IC Markets Europe Fundamental Forecast | 21 December 2023
What happened in the Asia session?
The DXY has ranged approximately between 101.90 and 102.60 this week and it was sliding towards this lower bound while spot gold prices were rising and could reach the $2,050/oz threshold – a level where price has failed to break above in December thus far. Crude prices remained elevated with WTI oil climbing above $74.00 per barrel.
What does it mean for the Europe & US sessions?
The final estimate for third quarter GDP will be released today and it is expected to show the US economy growing 5.2% YoY, a big jump from 2.1% YoY in the previous quarter. A higher GDP print could provide some lift for the DXY.
Meanwhile, unemployment claims are expected to edge higher this week with the estimate showing claims rising to 214k from 202k in the previous week. A stronger-than-expected figure would once again indicate an uptrend in claims being filed which could potentially signal a weakening of the US labour market and could cause the DXY to fall further during the US session.
The Dollar Index (DXY)
Key news events today
GDP (1:30 pm GMT)
Unemployment Claims (1:30 pm GMT)
What can we expect from DXY today?
The final estimate for third quarter GDP will be released today and it is expected to show the US economy growing 5.2% YoY, a big jump from 2.1% YoY in the previous quarter. A higher GDP print could provide some lift for the DXY.
Meanwhile, unemployment claims are expected to edge higher this week with the estimate showing claims rising to 214k from 202k in the previous week. A stronger-than-expected figure would once again indicate an uptrend in claims being filed which could potentially signal a weakening of the US labour market and could cause the DXY to fall further during the US session.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the third meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- The Committee will continue to assess additional information and its implications for monetary policy.
- In determining the extent of any additional policy firming that may be appropriate to return inflation to 2.0% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.
- Next meeting runs from 30 to 31 January 2024.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
GDP (1:30 pm GMT)
Unemployment Claims (1:30 pm GMT)
What can we expect from Gold today?
The final estimate for third quarter GDP will be released today and it is expected to show the US economy growing 5.2% YoY, a big jump from 2.1% YoY in the previous quarter. A higher GDP print could provide some lift for the DXY and put pressure on gold prices.
Meanwhile, unemployment claims are expected to edge higher this week with the estimate showing claims rising to 214k from 202k in the previous week. A stronger-than-expected figure would once again indicate an uptrend in claims being filed which could potentially signal a weakening of the US labour market and could cause the DXY to fall and thus boost gold prices during the US session.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie pulled back quite sharply overnight but found support around 0.6730 and began to rise strongly at the start of the Asia session. This currency could make another attempt to climb towards 0.6800 today.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the fifth pause out of the last six board meetings.
- Inflation in Australia has passed its peak but is still too high and the progress in bringing inflation back to the target range of 2% to 3% was looking slower than earlier forecast.
- Any further tightening of monetary policy to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.
- Next meeting is on 6 February 2024.
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?
Along with its Pacific neighbour, the Kiwi also tumbled overnight falling as low as 0.6235. This currency too found relatively strong support around 0.6250 and could edge higher today.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fourth meeting in a row.
- The Committee is confident that the current level of the OCR is restricting demand. However, ongoing excess demand and inflationary pressures are of concern, given the elevated level of core inflation.
- If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further.
- The Committee agreed that interest rates will need to remain at a restrictive level for a sustained period of time, so that consumer price inflation returns to target and to support maximum sustainable employment.
- Next meeting is on 28 February 2024.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
Monetary Policy Meeting Minutes (11:50 pm GMT)
What can we expect from JPY today?
Following the Bank of Japan’s (BoJ) final monetary policy meeting of 2023 on 19th of December, the minutes are set to be released later today. If the tone of these minutes were to communicate an ultra-dovish tone, it could spark another strong sell-off for the Japanese yen and potentially cause USD/JPY to surge towards 145.00 for the second time this week. This currency pair was sliding lower towards 143.00 at the start of the Asia session.
Central Bank Notes:
- The Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a stable manner.
- 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 at around 0% while regarding the upper bound of 1.0% for 10-year JGB yields as a reference in its market operations.
