IC Markets Europe Fundamental Forecast | 25 May 2023
What happened in the Asia session?
As expected, USD/JPY attempted to rise to 140.00. However, the lack of data releases for the session saw the greenback consolidate for the most part.
What does it mean for the Europe & US Sessions?
The US dollar can be expected to pursue a resistance confluence around 104.30 before seeing any risks of a retracement. Otherwise, unfavourable US data releases could see an early setback towards 103.00.
The Dollar Index (DXY)
Key news events today
Prelim GDP q/q
Unemployment Claims
What can we expect from DXY today?
The upcoming data releases for the USD include the Preliminary GDP q/q, which is forecasted to show a growth rate of 1.1%. This indicates positive economic expansion and may lead to the appreciation of the USD. However, the Unemployment Claims data, with the previous figure at 242K and a potential increase to 249K, suggests a rise in unemployment filings, which could negatively impact the USD.
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
Mixed
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Gold, often regarded as a safe-haven asset during market uncertainty, could see a positive impact due to the division among Federal Reserve officials. The lack of consensus on the appropriate path for the Fed funds rate may lead to increased market volatility and a weakening USD.
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 significant news affects the AUD. As a result, the direction of the AUD’s price is likely to be influenced by upcoming data releases. The key data to watch is the Retail Sales month-on-month (m/m) figure, forecasted to show a 0.3% increase compared to the previous month’s 0.4% growth.
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
No major news events.
What can we expect from NZD today?
The New Zealand dollar has no major news event today. Still, the NZD’s price direction is expected to be influenced by the Monetary Policy Committee’s dovish decision to raise the OCR from 5.25% to 5.50%. The Committee voted by a majority of five to two in favour of the 25 basis points increase. They believe keeping interest rates at a restrictive level will bring inflation back within the target range while supporting maximum sustainable employment. In the future, interest rates will likely remain restrictive to ensure inflation returns to the target range.
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
Weak bearish
The Japanese Yen (JPY)
Key news events today
Tokyo Core CPI y/y
What can we expect from JPY today?
The upcoming data releases for the Japanese yen include the Tokyo Core CPI y/y, with a forecasted value of 3.4% (previous: 3.5%), and the SPPI y/y, with a predicted value of 1.4% (prior: 1.6%). These indicators provide insights into inflationary trends in Japan. Higher-than-expected CPI and SPPI figures can be positive for the JPY, indicating potential inflationary pressures. Conversely, lower-than-expected figures may hurt the JPY.
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 bearish
The Euro (EUR)
Key news events today
German Ifo Business Climate
What can we expect from EUR today?
The upcoming data releases for the EUR include the Final German GDP q/q, forecasted to remain unchanged at 0.0%, and the German GfK Consumer Climate, expected to improve from -25.7 to -23.6. If the German GDP data aligns with the forecast, it may have a neutral impact on the EUR. A positive outcome in the German GfK Consumer Climate could strengthen the EUR, indicating increased consumer optimism and potential economic growth. Conversely, a negative result may weaken the currency. However, any significant deviations from the forecasts could lead to volatility.
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?
No major news events are scheduled for release from Switzerland for the rest of the week.
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
CPI y/y
What can we expect from GBP today?
The upcoming release of the UK CBI Realized Sales data, which measures the retail sales volume in the country, is forecasted to decline from 10 to 5, indicating a decrease in retail sales. This could hurt the GBP, reflecting weakened consumer spending and slower economic growth.
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 bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The CAD may face downward pressure due to a recent contraction in q/q corporate profits of 5.6%, a significant drop from the previous quarter’s growth of 7.3%.
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 bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
The EIA reported a massive surprise drawdown in US crude stockpiles, indicating increased demand or decreased production. This unexpected shift will likely tighten supply and drive higher oil prices. Meanwhile, the White House and Republicans have reconvened talks on the U.S. debt ceiling, which could create economic uncertainty and potentially affect oil demand.
Next 24 Hours Bias
Weak bullish
