IC Markets Europe Fundamental Forecast | 26 June 2023
What happened in the Asia session?
The Bank of Japan (BOJ) released the Summary of Opinions indicating that maintaining the current monetary easing is appropriate. The BOJ emphasised the importance of wage growth for sustainable price objectives and stated that it is too early to change policy due to smaller enterprises’ eagerness to raise wages and invest more. The BOJ also highlighted the need to monitor side effects as the long-term price risk is weighted to the downside.
What does it mean for the Europe & US Sessions?
The DXY look poised to test its throwback support at 102.30. A successful defence would see a bullish retaliation to 102.60. In the alternative scenario, where the bulls fail to block the bearish swipes, a steep drop towards 102.00 is likely.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
Today, there are no major news events affecting the USD. The previously released data shows that the Flash Manufacturing PMI was 46.3, indicating a contraction in the manufacturing sector. The forecasted PMI was 48.6, and the previous PMI was 48.4. On the other hand, the Flash Services PMI for the USD was 54.1, indicating growth in the services sector. The forecasted PMI was 53.9, and the previous PMI was 54.9.
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
Mixed
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The weaker US manufacturing PMI may lead to a depreciation of the USD, potentially impacting the price of gold. However, the stronger services PMI could contribute to the appreciation of the USD, potentially exerting downward pressure on the price of gold.
Next 24 Hours Bias
Mixed
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
As no major news events are scheduled, the Australian dollar’s price direction is expected to be influenced by previously released data. The Australian Flash Manufacturing Purchasing Managers’ Index (PMI) was 48.6, slightly improving from the previous figure of 48.4. However, it still suggests a contraction in the manufacturing sector. The Flash Services PMI for the AUD stood at 50.7, showing a slight decline from the previous reading of 52.1 but still indicating expansion in the services sector.
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?
Due to the absence of significant news events today, the New Zealand Dollar’s (NZD) price direction is likely to be driven by recent economic data. The Trade Balance figures reveal a decline to 46M from the forecasted 350M and the last 236M. This decrease suggests a smaller gap between the country’s exports and imports, which could exert downward pressure on the NZD. Conversely, Credit Card Spending has increased by 3.3% on a yearly basis, although lower than the previous year’s 11.0%. Nonetheless, this growth signifies positive consumer spending, which could support the NZD.
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 BOJ Summary of Opinions provides insights into the Bank of Japan’s economic outlook, while the SPPI data indicate price trends in the services sector. A higher-than-expected SPPI figure of 1.8% compared to the previous 1.6% suggests potential inflationary pressure, which could lead to a stronger yen if the BOJ considers tightening monetary policy. Conversely, a more dovish tone in the Summary of Opinions or lower SPPI data may weaken the yen as it signals a cautious or accommodative monetary policy stance.
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
Weak bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The upcoming release of the German ifo Business Climate data, with a forecasted reading of 91.7 compared to the previous reading of 90.7, is expected to impact the EUR. A higher-than-expected ifo Business Climate reading indicates improved business sentiment in Germany, potentially leading to increased demand for the Euro and strengthening its value against other currencies.
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
Weak bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Swiss National Bank (SNB) Chairman, Thomas Jordan, will speak at the Point Zero Forum in Zurich, discussing the potential impact of Central Bank Digital Currencies (CBDCs) on financial innovation. His insights carry weight as the head of SNB, and his remarks could influence market sentiment towards the Swiss Franc (CHF). If positive about a digital Swiss Franc, it could boost confidence and attract investors.
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% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Weak bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The upcoming release of the CBI Realized Sales data, with a forecasted decline of -10 (previous figure: -6), is expected to impact the GBP significantly. A contraction in retail sales suggests a slowdown in consumer spending and economic growth, leading to concerns about the UK economy’s health. This could result in a depreciation of the GBP, as investors may sell off the currency and reduce their exposure. Weaker-than-expected data may also lead to dovish monetary policy actions and decreased investor confidence, further weighing the GBP’s value.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase Bank Rate by 0.5 percentage points to 5%.
- Two members preferred to maintain Bank Rate at 4.5%.
- CPI inflation is expected to fall significantly due to developments in energy prices.
- 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.
- Next meeting on 3 August 2023
Next 24 Hours Bias
Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
No major scheduled news events will affect the Canadian dollar today. The CAD’s price direction is expected to be influenced by upcoming data releases. The forecasted figures for the Consumer Price Index (CPI) month-over-month (m/m) are 0.5%, with the previous data showing a 0.7% increase. The Median and Trimmed CPI, measured year-over-year (y/y), have forecasted values of 4.0%, while the earlier data indicated a 4.2% increase for both indicators. Rate.
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?
With their aggressive monetary policies, central banks are causing economic worries globally. This trend will likely result in lower oil prices, reduced production, and heightened uncertainty for market participants.
Next 24 Hours Bias
Weak bearish
