IC Markets Europe Fundamental Forecast | 19 July 2023
What happened in the Asia session?
Demand for the US dollar was strong this morning as it outperformed most of its peers causing the dollar index (DXY) to rise above 100. With practically an empty calendar during the Asia session, traders are awaiting inflation data from the UK and Eurozone to act as a potential catalyst for the FX markets.
What does it mean for the Europe & US sessions?
Inflation has been falling steadily in the Eurozone and UK over the past ten months or so. Another round of disinflationary data could see the Euro and the pound drop further as demand for the US dollar is strong today. In addition, further improvement in the US residential construction sector would potentially lift DXY higher as well.
The Dollar Index (DXY)
Key news events today
New Residential Construction (12:30 pm GMT)
What can we expect from DXY today?
Despite mortgage rates remaining elevated based on historical standards, new residential projects started picking up in February as inventory levels remained extremely low. With housing demand picking up due to a combination of high employment coupled with rising wages, in addition to a severe shortage of homes in the US, building permits and housing starts for this sector could continue to show improving figures.
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 Bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Gold climbed above $1,980/oz briefly overnight but the move was extremely short-lived and prices retreated from this level. Just like the DXY, this precious metal is also waiting on the next catalyst to provide sufficient tailwind to convincingly break through the recent key resistance at $1,985/oz.
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?
After hitting a high of 0.6895 last Friday, the Aussie dollar fell this week to find support at 0.6800. This currency pair had been trading between a narrow band of 0.6800 and 0.6835 thus far this week but it finally broke below this lower bound during the Asia session.
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
No major news events.
What can we expect from NZD today?
Inflation in New Zealand continues to retreat quite sharply as the latest CPI reading for June showed the quarterly rate rising 1.1% versus the forecast of 0.9%. Although it was higher than expected, the reading was lower than the previous quarter which came in at 1.2%. Meanwhile, the annualised rate slowed from 6.7% YoY to 6.0% YoY – again highlighting the easing of inflationary pressures on this Pacific island.
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
Trade Balance (11:50 pm GMT)
What can we expect from JPY today?
Japan’s trade deficit has been improving quite steadily since the start of the year and June’s reading is expected to show this deficit continuing to reduce. The Japanese yen has been trading between 137.40 and 139.00 over the past three trading days and could finally move above 139 today as demand for the US dollar looks to return today.
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 28 July 2023
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
CPI (9:00 am GMT).
What can we expect from EUR today?
Inflation in the Eurozone has been easing sharply on an annualised basis since peaking in November last year. The latest reading is expected to show headline CPI dropping to 5.5% YoY in June from 6.1% YoY in May. After going as high as 1.1270 this week, the Euro is pulling back as demand for the US dollar picks up 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
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
What can we expect from CHF today?
The Swiss franc saw heavy inflows since last Thursday but has found support above 0.8550 overnight. With demand returning for the USD dollar, this currency pair could bounce higher 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% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Medium Bullish
The Pound (GBP)
Key news events today
CPI (6:00 am GMT)
PPI (6:00 am GMT)
What can we expect from GBP today?
Consumer and wholesale inflation in the UK has been retreating steadily just like many developed economies since last November and the latest estimates show this trend extending its downward slide. The pound came within a whisker of hitting 1.3150 last Friday but has since dropped below 1.3050 and looks to test the 1.3000-level today.
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 Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
IPPI & RMPI (12:30 pm GMT)
What can we expect from CAD today?
As widely expected, disinflationary pressures are growing in Canada as yesterday’s CPI readings and especially the Industrial Product Price Index (IPPI) and the Raw Materials Price Index (RMPI) confirmed this trend. USDCAD initially surged to 1.3240 upon this news release but swiftly dropped down towards 1.3160.
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 6 September 2023
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
API weekly crude oil stocks decreased by only 800k barrels, much lower than the forecast of 2.3M barrels. The EIA is also forecasting a drawdown in their inventory levels later today which could keep crude oil prices elevated as WTI oil jumped from $74 to $75.80 per barrel overnight. However, crude prices may retreat from this price level for most parts of today until we have confirmation of the EIA drawdown.
Next 24 Hours Bias
Weak Bearish
