IC Markets Europe Fundamental Forecast | 11 September 2023
What happened in the Asia session?
Bank of Japan (BoJ) Governor Kazuo Ueda surprised markets this morning with his hawkish comments which suggested that the BoJ may put an end to its ultra-dovish monetary policy stance and focus on a ‘quiet exit’ from negative interest rates. His remarks sent nearly all the yen crosses tumbling hard during the Asia session with USD/JPY diving nearly 180 pips from Friday’s close while the dollar index (DXY) also shed 50 pips falling to a low of 104.52.
What does it mean for the Europe & US sessions?
The DXY stabilized around 104.60 as European markets come online and digest the latest comments from BoJ Governor Ueda. We can expect the Japanese yen to remain as the strongest performing currency for the rest of the day while the DXY is also likely to remain under pressure as the day progresses.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
After eight weeks of relatively strong gains by the DXY, it gapped lower this morning and is showing broad-based weakness against all the other currencies as well as gold. We could finally see a pullback in the DXY in the beginning of the new trading week.
Central Bank Notes:
- The federal funds rate target range will be 5.25% to 5.50%.
- The Committee is strongly committed to returning inflation to its 2.0% 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 runs from 19 to 20 September 2023.
Next 24 Hours Bias
Strong Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
After eight weeks of relatively strong gains by the DXY, it gapped lower this morning and is showing broad-based weakness against all the other currencies as well as gold. A strong pullback in the DXY could finally provide some lift to gold prices as this precious metal bounced strongly off the $1,920/oz level at today’s open.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie gapped higher this morning to open at 0.6382 before falling briefly but then proceeded to rise strongly as broad-based weakness for the US dollar gained traction. AUD/USD broke above 0.6400 this morning and is likely to climb higher as the day progresses.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the third consecutive meeting.
- Inflation in Australia has passed its peak and is trending lower but needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 3 October 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?
Just like its Pacific neighbour, the Kiwi gapped higher this morning to open at 0.5890 before falling briefly but then proceeded to rise strongly as broad-based weakness for the US dollar gained traction. The Kiwi broke above 0.5900 this morning and is likely to climb higher as the day progresses.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the 1% to 3% target range while supporting maximum sustainable employment.
- Headline inflation and inflation expectations have declined but the core reading remains too high.
- Next meeting is on 4 October 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?
The Japanese yen is the strongest performing currency at the start of the new trading week thus far. It was an extremely volatile start for USD/JPY as it gapped lower by nearly 80 pips to open at 147.00 and initially fell as low as 146.60 before reversing some losses to retrace as high as 147.25. It then proceeded to resume the downturn and is diving towards 146.50 as Asian markets came online and digested Bank of Japan (BoJ) Governor Kazuo Ueda’s hawkish comments which suggested that the BoJ may put an end to its ultra-dovish monetary policy stance and focus on a ‘quiet exit’ from negative interest rates.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2.0%.
- 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 +0.5%.
- 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 22 September 2023.
Next 24 Hours Bias
Strong Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
With US dollar weakness gaining traction at today’s open, the Euro gapped higher to climb as high as 1.0740 and is likely to remain elevated today.
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 14 September 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?
With US dollar weakness gaining traction at today’s open, USD/CHF gapped lower falling as low as 0.8900 before retracing higher. The downturn then resumed with this currency pair sliding towards 0.8900 once more and is likely to remain under pressure today.
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 1.0% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Medium Bearish
The Pound (GBP)
Key news events today
MPC Member Pill Speaks (8:00 am GMT)
What can we expect from GBP today?
Bank of England (BoE) Chief Economist Huw Pill will be participating in a panel discussion at the Kent Invicta Chamber of Commerce where his remarks could have any impact on the direction of the Pound. With US dollar weakness gaining traction at today’s open, the Pound rose strongly to climb as high as 1.2530 and is likely to remain elevated today.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.25 percentage points to 5.25%.
- One member preferred to maintain the Bank Rate at 5.0% while another two preferred to increase it by 0.5 percentage points.
- CPI inflation is expected to fall significantly to around 5% by the end of the year, accounted for by lower energy prices but services price inflation is projected to remain elevated in the near term.
- The updated projections show that CPI inflation is expected to decline to 2.0% and 1.9% at the two and three-year horizons respectively.
- Next meeting on 21 September 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?
Employment figures in Canada printed better than market expectations as nearly 40k jobs were added versus the 19k-estimate while the unemployment rate remained unchanged at 5.5% for the month of August. Employment increased in the professional, scientific and technical services and the construction sectors while educational services and manufacturing both declined. With US dollar weakness gaining traction at today’s open, USD/CAD gapped lower and briefly broke under 1.3600 as the Asia session got under way.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0%.
- Canada’s economy was more substantial than expected in the second quarter of 2023, with GDP growth of 3.3%.
- The Bank expects CPI inflation to ease to around 3.0% in the summer, but concerns have increased about inflation staying above the 2.0% target.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Following two consecutive weeks of strong gains, crude oil prices slip from a 10-month high as some profit-taking appears to be coming into play after prices saw a strong run-up during this period. With Saudi Arabia and Russia announcing deeper-than-expected supply cuts for the remainder of the year, crude traders are expecting this market tightness will help to offset any potential demand headwinds from a global perspective. WTI oil hit a high of $87.50 per barrel last week but prices are retreating from this level today.
Next 24 Hours Bias
Weak Bullish
