IC Markets Europe Fundamental Forecast | 21 June 2023
What happened in the Asia session?
The recent Bank of Japan (BOJ) meeting minutes revealed that the members agreed to maintain monetary easing measures. This decision will likely lead to a depreciation of the Japanese yen.
The Melbourne Institute (MI) Leading Index for Australia showed a month-on-month decrease of -0.3% from the previous 0.0%. This contraction could see the AUD face short-term downward pressure.
What does it mean for the Europe & US Sessions?
The UK CPI release will see the Cable break out of its 30-pip consolidation between 1.2740 to 1.2770. A higher-than-expected CPI y/y release could see the pair trek higher to 1.2800, while a mild increase in consumer prices would have the GBP/USD drop towards 1.2700.
The Dollar Index (DXY)
Key news events today
Fed Chair Powell Testifies
What can we expect from DXY today?
Federal Reserve Chair Jerome Powell’s upcoming testimony on the Semi-Annual Monetary Policy Report before the House Financial Services Committee could shape U.S. monetary policy direction and influence interest rates. A weaker dollar will result if Powell suggests a possible monetary policy shift towards a lower Fed Funds rate.
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
Mixed
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
A potential dovish shift in the US monetary policy could create a bullish environment for gold as a weaker dollar often drives up the price of gold as investors seek it as a safe-haven asset.
Next 24 Hours Bias
Mixed
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The upcoming MI Leading Index announcement, previously reported at a flat 0.0%, could significantly impact the Australian Dollar (AUD). A growth figure would likely strengthen the AUD, suggesting an expanding economy and boosting investor confidence. However, a contraction could indicate an economic slowdown and reduce the demand for the AUD.
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 4 July 2023
Next 24 Hours Bias
Mixed
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
There are no significant news events today to drive the New Zealand Dollar’s (NZD) price direction. Traders will likely rely on the latest Global Dairy Trade (GDT) Price Index data, which remained static at 0.0% compared to a previous -0.9%. Despite this stability suggesting a potential halt in the dairy market’s decline, the NZD’s future price movement may largely hinge on global economic trends and risk sentiment due to the absence of fresh domestic data.
Central Bank Notes:
- The Monetary Policy Committee has raised the OCR from 5.25% to 5.50%
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the target range while supporting maximum sustainable employment
- The Committee voted by a majority of five to two to increase the OCR by 25 basis points to 5.50%
- Interest rates must remain restrictive to ensure inflation returns to the target range while supporting maximum sustainable employment
- Next meeting is on 12 July 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 release of the Bank of Japan’s Monetary Policy Meeting Minutes provides insights into the central bank’s policy deliberations. If the minutes suggest a more hawkish stance, potentially tightening monetary policy, it can increase JPY’s value. Conversely, a dovish stance could weaken JPY.
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 27 July 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 German 30-year bond auction and the speech by German Buba President Nagel are expected to impact the EUR. The interest rate and bid-to-cover ratio will influence the demand for German bonds, potentially strengthening or weakening the EUR. Investors will also analyse President Nagel’s statements for insights into monetary policy and economic outlook, which could create volatility in 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 on 27 July 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?
No major news events will affect the Swiss Franc (CHF) today. As a result, the currency’s price direction is likely to be influenced by upcoming data releases. These releases include the SNB Monetary Policy Assessment, the SNB Policy Rate (currently 1.50%), and the SNB Press Conference. Traders and investors closely follow these releases as they provide insights into the Swiss National Bank’s monetary policy decisions and outlook.
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
No major news events.
What can we expect from GBP today?
The forecasted CPI y/y is 8.4%, slightly lower than the previous figure of 8.7%. If the actual data aligns with the forecast, it may positively affect GBP, signalling a lesser need for immediate monetary tightening. However, a significant deviation from the estimates or higher-than-expected figures could raise concerns about inflation and potentially weaken the value of 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 forecast for Core Retail Sales m/m is a growth of 0.5%, indicating a positive outlook for the retail sector. The Retail Sales m/m estimates an increase of 0.4%, while the previous data showed a decline of -1.4%. The outcomes of these data releases will determine the impact on the CAD, with positive results potentially leading to an appreciation of the currency and negative consequences potentially causing depreciation.
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 12 July 2023
Next 24 Hours Bias
Mixed
Oil
Key news events today
No major news events.
What can we expect from Oil today?
China’s decision to ease its lending rate by ten basis points (bps) could stimulate domestic economic activity and boost oil demand. However, a weaker yuan resulting from the rate cut may make oil imports more expensive for China, potentially reducing purchases and exerting downward pressure on oil prices.
Next 24 Hours Bias
Mixed
