IC Markets Europe Fundamental Forecast | 18 April 2024
What happened in the Asia session?
Australia released its labour force report for the month of March which showed some weakness for this segment of the economy. Employment change contracted for the second time in four months, shedding 6.6K jobs versus the estimate of a gain of 7.2K while the unemployment rate edged higher from 3.7% to 3.8%. Surprisingly, the Aussie actually climbed higher following the release of this data point to hit a high of 0.6456 but this currency pair then stalled around this level before pulling back towards 0.6440 by Asia midday.
What does it mean for the Europe & US sessions?
Unemployment claims have been relatively stable over the last seven weeks with readings averaging around 213K claims on a weekly basis. The latest forecast of 215K points to a slight increase from the previous week’s reading of 211K – should claims print higher than market expectations, it could add downward pressure on the dollar.
Federal Reserve Governor Michelle Bowman is due to participate in a virtual fireside chat at the Securities Industry and Financial Markets Association Basel 3 Endgame Roundtable where audience questions are expected. Although the topic is not focused on monetary policy, her recent comments have shown her to be leaning more on the hawkish side of policy action. Any rhetoric on “higher for longer” could potentially lift the dollar later today.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (12:30 pm GMT)
FOMC Member Bowman Speaks (1:15 pm GMT)
What can we expect from DXY today?
Unemployment claims have been relatively stable over the last seven weeks with readings averaging around 213K claims on a weekly basis. The latest forecast of 215K points to a slight increase from the previous week’s reading of 211K – should claims print higher than market expectations, it could add downward pressure on the dollar.
Federal Reserve Governor Michelle Bowman is due to participate in a virtual fireside chat at the Securities Industry and Financial Markets Association Basel 3 Endgame Roundtable where audience questions are expected. Although the topic is not focused on monetary policy, her recent comments have shown her to be leaning more on the hawkish side of policy action. Any rhetoric on “higher for longer” could potentially lift the dollar later today.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the fifth meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and judges that the risks to achieving its employment and inflation goals are moving into better balance.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks; inflation has eased over the past year but remains elevated.
- Recent indicators suggest that economic activity has been expanding at a solid pace while job gains have remained strong, and the unemployment rate has remained low.
- In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks and does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.
- 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 April to 1 May 2024.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
Unemployment Claims (12:30 pm GMT)
FOMC Member Bowman Speaks (1:15 pm GMT)
What can we expect from Gold today?
Unemployment claims have been relatively stable over the last seven weeks with readings averaging around 213K claims on a weekly basis. The latest forecast of 215K points to a slight increase from the previous week’s reading of 211K – should claims print higher than market expectations, it could add downward pressure on the dollar and boost gold prices.
Federal Reserve Governor Michelle Bowman is due to participate in a virtual fireside chat at the Securities Industry and Financial Markets Association Basel 3 Endgame Roundtable where audience questions are expected. Although the topic is not focused on monetary policy, her recent comments have shown her to be leaning more on the hawkish side of policy action. Any rhetoric on “higher for longer” could potentially lift the dollar later today and temper any gains in this precious metal.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Labour Force Report (1:30 am GMT)
What can we expect from AUD today?
Australia released its labour force report for the month of March which showed some weakness for this segment of the economy. Employment change contracted for the second time in four months, shedding 6.6K jobs versus the estimate of a gain of 7.2K while the unemployment rate edged higher from 3.7% to 3.8%. Surprisingly, the Aussie actually climbed higher following the release of this data point to hit a high of 0.6456 but this currency pair then stalled around this level before pulling back towards 0.6440 by Asia midday.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the seventh pause out of the last eight board meetings.
- The headline monthly CPI indicator was steady at 3.4% over the year to January, with momentum easing over recent months, driven by moderating goods inflation. Services inflation remains elevated, and is moderating at a more gradual pace.
- The central forecasts are for inflation to return to the target range of 2–3% in 2025, and to the midpoint in 2026.
