IC Markets Europe Fundamental Forecast | 24 August 2023
What happened in the Asia session?
After falling sharply overnight, the dollar index (DXY) traded within a relatively narrow range of 103.30 and 103.45 during the Asia session. With no major news events to provide direction for the major currency pairs, it was a quiet morning for markets.
What does it mean for the Europe & US sessions?
The European calendar is also devoid of any key news events but the higher trading volume should inject some life into markets. Market volatility is likely to pick up during the US session as the combination of unemployment claims and Federal Reserve Bank of Philadelphia President Patrick Harker’s CNBC interview are bound to have an impact on currencies and gold prices.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (12:30 pm GMT)
FOMC Member Harker Speaks (4:00 pm GMT)
What can we expect from DXY today?
Last week’s unemployment claims came in slightly lower than the forecast and the prior week’s reading which functioned as a bullish catalyst for the DXY. Another ‘softer’ reading is likely to spur renewed demand for the greenback.
Federal Reserve Bank of Philadelphia President Patrick Harker will be discussing the economic outlook of the US in an interview conducted by CNBC where he could share his views and those of his fellow committee members on the key topics of inflation, economic growth and of course monetary policy. His comments and remarks are likely to have a profound impact on the demand of the US dollar and thus drive the direction for 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
Weak Bullish
Gold (XAU)
Key news events today
Unemployment Claims (12:30 pm GMT)
FOMC Member Harker Speaks (4:00 pm GMT)
What can we expect from Gold today?
Last week’s unemployment claims came in slightly lower than the forecast and the prior week’s reading which functioned as a bearish catalyst for gold. Another ‘softer’ reading is likely to add further downward pressure for this precious metal.
Federal Reserve Bank of Philadelphia President Patrick Harker will be discussing the economic outlook of the US in an interview conducted by CNBC where he could share his views and those of his fellow committee members on the key topics of inflation, economic growth and of course monetary policy. His comments and remarks are likely to have a profound impact on the demand of the US dollar and thus drive the direction for gold.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie bounced strongly overnight coming close to 0.6500 before losing steam around this level. This currency pulled back slightly during the Asia session but could now resume the uptrend.
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 Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi hit a high of 0.5985 overnight before running out of steam to fall lower. It could slide lower as the day progresses.
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
Tokyo Core CPI (11:30 pm GMT)
What can we expect from JPY today?
The Tokyo core CPI has been trending lower on an annualised basis since April of 2023 with July’s reading printing at 3.0% YoY. The estimate for August points to a modest decline to 2.9% YoY. The Japanese yen has seen relatively strong demand over the past week with USD/JPY falling under 145.00 overnight but this currency pair rebounded strongly this morning.
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 Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
Deteriorating flash PMI data in the Eurozone, most notably Germany and France who are also the growth engines of the EU, sent the Euro tumbling towards 1.0800 yesterday. Business activity in the Eurozone contracted at an accelerating pace in August as the region’s downturn spread further from manufacturing to services with other sectors reporting falling output and new orders. The Euro managed to bounce strongly in the aftermath of a somewhat ‘weak’ PMI report from the US but the downtrend could resume today.
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
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
USD/CHF dropped as low as 0.8770 as a somewhat ‘weak’ PMI report from the US triggered a dollar sell-off overnight. With demand for the Swiss franc looking stronger than the greenback, USD/CHF could remain under pressure 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
Weak Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Similarly to the Eurozone, UK flash PMI data was no better as the Pound nose dived in the aftermath of this news release. UK private sector firms signalled a renewed downturn in business activity in August, thereby ending a six-month period of expansion. This mostly reflected a faster fall in new orders as sluggish domestic economic conditions and higher borrowing costs led to caution among clients. The Pound managed to bounce strongly in the aftermath of a somewhat ‘weak’ PMI report from the US but the downtrend could resume 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
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Retail sales increased 0.1% MoM to $65.9B in June while core retail sales were down 0.9% MoM, falling for the second consecutive month. In addition, sales volume also fell 0.2% MoM potentially signalling a slow down in spending by Canadian consumers. Despite retail sales stalling, USD/CAD fell to as low as 1.3530 in the aftermath of a somewhat ‘weak’ PMI report from the US and could remain under pressure today.
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
No major news events.
What can we expect from Oil today?
EIA crude oil inventories experienced a stronger than expected drawdown – which signals higher demand in the US – as 6.1M barrels of crude were drawn versus the forecast of a 2.9M drop. This higher drawdown provided a short-term lift to crude prices as WTI bounced from a low $77.50 to a high of $79.30 per barrel before weaker macro fundamentals such as the recent deteriorating PMI activity in Europe took over once more and prices resumed the downtrend, falling under the $79.00-mark.
Next 24 Hours Bias
Weak Bearish
