IC Markets Europe Fundamental Forecast | 28 April 2023
What happened in the Asia session?
The BoJ’s decision to maintain its ultra-loose monetary policy and keep rates in negative territory weakened the JPY against other major currencies. However, the central bank’s struggle to maintain inflation above 2% could also lead to concerns about the country’s economic outlook and potentially undermine investor confidence in Japan.
What does it mean for the Europe & US Sessions?
The tentative BoJ Press Conference and the upcoming US Core PCE Price Index m/m will likely add further volatility to the USD/JPY. A dovish Japan central bank or higher-than-expected US inflation could sustain the pair’s strive to close above 135.00 and towards 136.00 into the last day of the trading week.
The Dollar Index (DXY)
Key news events today
Core PCE Price Index m/m
Employment Cost Index q/q
What can we expect from DXY today?
The Fed’s preferred inflation gauge, the Core PCE Price Index, is forecasted at a 0.3% rise on a monthly basis. If the actual data surpasses the forecast, USD could benefit in the short term as it supports the Fed’s rate hike trajectory.
Meanwhile, the Employment Cost Index q/q data, expected to rise by 1.1%, could signify a robust labour market if the data meets or surpasses the forecast, potentially increasing the demand for USD.
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?
If the Core PCE Price Index m/m exceeds the forecast of 0.3%, it could support the Fed’s plan to increase interest rates, which may benefit the US dollar but could negatively impact gold prices in the short term. Conversely, if the index comes in lower than expected, it may reduce the chances of a rate hike by the Fed and support gold prices.
Next 24 Hours Bias
Mixed
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The forecasted Australian PPI q/q is 0.6%, slightly lower than the previous figure of 0.7%. If the actual figure is in line with or exceeds the forecast, it may suggest inflationary pressures and increase the AUD. Likewise, the forecasted and previous figures for Private Sector Credit m/m are 0.3%. Meeting or exceeding the forecast may indicate positive borrowing trends and increase the AUD.
Central Bank Notes:
- Kept the cash rate unchanged at 3.60%
- Full impact of previous interest rate hikes is yet to be felt.
- Inflation in Australia has peaked, and the central forecast is to decline this year, at around 3% in mid-2025.
- Further tightening of monetary policy may be necessary to achieve the 2 – 3% inflation target
- Next meeting on 2 May 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?
Today, no significant news event affects the NZD. Its direction is expected to be influenced by the previously released ANZ Business Confidence index, a reading of -43.8, slightly worse than the forecasted reading of -43.4 lower than the previous reading. This indicates that New Zealand businesses are less optimistic about the economy, which may weaken NZD against other currencies.
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
Weak Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Tokyo Core CPI y/y has been reported at 3.5%, higher than the forecasted and previous figures of 3.2%. This suggests an increase in the price of goods and services in Tokyo, which can lead to an appreciation of the JPY against other currencies. The BoJ will release its decision today.
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
German Prelim CPI m/m
What can we expect from EUR today?
The German Preliminary CPI is expected to increase by 0.6% m/m, slightly lower than the previous reading of 0.8%. If the actual reading falls below expectations, it could negatively impact the EUR as it may signal weaker economic activity and lower inflationary pressures.
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?
The KOF Economic Barometer, an indicator of Switzerland’s economic performance and growth potential, is forecasted to have a value of 98.0. This is slightly lower than the previous value of 98.2, indicating a possible slowdown in economic activity. If the actual data release confirms this forecast, it may hurt the 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
Weak Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The UK is not expected to release any major news today, so previously released data will influence the price trend. One crucial indicator of the UK retail sector’s performance is the CBI Realized Sales data. The most recent data shows a figure of 5, higher than the expected figure of 4 and the previous figure of 1. This indicates that the retail sector is performing better than anticipated, which could benefit the economy.
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
Mixed
The Canadian Dollar (CAD)
Key news events today
GDP m/m
What can we expect from CAD today?
The projected monthly GDP for CAD is expected to show a growth rate of 0.2%, lower than the previous figure of 0.5%. If the actual data matches this forecast, it could hurt CAD. Traders may perceive the slower growth rate as a signal of an underperforming economy, potentially leading to decreased demand for CAD.
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 lower-than-expected US Advance GDP q/q figure could hurt oil prices. Slower economic growth generally leads to decreased demand for oil as businesses and consumers reduce their energy usage. Additionally, lower economic growth may signal a weaker overall economy, which could lead to a decrease in demand for goods and services that rely on oil.
Next 24 Hours Bias
Weak Bearish
