IC Markets Europe Fundamental Forecast | 21 April 2023
What happened in the Asia session?
Australia’s Flash Manufacturing PMI came in at 48.1, lower than the 49.1 previous data. Flash Services PMI of 52.6 is higher than the forecasted 48.6. Consequently, AUD/USD dropped towards the critical support around 0.6690.
The UK’s latest GfK Consumer Confidence of -30 is higher than the forecasted -35 and the previous data of -36. However, the strength of the USD amid hawkish Fedspeak throughout the week muted any potential impact.
The National Core CPI y/y for Japan has remained steady at 3.1%, in line with the forecasted value of 3.0%. However, the Flash Manufacturing PMI has fallen to 49.2, below the predicted value of 49.9 and the previous period’s value of 49.5, indicating a contraction in the manufacturing sector. Despite this development, USD/JPY continues its struggle for gains.
What does it mean for the Europe & US Sessions?
Only a surprise in the Flash Manufacturing PMI and Flash Services PMI of the Eurozone, UK and the US will bring the Euro and Cable out of their respective consolidative range at 1.0920-80 and 1.2400-70.
The Dollar Index (DXY)
Key news events today
Flash Manufacturing PMI
Flash Services PMI
What can we expect from DXY today?
The upcoming release of the US Flash Manufacturing PMI and Flash Services PMI data will determine whether there is an expansion or contraction in the manufacturing and services sectors, which could lead to an increase or decrease in demand for the currency. The forecasted data for Flash Manufacturing PMI stands at 49.0, while the previous data was at 49.2. For Flash Services PMI, the predicted data is 51.5, while the earlier data was 52.6.
Central Bank Notes:
- The US banking system is sound and resilient, but recent developments may result in tighter credit conditions for households and businesses.
- The Federal Reserve has raised the target range for the federal funds rate to 4-3/4 to 5 per cent, committed to returning inflation to its 2 per cent objective.
- In determining the extent of future increases in the target range, the Committee will consider various factors, including the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and economic and financial developments.
- Next meeting is on 3 May 2023
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
According to CME’s FedWatch Tool, there is a 90% chance of a 25bps rate hike by the Fed during a two-day meeting on May 3. This development is expected to put pressure on the price of gold as higher interest rates make the precious metal less attractive as an investment.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The upcoming Australian Flash Manufacturing PMI and Flash Services PMI releases may hurt the AUD if the figures stay below 50.0. The manufacturing and services sectors showed a previous contraction in activity, with the PMI readings below the 50.0 threshold separating expansion from contraction.
Central Bank Notes:
- Kept the cash rate unchanged at 3.60%
- Full impact of previous interest rate hikes is yet to be felt.
- Inflation in Australia has peaked, and the central forecast is to decline this year, at around 3% in mid-2025.
- Further tightening of monetary policy may be necessary to achieve the 2 – 3% inflation target
- Next meeting on 2 May 2023
Next 24 Hours Bias
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The absence of any significant news events may lead to the direction of the New Zealand dollar’s (NZD) price being determined by previously released economic data. Market participants may focus on the Consumer Price Index (CPI) quarter-over-quarter (q/q) figure, last reported at 1.2%, lower than the forecasted value of 1.5% and the previous value of 1.4%.
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
Mixed
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The forecasted figure for Japan’s National Core CPI y/y is 3.0%, slightly lower than the previous figure of 3.1%. Meanwhile, the forecasted figure for Flash Manufacturing PMI is 49.9, slightly higher than the last figure of 49.2, which indicates a potential decrease in the value of JPY if the actual figure comes in lower than the forecast.
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 27 April 2023
Next 24 Hours Bias
Weak Bearish
The Euro (EUR)
Key news events today
German Flash Manufacturing PMI
German Flash Services PMI
What can we expect from EUR today?
The impact of the upcoming data releases from the Eurozone may be relatively modest, given the minor changes expected in the respective PMI readings. The German Flash Manufacturing PMI data, forecasted to increase from 44.7 to 45.6, is expected to impact the Euro positively. However, the German Flash Services PMI release is predicted to decrease from 53.7 to 53.2, which may negatively impact the Euro.
Central Bank Notes:
- ECB raised interest rates by 50 basis points to ensure the 2% inflation target is met
- Inflation is projected to average 5.3% in 2023, with growth at 1%, and underlying price pressures remain strong
- The bank will continue to monitor market tensions closely and will be data-dependent in its policy rate decisions
- Next meeting on 4 May 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?
Today, there is no major news event from Switzerland, so the price direction will likely draw from the previously released statement by the SNB’s Schlegel. He commented on the possibility of further interest rate hikes to control Swiss inflation, which he considers high compared to international standards.
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
Weak Bullish
The Pound (GBP)
Key news events today
Flash Manufacturing PMI
Flash Services PMI
What can we expect from GBP today?
The impact of the upcoming data releases from the UK may be mixed-to-bullish. The forthcoming Flash Manufacturing PMI release for GBP is forecasted at 48.8, slightly higher than the previous reading of 47.9. It could lead to an increase in the value of the GBP, while a lower reading may cause a decrease. The Flash Services PMI is expected to remain unchanged at 52.9.
Central Bank Notes:
- The BoE’s MPC increased the Bank Rate by 25bps to 4.25%, with a majority of 7-2 in favour of the hike
- The UK banking system is judged to be robust and resilient.
- CPI inflation increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- The MPC will continue to monitor inflationary pressures and adjust Bank Rate as necessary.
- Next meeting on 11 May 2023
Next 24 Hours Bias
Mixed-to-bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The forecasted data for Canadian Core Retail Sales suggests no growth, with a figure of 0.0%, compared to the previous month’s gain of 0.9%. Additionally, the forecasted figure for Retail Sales indicates a decline of -0.6%, which could lead to a contraction in the retail sector and further weaken 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
Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Due to weakening demand and a stronger US dollar, oil prices will continue facing downward pressure towards the OPEC-driven gap support, around $76/bbl for WTI.
Next 24 Hours Bias
Weak Bearish
