IC Markets Europe Fundamental Forecast | 19 May 2023
What happened in the Asia session?
Japan’s National Core CPI y/y remained at 3.4%, matching the forecasted value and indicating stable inflation. The Tertiary Industry Activity m/m experienced a decline of -1.7%, contrasting with the predicted growth of 0.3% and the previous growth of 1.7%. The CPI data had a limited impact on the JPY, while the negative surprise in industry activity may lead to a depreciation of the Japanese Yen.
The Trade Balance for New Zealand was 427M, exceeding the forecasted value of -1310M and improving from the previous -1586M. This positive balance may strengthen the NZD currency. However, Credit Card Spending y/y grew by 11.4%, lower than the last 19.7% growth. This slower growth in consumer spending may negatively impact the NZD.
From the UK front, the GfK Consumer Confidence data showed the following figures: actual data of -27, forecasted data of -27, and previous data of -30. The impact on the GBP is expected to be relatively neutral, with a slight positive bias due to a small improvement in consumer confidence indicated by the positive deviation from the previous data.
What does it mean for the Europe & US Sessions?
The DXY enters its fourth day of upward inclination but faces consolidation at an intermediate resistance of 103.50. Should this technical retracement materialise, the US Dollar Index could drop to 103.00, while a less hawkish tone from Fed chair Powell’s speech could see a deeper dive to 102.50.
The Dollar Index (DXY)
Key news events today
Fed Chair Powell Speaks
What can we expect from DXY today?
Fed Chair Powell’s participation in the panel discussion titled “Perspectives on Monetary Policy” is expected to impact the US dollar substantially. A hawkish tone indicating a potential tightening of monetary policy could strengthen the US dollar, while a dovish stance 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?
A hawkish tone from Fed Chair Powell’s speech indicating a potential tightening of monetary policy could strengthen the US dollar, potentially leading to a decline in gold prices. Conversely, a dovish stance may weaken the US dollar, potentially increasing gold prices.
Next 24 Hours Bias
Mixed
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Today, no major news events are affecting the Australian dollar. Therefore, the price direction of the AUD is likely to be influenced by previously released labour data. The negative Employment Change suggests a decline in employment, while the slightly higher Unemployment Rate indicates a slight increase in unemployment. As a result, the AUD may face downward pressure in the coming session.
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 bearish
The Kiwi Dollar (NZD)
Key news events today
Annual Budget Release
What can we expect from NZD today?
The previous data for New Zealand’s Trade Balance showed a deficit of 1,273 million, slightly higher than the forecasted deficit of 1,310 million. If the upcoming data shows an improvement and the deficit narrows, it could positively impact the New Zealand dollar. On the other hand, if the data reveals a larger deficit or no improvement, it could hurt the NZD.
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 bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The forecasted figures are 3.4% for National Core CPI y/y (previous: 3.1%) and 0.3% for Tertiary Industry Activity m/m (prior: 0.7%). A higher-than-expected National Core CPI could strengthen the JPY, indicating increased inflationary pressures. Conversely, a weaker-than-expected Tertiary Industry Activity could hurt the JPY, suggesting a slowdown in the services sector.
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?
The upcoming release of the German PPI m/m data is expected to decrease by 0.5%. A negative PPI reading of -2.6% in the previous release highlights a deflationary trend in producer prices. If the forecasted decrease aligns with the actual data, it may weaken the EUR, signalling reduced pricing power for German producers and raising concerns about the country’s economic outlook.
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
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Today, there is no major news event impacting the Swiss Franc. Previously released data is likely to influence the CHF price direction then. The latest PPI m/m suggested sustained inflationary pressures in the Swiss economy.
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
No major news events.
What can we expect from GBP today?
The upcoming release of the GfK Consumer Confidence, with the forecasted change from -30 to -27, indicates a relatively more positive sentiment among UK consumers. If the actual data matches or surpasses the forecast, it could positively impact GBP.
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 forecasted figures show a decline in Core Retail Sales of -0.8% and a decline in Retail Sales of -1.3%. The previous data indicated decreases of -0.7% and -0.2% for Core Retail Sales and Retail Sales, respectively. These figures suggest a contraction in retail sales, which could weaken the Canadian dollar against other currencies.
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
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
The US dollar has reached a two-month high due to strong economic news and lower-than-expected jobless claims. This has increased expectations of the Fed’s potential interest rate hike in June. A stronger dollar can make oil more expensive for buyers using other currencies, potentially reducing global demand and putting downward pressure on oil prices.
Next 24 Hours Bias
Weak bearish
