IC Markets Europe Fundamental Forecast | 18 May 2023
What happened in the Asia session?
The figures provided for Australian Employment Change are -4.3K (lower than the forecasted 24.8K and the previous 61.1K), indicating potential job losses. For the Unemployment Rate, the actual figure of 3.7% is higher than the forecasted and earlier figures of 3.5%. These unfavourable indicators suggest a weakening labour market, potentially leading to a depreciation of the AUD.
What does it mean for the Europe & US Sessions?
A dovish BoE perceived from the upcoming Monetary Policy Report Hearings may sink the Cable to retest the recent lows of around 1.2420. Otherwise, a break above 1.2500 could see another push-up to the recent highs of about 1.2540.
The Lonnie willy likely maintains a sideways range between 1.3400 and 1.3530 before BoC Governor Macklem’s press conference about the Financial System Review.
The Dollar Index (DXY)
Key news events today
Unemployment Claims
What can we expect from DXY today?
The forecasted US Unemployment Claims are 253K (previous: 264K), Philly Fed Manufacturing Index is -19.5 (previous: -31.3), and Existing Home Sales are 4.30M (last: 4.44M). Positive surprises in the data could strengthen the USD, while disappointing figures may weaken it.
Central Bank Notes:
- The committee raised the target range for the federal funds rate to 5 to 5-1/4 per cent. The U.S. banking system is sound and resilient.
- Tighter credit conditions for households and businesses may weigh on economic activity, hiring, and inflation.
- The committee is committed to returning inflation to its 2% objective
- The committee will adjust monetary policy as appropriate if risks emerge that could impede the attainment of goals
- Next meeting is on 14 June 2023
Next 24 Hours Bias
Mixed
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The anticipation of higher US interest rates for longer due to the Fed’s hawkish stance has led to a decline in gold prices. However, the concerns over the US debt ceiling should increase the demand for gold as a hedge against market volatility.
Next 24 Hours Bias
Mixed
The Australian Dollar (AUD)
Key news events today
Employment Change
Unemployment Rate
What can we expect from AUD today?
The upcoming data releases for Australia’s employment change, with a forecasted figure of 24.8K (previous: 53.0K), and the unemployment rate, remaining stable at 3.5% (prior: 3.5%), are expected to impact the AUD moderately. The job market’s health and the overall economy will be assessed based on the employment change figure. If the release exceeds expectations, indicating a more robust job market, it could positively affect the AUD. Conversely, falling short of expectations may negatively impact the currency.
Central Bank Notes:
- The Official Cash Rate was increased by 25 basis points to 3.85%.
- Inflation in Australia has passed its peak but remains high at 7%, and it may take some time to return to the target range.
- GDP is forecast to increase by 1.25% this year and around 2% over the year to mid-2025.
- Next meeting on 6 June 2023
Next 24 Hours Bias
Weak bullish
The Kiwi Dollar (NZD)
Key news events today
Annual Budget Release
What can we expect from NZD today?
The upcoming data releases from the New Zealand dollar include the PPI Input q/q, with a forecasted growth of 0.5% (previous quarter: 0.5%), and the PPI Output q/q, expected to rise by 0.8% (last quarter: 0.9%). These figures suggest stability and a positive economic outlook. The Annual Budget Release will also provide insights into the government’s fiscal policies and spending plans.
Central Bank Notes:
- OCR increased by 50bps from 4.75% to 5.25%
- Recent severe weather events in the North Island have led to higher prices, increasing the risk of inflation expectations exceeding the target range.
- New Zealand’s economic growth is expected to slow through 2023 due to the slowing global economy, reduced residential building activity, and the ongoing effects of monetary policy tightening.
- Next meeting is on 25 May 2023
Next 24 Hours Bias
Weak bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The upcoming release of Japan’s Trade Balance data, with a forecasted improvement from the previous deficit of -1.21 trillion JPY to -1.08 trillion JPY, is expected to have a mixed impact on the Japanese yen. A negative trade balance suggests that Japan is importing more than it is exporting, which can put downward pressure on the currency.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2%
- Japan’s economy is expected to recover gradually
- The bank will not hesitate to take additional easing measures if necessary
- Next meeting is on 15 June 2023
Next 24 Hours Bias
Mixed
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
Due to a bank holiday, the price direction for EUR is expected to be influenced by the upcoming release of German PPI data. The forecasted figures indicate a month-on-month decrease of 0.5% and a significant drop of 2.6% compared to last year. However, trading volumes may be low, so caution should be exercised.
Central Bank Notes:
- The ECB has decided to raise the three key interest rates by 25 basis points as the inflation outlook continues to be too high for too long.
- The ECB will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Renewed financial market tensions and Russia’s war against Ukraine remain significant economic downside risks.
- The continued resilience of the labour market could lead to higher growth than anticipated.
- Next meeting on 15 June 2023
Next 24 Hours Bias
Mixed
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Due to the bank holiday, the CHF price direction will likely depend on previously released PPI m/m data: actual – 0.2%, forecasted – 0.1%, previous – 0.2%. The impact is expected to be mild since the change in the data was small.
Central Bank Notes:
- Raised policy rate to 1.5% to counter inflationary pressure and ensure price stability. The SNB may need to raise the policy rate further in the future
- The SNB is providing liquidity assistance to Credit Suisse, and the crisis has been halted
- The new inflation forecast assumes a policy rate of 1.5% and puts average annual inflation at 2.6% for 2023 and 2.0% for 2024 and 2025.
- Mortgage and real estate market vulnerabilities persist
- Next meeting on 22 June 2023
Next 24 Hours Bias
Mixed
The Pound (GBP)
Key news events today
Monetary Policy Report Hearings
What can we expect from GBP today?
The upcoming UK Monetary Policy Report Hearings hold significant implications for the British pound GBP. The GBP is likely to appreciate if central bank officials signal a hawkish stance, indicating a potential tightening of monetary policy. Conversely, a dovish tone suggesting a more accommodative monetary policy may pressure the GBP downwards.
Central Bank Notes:
- The MPC of the BoE voted 7-2 to increase Bank Rate by 0.25 percentage points to 4.5%.
- 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.
- CPI increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- Next meeting on 22 June 2023
Next 24 Hours Bias
Mixed
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The Bank of Canada BOC Financial System Review and a speech by BOC Governor Macklem are scheduled. The Financial System Review assesses the stability of the Canadian financial system, while Governor Macklem’s speech offers insights into the central bank’s outlook. These events can influence investor confidence and affect the CAD.
Central Bank Notes:
- Bank of Canada holds its target for the overnight rate at 4.5%
- Labour markets remain tight with persistent price pressures, especially for services
- Economic growth in Q1 looks to be stronger than projected; to be weak through the remainder of this year before strengthening gradually next year
- Prepared to increase the policy rate further to return inflation to the 2% target.
- Next meeting on 7 June 2023
Next 24 Hours Bias
Mixed
Oil
Key news events today
No major news events.
What can we expect from Oil today?
According to the EIA, US crude stockpiles have unexpectedly risen by 5 million barrels, contradicting earlier predictions of a drawdown of 1.5m barrels. This increase signals a potential imbalance in the oil market, as the IEA forecasts that global demand will surpass supply by 2 million barrels per day. The rise in stockpiles could lead to downward pressure on oil prices.
Next 24 Hours Bias
Weak bearish
