IC Markets Europe Fundamental Forecast | 22 August 2023
What happened in the Asia session?
Japan’s core CPI came in stronger than expected with July’s reading printing at 3.3% YoY, which was higher than the estimate of 2.9% and the previous month’s reading of 3.0%. This surprise gain in core CPI may give second thoughts to the Bank of Japan’s ultra-dovish monetary policy stance as inflation concerns potentially gain traction. The Japanese yen strengthened in the aftermath of this data point with USDJPY falling under 146.00.
What does it mean for the Europe & US sessions?
All eyes will be on Federal Reserve President (Chicago) Austan Goolsbee and Governor Michelle Bowman later today as they participate in a Fed Listens fireside chat on youth employment where any hawkish remarks by them could potentially trigger a demand for the US dollar and thus provide some lift to the DXY.
The Dollar Index (DXY)
Key news events today
FOMC Member Goolsbee Speaks (6:30 pm GMT)
FOMC Member Bowman Speaks (6:32 pm GMT)
FOMC Member Goolsbee Speaks (7:30 pm GMT)
What can we expect from DXY today?
FOMC member Austan Goolsbee will be delivering the welcoming remarks at a Fed Listens in Chicago along with Federal Reserve Governor Michelle Bowman. Following which, Goolsbee will be participating in a fireside chat about youth employment. Any hawkish remarks by either one of them is likely to accelerate the gains in 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
Medium Bearish
Gold (XAU)
Key news events today
FOMC Member Goolsbee Speaks (6:30 pm GMT)
FOMC Member Bowman Speaks (6:32 pm GMT)
FOMC Member Goolsbee Speaks (7:30 pm GMT)
What can we expect from Gold today?
FOMC member Austan Goolsbee will be delivering the welcoming remarks at a Fed Listens in Chicago along with Federal Reserve Governor Michelle Bowman. Following which, Goolsbee will be participating in a fireside chat about youth employment. Any hawkish remarks by either one of them is likely to accelerate the gains in the DXY and thus drive gold prices further down south.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Composite PMI (11:00 pm GMT)
What can we expect from AUD today?
The flash Composite PMI will be released at the end of the day to give insights into the state of the manufacturing and services sectors for the month of August. The services sectors contracted for the first time in four months in July and the forecast points to a second consecutive month of contraction. Combined with manufacturing activity which has been depressed for the past five months, overall activity in Australia is likely to shrink once more and put pressure on the Aussie dollar.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the second 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 5 September 2023.
Next 24 Hours Bias
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
Retail Sales (10:45 pm GMT)
What can we expect from NZD today?
Retail sales have been falling over the last two quarters and the latest estimate points to a third consecutive decline. However, this expected decline is the shallowest with sales expected to fall by just 0.2% QoQ versus a drop of 1.4% in the previous quarter. Weaker than expected sales figures are likely to add further pressure on the Kiwi.
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 Bearish
The Japanese Yen (JPY)
Key news events today
BoJ Core CPI (5:00 am GMT)
What can we expect from JPY today?
Japan’s core CPI came in stronger than expected with July’s reading printing at 3.3% YoY, which was higher than the estimate of 2.9% and the previous month’s reading of 3.0%. This surprise gain in core CPI may give second thoughts to the Bank of Japan’s ultra-dovish monetary policy stance as inflation concerns potentially gain traction. The Japanese yen strengthened in the aftermath of this data point with USDJPY falling under 146.00.
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
Medium Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
After finding support at around 1.0850 last Friday, the Euro rebounded above 1.0900 overnight and could remain above this level should weakness for the US dollar persist.
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 14 September 2023.
Next 24 Hours Bias
Medium 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 surplus declined to CHF 3.3B in June from CHF 4.4B in May. A better-than-expected surplus could spur further demand for the Swiss franc and potentially drive USDCHF lower today.
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
Medium Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound is buoyed by stronger than expected inflation data that was released last week. It currently trades above the 1.2770-level and could remain elevated today.
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
Medium Bullish
The Canadian Dollar (CAD)
No major news events.
What can we expect from CAD today?
With demand for the US dollar falling overnight, USDCAD tumbled as low as 1.3500 before rebounding strongly to recover all the initial losses. Despite the weakness in the US dollar this morning, USDCAD is holding up relatively well – it is currently trading around 1.3550.
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 3.0% in the summer, but concerns have increased about inflation staying above the 2.0% target.
- Next meeting on 6 September 2023.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
API Weekly Crude Oil Stocks (8:30 pm GMT)
What can we expect from Oil today?
After last week’s larger than expected draw down, API stockpiles could continue to be drawn down which could act as a short-term bullish catalyst for crude oil. After climbing above the $81.50 per barrel mark, WTI prices retreated and proceeded to drop under $80 per barrel as hope for demand from China begins to fade. Crude prices are expected to remain under pressure today.
Next 24 Hours Bias
Medium Bearish
