IC Markets Europe Fundamental Forecast | 17 January 2024
What happened in the Asia session?
China released a few key economic data points which underwhelmed market expectations as both GDP and retail sales printed lower than their respective estimates. Economic activity grew 5.2% YoY in the fourth quarter of 2023 versus the estimate of 5.3% while sales rose 7.4% YoY in December – a figure that was lower than the estimate of 7.9% as well as the previous month’s reading of 10.1%.
The only bright spot was industrial production which grew 6.8% YoY in December versus its estimate of 6.6% and the previous month’s reading of 6.6%. The overall disappointing data point to sluggish economic growth in China and is likely to add further downward pressure on crude oil prices.
What does it mean for the Europe & US sessions?
There are not one but two Federal Reserve Governors lined up today – Governor Michael Barr will be speaking at the Annual Massachusetts Institute of Technology and Federal Reserve System Conference while Governor Michelle Bowman speaks about capital reform at the US Chamber of Commerce, where audience questions are expected. Any hawkish rhetoric by either one of them could potentially provide lift for the dollar.
The Dollar Index (DXY)
Key news events today
Retail Sales (1:30 pm GMT)
FOMC Member Barr Speaks (2:00 pm GMT)
FOMC Member Bowman Speaks (2:00 pm GMT)
What can we expect from DXY today?
Retail sales rebounded in November as it grew 0.3% MoM, reversing the decline of 0.2% in the previous month. December’s estimate of 0.4% shows consumer spending to be resilient and a stronger-than-expected sales figure could function as a bullish catalyst for the dollar.
Meanwhile, there are not one but two Federal Reserve Governors lined up today – Governor Michael Barr will be speaking at the Annual Massachusetts Institute of Technology and Federal Reserve System Conference while Governor Michelle Bowman speaks about capital reform at the US Chamber of Commerce, where audience questions are expected. Any hawkish rhetoric by either one of them could potentially provide lift for the dollar.
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 Bullish
Gold (XAU)
Key news events today
Retail Sales (1:30 pm GMT)
FOMC Member Barr Speaks (2:00 pm GMT)
FOMC Member Bowman Speaks (2:00 pm GMT)
What can we expect from Gold today?
Retail sales rebounded in November as it grew 0.3% MoM, reversing the decline of 0.2% in the previous month. December’s estimate of 0.4% shows consumer spending to be resilient and a stronger-than-expected sales figure could function as a bullish catalyst for the dollar.
Meanwhile, there are not one but two Federal Reserve Governors lined up today – Governor Michael Barr will be speaking at the Annual Massachusetts Institute of Technology and Federal Reserve System Conference while Governor Michelle Bowman speaks about capital reform at the US Chamber of Commerce, where audience questions are expected. Any hawkish rhetoric by either one of them could potentially provide lift for the dollar. Gold prices are likely to be volatile during the US session.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Federal Reserve Governor Christopher Waller hawkish comments drove the Aussie as low as 0.6575 overnight before retracing higher at the beginning of the Asia session. This currency was trading around 0.6595 and could possibly rise higher before resuming the downturn today.
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 Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Federal Reserve Governor Christopher Waller hawkish comments drove the Kiwi as low as 0.6125 overnight before retracing higher as Asian markets came online. This currency was trading around 0.6150 and could possibly rise higher before resuming the downturn 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 Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Hawkish comments by Federal Reserve Governor Christopher Waller propelled USD/JPY as high as 147.45 overnight before pulling back at the beginning of the Asia session. This currency pair was trading around 147.10 but could resume to the uptrend 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 Bullish
The Euro (EUR)
Key news events today
CPI (10:00am GMT)
What can we expect from EUR today?
Eurozone inflation has eased considerably throughout 2023 for both the headline and core CPI readings. December’s estimate shows core CPI moderating further while showing an increase for headline CPI. Softer-than-expected figures could potentially function as a bearish catalyst for the Euro.
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
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Hawkish comments by Federal Reserve Governor Christopher Waller launched USD/CHF as high as 0.8620 overnight before pulling back as Asian markets came online. This currency pair was trading around 0.8610 and could potentially slide lower before resuming the uptrend.
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 Bullish
The Pound (GBP)
Key news events today
CPI (7:00 am GMT)
What can we expect from GBP today?
Inflation in the UK has retreated significantly over the last six months but both the headline and core readings remain above the target of 2%. Inflationary pressures continue to dissipate and should December’s figures show a continuation of this downward trend, they are likely to weigh on the Pound.
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 Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Hawkish comments by Federal Reserve Governor Christopher Waller momentarily drove USD/CAD above the threshold of 1.3500 overnight before pulling back at the beginning of the Asia session. This currency pair was trading around 1.3480 and could slide lower before resuming the uptrend.
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
Medium Bullish
Oil
Key news events today
API Crude Oil Stock (9:30 pm GMT)
What can we expect from Oil today?
The latest comments by Federal Reserve Governor Christopher Waller have raised uncertainty over US interest rates, driving the dollar higher while offsetting the geopolitical risk premium in the Middle East for now. Crude oil prices dipped overnight as WTI oil fell under $72 per barrel.
Meanwhile, API stockpiles have experienced larger than expected drawdowns over the last couple of weeks, signalling stronger demand for crude oil in the US. Should the latest reading show a continuation of a higher draw, it could provide a boost for oil prices later today.
Next 24 Hours Bias
Medium Bearish
