IC Markets Europe Fundamental Forecast | 20 July 2023
What happened in the Asia session?
The Labour Force report for Australia showed that the unemployment rate remained unchanged at 3.5% while the economy added 32.6k jobs, much higher than the forecast of 15.4k. Overall, the stronger-than-expected labour data coupled with the US dollar sell-off acted as a major catalyst for the Aussie dollar. This currency pair broke above 0.6800 convincingly and pushed towards 0.6850. Meanwhile, the dollar index (DXY) tumbled towards 100 with ease.
What does it mean for the Europe & US sessions?
As demand for the US dollar looks weak, we can expect gold prices to remain elevated and currency pairs such as the Aussie and Kiwi to continue pushing higher throughout the day. Unemployment claims in the US, which will be released at 12:30 pm GMT, could act as an additional catalyst for the sell-off in the US dollar.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
Last week’s unemployment claims of 237k printed well under the forecast of 251k but the estimate for the current week is set at 239k. Although the unemployment rate in the US is low based on historical standards, we could see claims inching higher. Should claims print higher than its forecast. we can expect the DXY to fall towards 99.60 once more.
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 Bearish
Gold (XAU)
Key news events today
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
Gold found support around $1,972/oz region during the US session before moving higher to rise above $1,980/oz during the Asia session. Although the unemployment rate in the US is low based on historical standards, we could see unemployment claims inching higher later today. Should claims print higher than its forecast, we could expect gold to finally rise towards $2,000/oz.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
Labour Force Report (1:30 am GMT)
What can we expect from AUD today?
The Labour Force report for Australia showed that the unemployment rate remained unchanged at 3.5% while the economy added 32.6k jobs, much higher than the forecast of 15.4k. Overall, the stronger-than-expected labour data coupled with the US dollar sell-off acted as a major catalyst for the Aussie dollar this morning.
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
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi found support around 0.6240 overnight and bounced off this level this morning. This currency pair broke above 0.6300 this morning but is retreating as markets head into the European open.
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
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Japan’s trade balance has been improving quite steadily since the start of the year and yesterday’s numbers confirmed the same trend. Although the country is still running a deficit, the overall direction is encouraging for policymakers. As demand for the US dollar was weak this morning, USDJPY fell as low 139.13.
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
Weak Bearish
The Euro (EUR)
Key news events today
Consumer Confidence (2:00 pm GMT)
What can we expect from EUR today?
Inflation in the Eurozone remained relatively unchanged as headline CPI printed at 5.5% YoY, inline with the estimate but the core reading of 5.5% YoY came in higher than the forecast and previous month’s figure of 5.3% YoY. Although remaining in negative territory, consumer confidence in the Eurozone has been improving steadily since October of 2022 – the latest estimate shows an unchanged reading of -16 for the month of June. The Euro is rising strongly this morning as the greenback sells off hard, pushing towards 1.1250.
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 Bullish
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 surprised strongly to the upside for the month of May. Another surprise trade surplus could drive USDCHF lower as the US dollar looks fragile this morning.
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
Weak Bearish
The Pound (GBP)
Key news events today
No major news events
What can we expect from GBP today?
Consumer and wholesale inflation in the UK continues to retreat steadily with all key metrics printing lower than their respective estimates as well as the previous month’s reading. Despite strong disinflationary trends growing in the UK, the pound hit 1.2960 this morning but is starting to pull back as Europe comes online.
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
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
After rebounding strongly over the last four trading days, USDCAD is tumbling towards 1.3100 as the greenback loses its shine today. This currency pair looks certain to retest the swing-low of 14th July.
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 Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
EIA crude oil inventories fell much lower than the estimate of 2M barrels, with only 700k barrels being drawn down. Despite both the API And EIA inventory drawdowns missing their respective estimates, crude oil prices remain elevated with WTI oil managing to stay above the $75 per barrel for now.
Next 24 Hours Bias
Weak Bullish
