IC Markets Europe Fundamental Forecast | 28 June 2023
What happened in the Asia session?
The Australian year-over-year CPI of 5.6% is below the forecasted 6.1% and the previous 6.8%, indicating slowing inflation. This could decrease the Australian Dollar’s (AUD) value due to potentially lower interest rates, possible easing measures from the Reserve Bank of Australia, and negative market sentiment. This data suggests slower-than-expected economic growth, which could reduce demand for the AUD.
What does it mean for the Europe & US sessions?
Upcoming speeches by central bank chiefs in Portugal will cause significant volatility in the currency markets. Fed Chair Powell’s comments will be scrutinised, with impactful statements likely to drive the DXY outside its 30-pip range of 102.00 – 102.30. Downward and upward targets are at 101.50 and 102.80, respectively.
The Dollar Index (DXY)
Key news events today
Fed Chair Powell Speaks
What can we expect from DXY today?
Federal Reserve Chair Jerome Powell is expected to participate in a “Policy panel” discussion at the ECB Forum on Central Banking in Sintra. Traders will closely analyse his comments for clues about future monetary policy decisions. A hawkish stance could strengthen the USD, while a dovish tone could weaken it.
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?
If Federal Reserve Chair Powell adopts a hawkish stance at the ECB Forum on Central Banking in Sintra, indicating a more aggressive approach to tightening monetary policy, it could strengthen the USD, potentially leading to a decline in gold prices. Conversely, a dovish tone from Powell, signalling a more accommodative stance, might weaken the USD, potentially benefiting gold prices with a potential increase.
Next 24 Hours Bias
Mixed
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
If the Australian CPI y/y meets or exceeds the forecasted figure, it may lead to expectations of higher interest rates, strengthening the AUD. Conversely, a lower-than-expected CPI y/y reading below 6.1% could signal lower inflationary pressures, potentially weakening the AUD as investors seek higher-yielding currencies. The previous CPI y/y data was 6.8%.
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
Weak bearish
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 influencing the New Zealand Dollar today, its value is projected to be influenced by Thursday’s forthcoming data releases. The preceding ANZ Business Confidence index registered at -31.1, indicating a negative outlook among businesses. Should this sentiment persist, it could potentially hurt 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
Weak bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Bank of Japan Governor Ueda is set to participate in a “Policy panel” discussion at the ECB Forum on Central Banking in Sintra. Market participants eagerly await his remarks, which could provide insights into the BOJ’s future monetary policy direction.
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
Mixed
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
ECB President Christine Lagarde will give a highly awaited address at the ECB Forum on Central Banking in Sintra. If her speech takes on a more hawkish approach, suggesting the possibility of tightening policies, it may bolster the euro compared to other significant currencies. Conversely, adopting a more dovish position could negatively influence the euro.
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
Mixed
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The upcoming Quarterly Bulletin from the Swiss National Bank will play a crucial role in determining the fate of the Swiss Franc, especially after the recent Credit Suisse Economic Expectations report revealed a negative score of -32.2. The SNB’s stance in the Bulletin will be pivotal, as it could strengthen the CHF if an optimistic outlook is presented or face downward pressure if it suggests the possibility of additional monetary easing.
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
Mixed
The Pound (GBP)
Key news events today
BOE Gov Bailey Speaks
What can we expect from GBP today?
BOE Governor Andrew Bailey’s participation in the “Policy panel” at the ECB Forum on Central Banking in Sintra is expected to impact the British Pound significantly. Market participants will closely watch his remarks regarding monetary policy, interest rates, and the economic outlook for the United Kingdom. If Bailey takes a hawkish stance, signalling a potential shift towards tighter policy, it could strengthen the GBP and attract foreign investment. Conversely, a dovish approach emphasising accommodative measures may weaken the currency.
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
Mixed
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Today, there is no major news event affecting the Canadian dollar. The recently released CPI data has remained relatively stable month-on-month, while the Median and Trimmed CPI suggest a slight deceleration in the year-on-year inflation rate. The latter may influence the BoC to maintain its pause on the rate hike path.
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
Weak bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
The European Central Bank’s further intention to raise interest rates could affect oil demand. On a positive note, US consumer confidence has surged to its highest level in 17 months, potentially driving up oil consumption. Moreover, according to API data, U.S. crude and gasoline inventories have declined, suggesting a potential tightening of supply.
Next 24 Hours Bias
Mixed
