IC Markets Europe Fundamental Forecast | 22 May 2023
What happened in the Asia session?
The Core Machinery Orders m/m data for Japan showed a decline of -3.9%, compared to the forecasted figure of 0.5% and the previous figure of -4.5%. This indicates a negative impact on the Japanese yen, suggesting a slowdown in manufacturing activity.
The UK Rightmove House Price Index significantly increased from 0.2% to 1.8%. This suggests a strong upward movement in residential asking prices, indicating a positive sentiment in the housing market. The GBP currency is likely to appreciate against other currencies due to increased investor interest in the UK market.
What does it mean for the Europe & US Sessions?
The upcoming data-light sessions could see the EUR/USD pair hover between a 30-pip range between 1.0800-1.0830. A stronger-than-expected Consumer Confidence in Europe may push the Euro higher to 1.0850. Possible weakness in the USD from a derailment of the US debt ceiling talks could propel the pair to 1.0900.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
No major news events will affect USD today, so market direction is expected to be influenced by previously released news. As per Fed Chair Powell, one noteworthy development is that the policy rate may not need to rise as much as initially anticipated due to tightened bank credit conditions. Tightened credit conditions act as a form of monetary tightening and can dampen economic activity. This suggests that the central bank may not have to increase the policy rate as aggressively as expected.
Central Bank Notes:
- The committee raised the target range for the federal funds rate to 5 to 5-1/4 per cent. The U.S. banking system is sound and resilient.
- Tighter credit conditions for households and businesses may weigh on economic activity, hiring, and inflation.
- The committee is committed to returning inflation to its 2% objective
- The committee will adjust monetary policy as appropriate if risks emerge that could impede the attainment of goals
- Next meeting is on 14 June 2023
Next 24 Hours Bias
Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Fed Chair Powell’s recent statement suggesting that the policy rate may not need to rise as much as expected due to tightened bank credit conditions could increase the appeal of gold as a safe-haven asset, potentially driving its demand and pushing its price higher.
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?
Today, no major news event affects the Australian dollar. Upcoming data releases will likely determine the direction of the AUD. The forecasted Australian Flash Manufacturing PMI is 48.0, indicating contraction. If the actual PMI is higher than 48.0, it could be positive for the AUD. Conversely, a lower reading may be negative for the AUD. The forecasted Flash Services PMI for Australia is 53.7, suggesting expansion. If the actual Services PMI exceeds 53.7, it could be positive, while a lower reading may be negative for the AUD.
Central Bank Notes:
- The Official Cash Rate was increased by 25 basis points to 3.85%.
- Inflation in Australia has passed its peak but remains high at 7%, and it may take some time to return to the target range.
- GDP is forecast to increase by 1.25% this year and around 2% over the year to mid-2025.
- Next meeting on 6 June 2023
Next 24 Hours Bias
Mixed
The Kiwi Dollar (NZD)
Key news events today
Annual Budget Release
What can we expect from NZD today?
Today, no major news event is affecting the NZD, which suggests that the price direction for the NZD is likely to be influenced by previously released data. The trade balance is reported at 427M, an improvement from the previous release of -1586M. The credit card spending year-on-year shows a growth rate of 11.4%, a decline from the last release of 19.7%.
Central Bank Notes:
- OCR increased by 50bps from 4.75% to 5.25%
- Recent severe weather events in the North Island have led to higher prices, increasing the risk of inflation expectations exceeding the target range.
- New Zealand’s economic growth is expected to slow through 2023 due to the slowing global economy, reduced residential building activity, and the ongoing effects of monetary policy tightening.
- Next meeting is on 25 May 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 forecasted increase of 0.5% in Japan’s Core Machinery Orders m/m data is expected to impact the JPY positively. This indicates potential improvement in business investment and economic activity. However, the previous data showed a decline of -4.5% in machinery orders, which may moderate the overall effect.
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 15 June 2023
Next 24 Hours Bias
Weak bullish
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 a slight improvement with a forecasted value of -17, compared to the previous reading of -18. This could positively impact the Euro, as higher consumer confidence often leads to increased spending and economic activity.
Central Bank Notes:
- The ECB has decided to raise the three key interest rates by 25 basis points as the inflation outlook continues to be too high for too long.
- The ECB will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Renewed financial market tensions and Russia’s war against Ukraine remain significant economic downside risks.
- The continued resilience of the labour market could lead to higher growth than anticipated.
- Next meeting on 15 June 2023
Next 24 Hours Bias
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Today, there is no major news event affecting the CHF. Upcoming data releases will likely influence the currency’s price direction. The latest Trade Balance figures show a surplus of 3.73 billion CHF, a decrease from the previous surplus of 4.53 billion CHF.
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
Mixed
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The upcoming UK Rightmove House Price Index m/m, which previously reported a 0.2% gain, will impact the GBP. If the HPI surpasses the previous 0.2%, it could indicate economic confidence and bolster the GBP. However, a figure below 0.2% might suggest a weakening economy, possibly pressuring the 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?
Due to a bank holiday in the country today, the price direction for the CAD is likely to draw from upcoming data. The Industrial Product Price Index (IPPI) is forecasted to increase by 0.2%, with a previous increase of 0.1%. The Raw Materials Price Index (RMPI) is predicted to increase by 0.7% following an earlier decrease of -1.7%. These figures suggest a positive trend for the CAD, with potential inflationary pressures and improved economic conditions for Canadian manufacturers.
Central Bank Notes:
- Bank of Canada holds its target for the overnight rate at 4.5%
- Labour markets remain tight with persistent price pressures, especially for services
- Economic growth in Q1 looks to be stronger than projected; to be weak through the remainder of this year before strengthening gradually next year
- Prepared to increase the policy rate further to return inflation to the 2% target.
- Next meeting on 7 June 2023
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
The unresolved US debt-ceiling crisis will negatively impact the US economy, reducing oil demand. However, the typically increased gasoline demand due to the driving season could provide some upward pressure on oil prices.
Next 24 Hours Bias
Mixed
