IC Markets Europe Fundamental Forecast | 22 March 2023
What happened in the Asian session?
As expected, the data-light session saw consolidation from the recent recovery rallies on risk assets.
On the data front, the Australian MI Leading Index m/m has decreased by 0.1%, the same as the previous data release. This indicates a slight decrease in the Australian economy’s performance and growth prospects.
What does it mean for the Europe & US Sessions?
Volatility will likely centre around GBP/USD since the upcoming UK CPI data will affect traders’ bets on the BoE’s rate hike path. A lower-than-expected CPI (forecast 9.9%, previous 10.1%) would add to dovish expectations of a pause in the hiking cycle at the next central bank meeting.
Subsequently, the interest rate decision and press conference from the FOMC amid the US banking turmoil will infuse further volatility for the cable. A dovish tone from the Fed will be detrimental to the USD and secure the recovery rallies seen in risk assets thus far.
The Dollar Index (DXY)
Key news events today
FOMC Economic Projections
FOMC Statement
Federal Funds Rate
FOMC Press Conference
What can we expect from DXY today?
The Federal Reserve is anticipated to increase the Federal Funds Rate by 25 basis points in light of the ongoing turbulence in the banking sector. As a result, it is expected that the tone of the FOMC Statement and the ensuing Press Conference with Chair Jerome Powell will cause market volatility. Traders will closely monitor Fed updates regarding their monetary policy outlook and any indications of how they plan to navigate the current economic climate.
Central Bank Notes:
- The Committee has raised the federal funds rate target range to 4.5-4.75% and plans to continue increasing it to return inflation to 2%
- The Committee will monitor incoming information and adjust the stance of monetary policy as appropriate to achieve its goals
- A majority vote from the Committee supported the decision to raise the target range
- Next meeting is on 23 March 2023
Next 24 Hours Bias
Mixed
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The anticipation of a 25bps increase in the Federal Funds Rate by the Fed will likely hurt the price of gold. Gold is often seen as a safe-haven asset, and when interest rates rise, it becomes less attractive to investors seeking higher yields.
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?
A decline in upcoming releases of AUD MI Leading Index m/m (-0.1%) and CB Leading Index m/m (-0.3%) could lead to bearish sentiment for the AUD, signalling weaker economic growth and a possible economic slowdown.
Central Bank Notes:
- Cash rate raised by 25 basis points to 3.60%.
- Board prioritises returning inflation to target, with a likely need for further monetary policy tightening.
- Board to closely monitor the global economy, household spending trends, inflation and labour market outlook when assessing interest rate increases.
- Next meeting on 4 April 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?
A mixed impact is expected from the latest New Zealand data releases. The decline in the GDT Price Index (-2.6%, previous -0.7%) suggests a drop in global dairy prices, negatively affecting NZD. In contrast, the increase in Consumer Sentiment (77.7, last 75.6) indicates a positive outlook, potentially having a positive impact.
Central Bank Notes:
- Monetary Policy Committee increased the OCR from 4.25% to 4.75%
- Higher interest rates are needed to reduce inflation and support employment sustainably
- Severe storms in North Island will increase inflation and disrupt production.
- Next meeting is on 5 April 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?
As there are no major news events related to the JPY today, the currency’s price direction is expected to be influenced by the movement of the safe-haven counterpart, the US Dollar.
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
Mixed
The Euro (EUR)
Key news events today
ECB President Lagarde Speaks
What can we expect from EUR today?
ECB President Lagarde expressed concern about the ongoing war in Europe and the high inflation rate. The ECB staff projections predict a growth of 1.0% in 2023, which has been revised higher. Still, the recent emergence of financial market tensions implies additional uncertainty around the baseline assessments of inflation and growth.
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 significant news event for the CHF, meaning Thursday’s upcoming monetary policy decisions will likely influence its direction. The policy rate is expected to increase by 50bps to 1.50%. A hawkish tone could positively impact the CHF, while a dovish one could depreciate it.
Central Bank Notes:
- Current policy rate is at 1.00%
- Next meeting on 23 March 2023
Next 24 Hours Bias
Mixed
The Pound (GBP)
Key news events today
CPI y/y
What can we expect from GBP today?
The projected year-on-year CPI for the UK stands at 9.9%, slightly lower than the previous figure of 10.1%. Should the actual CPI year-on-year value meet or fall below the estimated value, inflation in the UK is likely beginning to ease, even though it remains relatively high compared to past levels. This could result in a reduced demand for GBP, as it may suggest a halt in the BoE’s interest rate hike strategy.
Central Bank Notes:
- MPC voted to increase Bank Rate by 0.5 percentage points to 4%
- Near-term data developments are crucial in assessing how quickly external and domestic inflationary pressures will abate
- MPC’s updated projections show CPI inflation falling back sharply from its current level
- Next meeting on 23 March 2023
Next 24 Hours Bias
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The forecasted Canadian NHPI m/m change is -0.1%, slightly better than the previous reading of -0.2%. This indicates that the Canadian housing market may have stabilised somewhat, which could positively impact the CAD.
Any hawkish or optimistic statements from the BOC Summary of Deliberations could strengthen the CAD, while dovish or pessimistic remarks could weaken the CAD.
Central Bank Notes:
- Bank of Canada maintains its target for the overnight rate at 4.5%
- Inflation eased in January, but price increases for food and shelter remain high
- BOC is prepared to increase the policy rate further to return inflation to the 2% target.
- Next meeting on 12 April 2023
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
The Fed’s anticipated 25bps increase in interest rates from 4.75% to 5.00% could affect the oil market. A stronger USD from higher rates may cause a decrease in demand and push prices down. If the Fed signals a slower rate hike path, the USD may weaken, increasing demand and prices.
Next 24 Hours Bias
Mixed
