IC Markets Europe Fundamental Forecast | 22 June 2023
What happened in the Asia session?
The New Zealand Dollar (NZD) may face downward pressure due to disappointing economic data. The Trade Balance, at 46M NZD, was significantly lower than the forecasted 350M NZD and the previous 236M NZD, implying a weakened demand for New Zealand goods. Additionally, Credit Card Spending fell to 3.3% y/y from the prior 11.0%, suggesting decreased consumer confidence and a potential economic slowdown.
What does it mean for the Europe & US Sessions?
The monetary policy decisions from the SNB and BoE should cause significant volatility to the CHF and GBP pairs, respectively.
The Dollar Index (DXY)
Key news events today
Unemployment Claims
Fed Chair Powell Testifies
What can we expect from DXY today?
The upcoming release of Unemployment Claims data for the United States is expected to be 261,000, slightly lower than the previous figure of 262,000. A lower number is positive for the economy and the currency, indicating a healthier job market. If the actual data matches or exceeds the forecasted figure, it may increase confidence in the US economy and strengthen the value of the US dollar.
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
Weak bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
In light of recent remarks by Federal Reserve Chairman Jerome Powell, there is a likelihood of moderate interest rate hikes in the future, which could bolster the U.S. dollar. As the U.S. dollar strengthens, the price of gold tends to become relatively more expensive. Rising interest rates raise the opportunity cost of holding gold, resulting in reduced demand and downward price pressure for the precious metal.
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?
With no major news impacting the Australian Dollar (AUD) today, its value is expected to be swayed by future data releases. The latest figures show a contraction in the manufacturing sector with a PMI of 48.4, potentially exerting downward pressure on the AUD. Conversely, the services sector expanded with a PMI of 52.1, which could counterbalance the impact of the shrinking manufacturing industry.
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?
The forthcoming Trade Balance data, forecasted at 350M, down from 427M, could weaken the NZD due to an implied higher demand for foreign currencies. Meanwhile, the previous robust Credit Card Spending of 11.4% suggests strong domestic demand, potentially offsetting some negative impact.
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 Japanese yen’s value today is expected to be influenced by the upcoming release of the National Core CPI y/y and Flash Manufacturing PMI data due to a lack of other major news events. As measured by the National Core CPI, inflation is forecasted to rise to 3.4% from 3.1%. Meanwhile, the Flash Manufacturing PMI, reflecting manufacturing sector health, is predicted to improve slightly to 50.6 from 50.2.
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 upcoming data release for the European Consumer Confidence is expected to show the same as the previous reading of -17. As a result, there may be limited impact on the EUR in the short term, as stable consumer confidence suggests a similar economic outlook and consistent purchasing behaviour.
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
SNB Monetary Policy Assessment
SNB Policy Rate
SNB Press Conference
What can we expect from CHF today?
The Swiss National Bank (SNB) is expected to raise the Policy Rate from 1.50% to 1.75%. This could increase the Swiss Franc’s value as higher interest rates attract foreign capital. However, the Franc could weaken if the rate remains unchanged or the SNB gives a negative economic outlook during the press conference.
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
MPC Official Bank Rate Votes
Monetary Policy Summary
Official Bank Rate
What can we expect from GBP today?
The GBP performance hinges on key Monetary Policy Committee data releases. Forecasted data predicts a 7-0-2 split in MPC Official Bank Rate Votes, matching previous figures, and suggests a 0.25% increase in the Official Bank Rate from 4.50% to 4.75%. However, the tone of the Monetary Policy Summary and any shift in the two dissenting votes could sway this outcome.
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
Weak bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The Bank of Canada’s (BOC) forthcoming Summary of Deliberations will potentially impact the Canadian Dollar’s (CAD) value. If the BOC’s stance is hawkish, indicating economic strength or inflationary concerns, the CAD could appreciate due to increased foreign investment. Conversely, a dovish outlook could depreciate the CAD by reducing its appeal to investors.
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?
The upcoming release of USD crude oil inventories, with an expected change of 0.3 million barrels, is anticipated to impact the oil market significantly. The inventories reflect the stockpiles of crude oil held by commercial firms and government entities. If inventories increase more than expected (7.9 million barrels), oil prices may face downward pressure, while a lower increase or decrease could lead to upward price movements.
Next 24 Hours Bias
Weak bearish
