IC Markets Europe Fundamental Forecast | 27 March 2023
What happened in the Asian session?
Japan’s SPPI y/y registered a value of 1.8%, which matches the forecasted value but is higher than the previous value of 1.6%. This release can positively impact the JPY, as it indicates that the price of services produced by Japanese companies has increased, leading to higher revenue and potentially boosting the economy. It can also suggest inflationary pressures, leading to higher interest rates.
What does it mean for the Europe & US Sessions?
The price consolidations in the EUR and GBP during the Asian session are likely to find resolution with the upcoming German ifo Business Climate data release and the speech by BoE Governor Bailey at the London School of Economics. Favourable outcomes could see the risk currencies continue the recovery rallies towards 1.0900 and 1.2300, respectively.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
Today’s market direction will depend on previously released data. Flash Manufacturing PMI came in at 49.3 (forecasted 47.0, previous 47.3), while Flash Services PMI was 53.8 (forecasted 50.3, previous 50.6). The readings suggest economic recovery, with the manufacturing and services sector growing better than expected.
Central Bank Notes:
- The US banking system is sound and resilient, but recent developments may result in tighter credit conditions for households and businesses.
- The Federal Reserve has raised the target range for the federal funds rate to 4-3/4 to 5 per cent, committed to returning inflation to its 2 per cent objective.
- In determining the extent of future increases in the target range, the Committee will consider various factors, including the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and economic and financial developments.
- Next meeting is on 3 May 2023
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
BOE Governor Bailey’s speeches at the LSE and Treasury Select Committee may impact gold as traders seek clues on future interest rates. With UK CPI at 10.4% (forecast 9.9%), it’s more likely BOE will continue at 25bps than pause rates. Further rate hikes could weaken gold demand, while indications of a pause could boost gold.
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?
No major news today; currency direction depends on previously released data. AUD Flash Manufacturing PMI is 48.7 (previous 50.5), and Flash Services PMI is 48.2 (previous 50.7), suggesting a contraction in both sectors and challenges for the Australian economy.
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
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
There is no vital news concerning NZD today, so the currency’s price movement will probably depend on the recently released data—Westpac Consumer Sentiment (77.7, previously 75.6).
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
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The upcoming release of the SPPI y/y data for JPY is expected to show an increase of 1.8%, slightly higher than the previous figure of 1.6%. This suggests that there has been some inflationary pressure on the services sector in Japan. A higher-than-expected figure could strengthen 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 27 April 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 forecasted data for the German ifo Business Climate indicates a slight decrease from the previous reading of 91.1 to 91.0, which suggests a slightly more pessimistic outlook. If this forecasted data is met, it could lead to a mild bearish reaction on the EUR.
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
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
No major news event for the currency today. Price direction may draw from: SNB raised policy rate to 1.5% to combat inflation and provides liquidity assistance to Credit Suisse. The new inflation forecast assumes a policy rate of 1.5%, and mortgage/real estate vulnerabilities persist.
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 11 April 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 would likely have a short-term impact on the value of the GBP. Based on the forecasted data, a negative figure of -2 is expected (previous 2), which indicates a decrease in retail sales volume of the prior period.
Central Bank Notes:
- The BoE’s MPC increased the Bank Rate by 25bps to 4.25%, with a majority of 7-2 in favour of the hike
- The UK banking system is judged to be robust and resilient.
- CPI inflation increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- The MPC will continue to monitor inflationary pressures and adjust Bank Rate as necessary.
- Next meeting on 11 May 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?
No major news events today for the CAD currency. Core Retail Sales m/m actual data of 0.9% beat the forecast of 0.6%, while Retail Sales m/m actual data of 1.4% surpasses the forecast of 0.7%. Both indicate a healthy retail sector, potentially strengthening 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?
According to Baker Hughes, US energy firms added four oil and natural gas rigs for the second week, totalling 758, up 13% from last year.
Next 24 Hours Bias
Weak Bullish