- While recent data indicate that inflation is easing, it remains high. The Board expects that it will be some time yet before inflation is sustainably in the target range.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.
- Next meeting is on 7 May 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?
Following yesterday’s inflation print in New Zealand which showed CPI edging higher from 0.5% in the previous quarter to 0.6% in the first quarter of 2024, the Kiwi has halted its downward slide since the second week of April and retraced above the 0.5900-level. This currency pair was currently trading around 0.5920 as Asian markets came online but it could come under pressure should its Pacific neighbour disappoint with a weak labour force report.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the sixth meeting in a row.
- The Committee remains confident that the current level of the OCR is contributing to an easing in capacity pressures to ensure inflation returns to target.
- However, current consumer price inflation remains above the Committee’s 1 to 3% target range. A restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation.
- The Committee discussed upside risks to the inflation outlook: persistent services inflation remains a risk and goods price inflation remains elevated while anticipated near-term increases to local government rates, insurance, and utility costs, could also further slow the decline in headline inflation.
- The Committee discussed downside risks to the inflation outlook: ongoing restrictive monetary policy in an environment of weak global growth could lead to a more rapid decline in inflation than expected. Business and consumer confidence remain particularly weak which could lead to more unemployment and financial stress than expected while structural challenges facing the economy in China remain a concern given its importance for the global economy and for New Zealand’s trade.
- Next meeting is on 10 July 2024.
Next 24 Hours Bias
Medium Bullish
The Japanese Yen (JPY)
Key news events today
National Core CPI (11:30 pm GMT)
What can we expect from JPY today?
After accelerating sharply from 2% to 2.8% YoY in February, Japan’s core CPI reading is expected to remain elevated at 2.7% in March. Inflationary pressures appear to be taking a foothold in the land of the rising sun and should we see prices continue to rise higher, the Bank of Japan is likely to raise its key policy rate once more – a move that is likely to strengthen the Japanese yen and potentially cause USD/JPY to pull back from its 34-year highs. This currency pair was hovering around 154.40 at the beginning of the Asia session and could drift lower in the initial part of the day.
Central Bank Notes:
- The Bank considers that the policy framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control and the negative interest rate policy to date have fulfilled their roles. With the price stability target of 2%, it will conduct monetary policy as appropriate, guiding the short-term interest rate as a primary policy tool.
- The Bank of Japan decided on the following measures:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1% while continuing its JGB purchases with broadly the same amount as before.
- In addition, the Bank will discontinue purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) and will also gradually reduce the amount of purchases of CP and corporate bonds and will discontinue the purchases in about one year.
- Underlying CPI inflation is likely to increase gradually toward achieving the price stability target of 2%, 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 26 April 2024.
Next 24 Hours Bias
Weak Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
There was no surprise to the final consumer inflation readings for the month of the March in the Euro Area as both headline and core CPI continue to moderate further – the former edging lower from 2.6% to 2.4% while the latter eased from 3.1% to 2.9% on an annualised basis.
Meanwhile, during her speech at the International Monetary Fund/World Bank Spring meetings, ECB President Christine Lagarde hinted that it was too early for the ECB to review its inflation target of 2% because the battle against inflation has yet to conclude. Lagarde stated that “the game is not over and recalled her previous comment that one should not change the rules of the game halfway through”.
The Euro rose to an overnight high of 1.0680 but it pulled back to dip under 1.0670 as Asian markets came online – this currency pair is likely to drift higher as the day progresses.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a fifth consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- Inflation has continued to fall, led by lower food and goods price inflation with most measures of underlying inflation easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits.
- Financing conditions remain restrictive and the past interest rate increases continue to weigh on demand, which is helping to push down inflation but domestic price pressures are strong and are keeping services price inflation high.
- The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and if the Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.
- Next meeting is on 6 June 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?
The Swiss franc remains one of the weakest currencies in 2024 causing USD/CHF to climb above the threshold of 0.9100 in early April. However, with no additional catalysts, this currency pair has remained bounded between 0.9100 and 0.9150 since the second week of April and it is a range that is likely to extend further today.
