IC Markets Europe Fundamental Forecast | 19 September 2023
What happened in the Asia session?
The Reserve Bank of Australia (RBA) released the minutes from the monetary policy meeting that took place on 5th September which showed board members had considered raising the cash rate once more but opted to hold as they wanted more time to assess the effects of higher rates on the economy and the labour market. The minutes also showed that “the recent flow of data was consistent with inflation returning to target within a reasonable timeframe while the cash rate remained at its present level”. The Aussie fell as low 0.6430 following the release of the minutes but it then proceeded to move higher.
What does it mean for the Europe & US sessions?
The preliminary inflation readings in the Eurozone showed energy prices decreasing at a slower pace while inflation slowed for food, alcohol, and tobacco items as well as non-energy industrial goods and services. The respective forecasts for headline and core CPI point to both indices remaining unchanged at 5.3% YoY for the month of August – softer readings could add downward pressure on the Euro.
The Dollar Index (DXY)
Key news events today
Building Permits (12:30 pm GMT)
What can we expect from DXY today?
After decreasing throughout 2022, building permits in the US stabilized in the first half of this year. However, permits have printed lower than the forecasts over the last two months which could signal a slowdown in the residential construction sector and possibly have a negative impact on the DXY.
Central Bank Notes:
- The federal funds rate target range will be 5.25% to 5.50%.
- The Committee is strongly committed to returning inflation to its 2.0% 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 runs from 19 to 20 September 2023.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
Building Permits (12:30 pm GMT)
What can we expect from Gold today?
After decreasing throughout 2022, building permits in the US stabilized in the first half of this year. However, permits have printed lower than the forecasts over the last two months which could signal a slowdown in the residential construction sector and possibly have a negative impact on the DXY and thus boost gold prices in the short-term.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
Monetary Policy Meeting Minutes (1:30 am GMT)
What can we expect from AUD today?
The Reserve Bank of Australia (RBA) released the minutes from the monetary policy meeting that took place on 5th September which showed board members had considered raising the cash rate once more but opted to hold as they wanted more time to assess the effects of higher rates on the economy and the labour market. The minutes also showed that “the recent flow of data was consistent with inflation returning to target within a reasonable timeframe while the cash rate remained at its present level”. The Aussie fell as low 0.6430 following the release of the minutes but it then proceeded to move higher.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the third consecutive meeting.
- Inflation in Australia has passed its peak and is trending lower but needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 3 October 2023.
Next 24 Hours Bias
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi has been ranging between 0.5860 and 0.5940 since early September and continues to trade within this zone waiting for the next major catalyst to trigger a move in either direction.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the 1% to 3% target range while supporting maximum sustainable employment.
- Headline inflation and inflation expectations have declined but the core reading remains too high.
- Next meeting is on 4 October 2023.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
Trade Balance (11:50 pm GMT)
What can we expect from JPY today?
Japan’s trade balance unexpectedly posted a deficit of ¥78.7B in July 2023 as exports fell for the first time in 29 months amid weak foreign demand while imports fell for the fourth consecutive month – the forecast for August points to another month of deficit. USD/JPY has made strong gains over the past two weeks and continues to remain elevated.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2.0%.
- 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 +0.5%.
- 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 22 September 2023.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
CPI (9:00 am GMT)
What can we expect from EUR today?
The preliminary inflation readings in the Eurozone showed energy prices decreasing at a slower pace while inflation slowed for food, alcohol, and tobacco items as well as non-energy industrial goods and services. The respective forecasts for headline and core CPI point to both indices remaining unchanged at 5.3% YoY for the month of August – softer readings could add downward pressure on the Euro.
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 is on 26 October 2023.
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
Trade Balance (6:00 am GMT)
What can we expect from CHF today?
Switzerland’s trade balance decreased to CHF2.6B in July 2023 to mark the smallest trade surplus since April as exports dropped more than imports. Another month of decreasing trade surplus could cause the Swiss franc to weaken and provide further lift for USD/CHF.
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 1.0% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound fell sharply over the last two weeks and has continued its downtrend thus far this week. It currently trades below the 1.2400-mark and could slide lower as the day progresses.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.25 percentage points to 5.25%.
- One member preferred to maintain the Bank Rate at 5.0% while another two preferred to increase it by 0.5 percentage points.
- CPI inflation is expected to fall significantly to around 5% by the end of the year, accounted for by lower energy prices but services price inflation is projected to remain elevated in the near term.
- The updated projections show that CPI inflation is expected to decline to 2.0% and 1.9% at the two and three-year horizons respectively.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
CPI (12:30 pm GMT)
What can we expect from CAD today?
Both the Industrial Product Price Index (IPPI) and the Raw Materials Price Index (RMPI) increased for the second month in a row with the IPPI reading coming in much stronger than the forecast. Adding this recent data to the increase in CPI from 2.8% YoY in June to 3.3% YoY in July, inflationary pressures are growing in Canada. Another ‘hot’ CPI print for the month of August could strengthen the Canadian dollar and drive USD/CAD lower.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0%.
- Canada’s economy was more substantial than expected in the second quarter of 2023, with GDP growth of 3.3%.
- The Bank expects CPI inflation to ease to around 3.0% in the summer, but concerns have increased about inflation staying above the 2.0% target.
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
API Weekly Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
API stockpiles increased last week for the first time in five weeks but that did not stop crude oil from climbing higher. WTI oil briefly rose above the $91 per barrel level yesterday and is likely to remain elevated as US oil output from top shale-producing regions is on track to fall to 9.4M barrels per day (bpd) in October, the lowest level since May 2023 as stated by the U.S. Energy Information Administration (EIA) yesterday – it has now fallen for three months in a row.
Next 24 Hours Bias
Medium Bullish
