IC Markets Europe Fundamental Forecast | 12 July 2023
What happened in the Asia session?
As widely expected, the Reserve Bank of New Zealand (RBNZ) held their official cash rate (OCR) steady at 5.50% while leaving their forward guidance unchanged as they anticipate interest rates to remain at a restrictive level for the foreseeable future. This is to ensure that consumer inflation returns to the 1% to 3% annual target range, while supporting sustainable employment.
What does it mean for the Europe & US sessions?
Following the RBNZ OCR announcement, US CPI data will be the most closely watched economic data point later today as traders will be keeping a sharp eye on both the headline print as well as the core reading, on a monthly- and annualised-basis. The US dollar has been extremely weak since last Thursday and should consumer inflation come in cooler-than-expected, the ongoing sell-off is all but certain to accelerate and drive DXY towards the 101-level.
The Dollar Index (DXY)
Key news events today
CPI (12:30 pm GMT)
What can we expect from DXY today?
One of the most closely watched economic events out of the US this week will be the CPI readings for the month of June. While headline CPI has been retreating sharply, the same cannot be said for the core reading. However, an overall ‘soft’ reading is likely to accelerate the sell-off in the US dollar 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
Medium Bearish
Gold (XAU)
Key news events today
CPI (12:30 pm GMT)
What can we expect from Gold today?
One of the most closely watched economic events out of the US this week will be the CPI readings for the month of June. While headline CPI has been retreating sharply, the same cannot be said for the core reading. However, an overall ‘soft’ reading is likely to spur demand for gold with spot prices touching $1,940/oz during the Asia session.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
RBA Gov Lowe Speaks (3:10 am GMT)
What can we expect from AUD today?
RBA Governor Philip Lowe delivered a speech entitled “The Reserve Bank Review and Monetary Policy” at the Economic Society of Australia Business Lunch, in Brisbane. He announced some major changes to the monetary policy and communication processes such as introducing less frequent but longer board meetings. Governor Lowe also commented on last week’s monetary policy decision stating that the hold on the cash rate would provide board members with ample time to assess the state of the economy, its outlook and the associated risks.
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 1 August 2023
Next 24 Hours Bias
Strong Bearish
The Kiwi Dollar (NZD)
Key news events today
RBNZ Official Cash Rate Statement (2:00 am GMT)
What can we expect from NZD today?
After hitting a high of 0.6240 during the Asia session, the Kiwi is now retreating after the latest cash rate announcement by the RBNZ – the details of which are summarized in the notes below.
Central Bank Notes:
- The Monetary Policy Committee held the OCR steady at 5.50%
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the annualized target range of 1% to 3% while supporting maximum sustainable employment
- The Committee reached consensus to leave the OCR unchanged at 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 Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
US equity markets made relatively strong gains and the VIX dropped below 15 overnight to mark a potential resumption of risk-on sentiment in markets. However, the strong sell-off in the US dollar is causing USDJPY to dive further as this pair broke under 140.00 during the US session.
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
No major news events.
What can we expect from EUR today?
With no key news events taking place in the Eurozone today, all eyes will be on the upcoming CPI data from the US – expect this data point to act as the main catalyst for currency markets later 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 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 0.8800 – further downside pressures can be expected for this pair but there could be minor pullbacks along the way.
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
BoE Gov Bailey Speaks (8:00 am GMT)
What can we expect from GBP today?
Bank of England Governor Andrew Bailey will be holding a press conference on the Financial Stability Report in London, where any hawkish commentary could act as additional catalyst for the rise in the pound – the pound is currently trading above 1.2950.
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
BoC Overnight Rate Statement (2:00 pm GMT)
BoC Monetary Policy Report (2:00 pm GMT)
BoC Press Conference (3:00 pm GMT)
What can we expect from CAD today?
The Bank of Canada is widely expected to raise the overnight rate by 25 bps to bring it up to 5.00% – their overnight rate announcement and press conference follows the release of the US CPI data at 12:30 pm GMT. Thus, expect high volatility for the Loonie during the US session.
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
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
The API weekly crude oil stockpile increased by just over 3 million barrels versus the estimate of only 200k – this marked the first rise in inventory levels in four weeks and by a wide margin too. However, crude prices are rising strongly as markets anticipate additional stimulus spending from China to boost its ailing economy. WTI crude prices were making a push towards the $75.00 per barrel this morning.
Next 24 Hours Bias
Weak Bullish