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points, going from 1.75% to 1.50% in March.
- For some months now, inflation has been back below 2% and thus in the range the SNB equates with price stability.
- According to the new forecast, inflation is also likely to remain in this range over the next few years.
- The forecast puts average annual inflation at 1.4% for 2024, 1.2% for 2025 and 1.1% for 2026, based on the assumption that the SNB policy rate is 1.5% over the entire forecast horizon.
- Swiss GDP growth was moderate in the fourth quarter of last year and it is likely to remain modest in the coming quarters.
- Overall, Switzerland’s GDP is likely to grow by around 1% this year.
- Next meeting is on 20 June 2024.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Consumer inflation in the UK eased further in March as headline CPI edged lower from 3.4% to 3.2% while the core reading fell from 4.5% to 4.2%, both on an annualised basis. However, both readings printed higher than their respective estimates pointing to a certain level of stickiness. The Pound initially spiked following this news release as GBP/USD went from 1.2420 to as high as 1.2480 during yesterday’s European trading hours. However, this currency pair almost gave up all of its prior gains to dip under 1.2430 during the US session and was trading around 1.2455 at the beginning of the Asia session.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8-to-1 to maintain its Official Bank Rate at 5.25% for the fifth consecutive meeting.
- One member preferred to reduce the Bank Rate by 25 basis points to 5.0%.
- Twelve-month CPI inflation fell to 3.4% in February from 4.0% in January and December while Services consumer price inflation has declined but remains elevated, at 6.1% in February.
- CPI inflation is projected to fall to slightly below the 2% target in 2024 Q2, marginally weaker than previously expected owing to the freeze in fuel duty announced in the Budget.
- In the February Report projection, CPI inflation had been expected to fall temporarily to the 2% target in 2024 Q2 before increasing again in Q3 and Q4, to around 2.75%.
- Having declined through the second half of last year, UK GDP and market sector output are expected to start growing again during the first half of this year while the fiscal measures in Spring Budget 2024 are likely to increase the level of GDP by around 0.25% over coming years.
- Next meeting is on 9 May 2024.
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The Loonie has weakened significantly since the beginning of April, driving USD/CAD past the threshold of 1.3800 but it looks to have run into resistance around the region of 1.3850 at the beginning of this week. This currency pair fell under 1.3800 overnight and could continue to slide lower today.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the fifth meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled in the second half of last year and the economy moved into excess supply but economic growth is forecasted to pick up in 2024. Overall, the Bank forecasts GDP growth of 1.5% in 2024, 2.2% in 2025, and 1.9% in 2026.
- CPI inflation slowed to 2.8% in February, with easing in price pressures becoming more broad-based across goods and services. However, shelter price inflation is still very elevated, driven by growth in rent and mortgage interest costs.
- Core measures of inflation, which had been running around 3.5%, slowed to just over 3% in February, and 3-month annualized rates are suggesting downward momentum. The Bank expects CPI inflation to be close to 3% during the first half of this year, move below 2.5% in the second half, and reach the 2% inflation target in 2025.
- The Governing Council is particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months and the Council will be looking for evidence that this downward momentum is sustained.
- Next meeting is on 5 June 2024.
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Following Tuesday’s higher-than-anticipated increase in API stockpiles, the EIA inventories also followed suit by adding 2.7M barrels of crude versus the estimate of just 1.6M. This marked the fourth consecutive week where EIA inventories levels increased and came in higher than the respective forecasts. Despite the ongoing conflicts in the Middle East, demand concerns – as seen in the recent API and EIA stock levels – outweigh any geopolitical risks for now.
Prices for crude oil tumbled hard yesterday with WTI oil shedding nearly 3.1% to dive under $83 per barrel and mark the second largest daily decline of this year. This commodity was trading around $82.70 as Asian markets came online and is likely to resume its downward slide as the day progresses.
Next 24 Hours Bias
Medium Bearish
