forecasted for the month of July. Despite the gloomy outlook for the Eurozone, the Euro broke above 1.1000 as traders dumped the US dollar.
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
No major news events.
What can we expect from CHF today?
The Swiss franc continues to strengthen against the US dollar as USDCHF broke under 0.8850 this morning. Further downside action can be expected for this pair but watch out for any potential pullbacks.
Central Bank Notes:
- 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
Medium Bearish
The Pound (GBP)
Key news events today
Claimant Count Change (6:00 am GMT)
Unemployment Rate (6:00 am GMT)
Average Earnings Index (6:00 am GMT)
What can we expect from GBP today?
The pound is trading above 1.2860 and another round of robust readings from the employment sector is likely to provide additional lift for this currency pair.
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
Strong Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
As the sell-off in the US dollar grows, USDCAD broke below 1.3270 this morning and is likely to test the level of 1.3250.
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 12 July 2023
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil pulled back overnight but found support around the $72.80 per barrel region as relatively hawkish comments from FOMC Member Michael Barr from his panel discussion yesterday capped the recent gains in oil prices. API weekly stocks have been drawing down more than estimates over the past three weeks and another surprise drawdown in stock levels could lift crude prices later today.
Next 24 Hours Bias
Weak Bullish