- Inflation expectations have risen moderately with underlying CPI inflation likely to increase gradually towards achieving the price stability target, as the output gap turns positive and as medium- to long-term inflation expectations and wage growth rise.
- Japan’s economy is likely to continue recovering moderately for the time being, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies.
- Next meeting is on 23 January 2024.
Next 24 Hours Bias
Medium Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro fell under 1.0950 overnight but appears to have found some support around this region at the start of the Asia session. This currency pair was edging higher and could remain elevated today.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a second consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- While inflation has dropped in recent months, it is likely to pick up again temporarily in the near term.
- Underlying inflation has eased further but domestic price pressures remain elevated, primarily owing to strong growth in unit labour costs.
- The past interest rate increases continue to be transmitted forcefully to the economy as tighter financing conditions are dampening demand, and this is helping to push down inflation.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 25 January 2024.
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
After falling under the 0.8600-threshold at the beginning of the week, USD/CHF has consolidated between this threshold and 0.8650. Downward pressures remain and this currency pair could fall under 0.8600 once more.
Central Bank Notes:
- The SNB kept the policy rate unchanged at 1.75% for a second consecutive meeting in December.
- The inflation forecast puts average annual inflation at 2.1% for 2023, 1.9% for
2024 and 1.6% for 2025.
- GDP growth is likely to be weak in the coming quarters; subdued demand from abroad and the tighter financing conditions are having a dampening effect.
- Switzerland’s GDP is likely to grow by around 1% this year. For 2024, the SNB currently expects growth of between 0.5% and 1%.
- Next meeting is on 21 March 2024.
Next 24 Hours Bias
Medium Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Once again, inflation in the UK eased in November as CPI fell from 4.6% YoY to 3.9% YoY. Not only was this latest reading the lowest since September of 2023, it also beat the estimate of 4.3% by a wide margin. This largest downward contribution came from the transport sector as the price of motor fuels continued to decline. The softer-than-expected CPI caused the Pound to tumble under 1.2650 and could remain under pressure today.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6-to-3 to maintain its Official Bank Rate at 5.25%.
- Three members preferred to increase the Bank Rate by 0.25 percentage points to 5.5%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation falling sharply from 6.7% in September to 4.6% in October while services price inflation declined to 6.6%.
- The decline in CPI inflation over recent months could largely be attributed to falls in energy, food, and core goods price inflation, as external cost pressures had continued to abate. Services price inflation had remained elevated, however.
- The mean projection for CPI inflation is 2.2% and 1.9% at the two- and three-year horizons respectively.
- Next meeting is on 1 February 2024.
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
Retail Sales (1:30 pm GMT)
What can we expect from CAD today?
Canada’s retail sales grew 0.6% MoM in September and are expected to gain 0.8% in October to notch its second consecutive month of growth. This estimate of 0.8% would be the sharpest growth rate in six months. Higher than expected sales figures could potentially function as a bullish catalyst for the Loonie and thus drive USD/CAD lower during the US session.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the third meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled through the middle quarters of 2023 with real GDP contracting at a rate of 1.1% in the third quarter, following a growth of 1.4% in the second quarter.
- The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices, leading to the easing of CPI inflation to 3.1% YoY in October.
- The Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed and would also like to see further and sustained easing in core inflation.
- Next meeting is on 24 January 2024.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
EIA crude oil inventories unexpectedly rose by 2.9M barrels versus the estimate of a drawdown of 2.3M – these gains resulted in the first inventory build in three weeks. Despite both the API and EIA stockpiles surprisingly gaining this week, crude oil prices remain elevated primarily due to the concerns around the shipping lanes in the Red Sea.
The situation was exacerbated on Wednesday after Greece advised commercial vessels sailing in the region to avoid Yemeni waters. Greek ship-owners control approximately 20% of the world’s commercial vessels in terms of carrying capacity and re-routing these vessels will result in higher shipping costs (and oil prices) and longer delivery times as well. WTI oil climbed above $75.00 per barrel on Wednesday but slid under $74.00 as Asian markets came online this morning.
Next 24 Hours Bias
Weak Bullish
