IC Markets Europe Fundamental Forecast | 29 March 2023
What happened in the Asia session?
The Australian CPI y/y registered at 6.8% (forecast 7.2%, previous 7.4%), the second drop in consumer prices on record. This development should allow the RBA to justify pausing the rate hike cycle that has adversely affected the local economy.
What does it mean for the Europe & US Sessions?
The lower Australian CPI should see the AUD/USD drop to 0.6670 and even 0.6630.
Amid a lack of first-tier date releases for the upcoming sessions, price movements will likely consolidate in the range set in the prior session.
On the commodity front, the anticipated build in Crude Oil Inventories (forecast 1.8m, previous 1.1m) will probably see the black gold give back some of the recent gains towards the $72 level.
The Dollar Index (DXY)
Key news events today
Pending Home Sales m/m
What can we expect from DXY today?
The US Pending Home Sales m/m data is expected to show a 2.9% decline in homes under contract for sale compared to the previous month, following an 8.1% increase. The impact of this data release will depend on how the market views the trend change. A larger-than-expected decline may be seen as negative for the economy and could cause the USD to lose value.
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 Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Gold is often considered a safe-haven asset, and its value tends to increase during economic uncertainty or inflation. With the banking crisis easing and the upcoming AUD CPI y/y expected to decrease, the value of the yellow gold may fall in the coming sessions.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
CPI y/y
What can we expect from AUD today?
The CPI y/y for Australia is expected to increase by 7.2%, slightly lower than the previous reading of 7.4%. If the CPI reading comes in as lower than expected, it may cause the RBA to pause its rate hiking path.
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 significant news to report for NZD today. Its future course is anticipated to be influenced by the forthcoming data releases on Thursday, namely, the Building Consents m/m and ANZ Business Confidence.
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
Mixed
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
No news events for JPY today, so the prior BoJ Core CPI y/y release may influence the directional bias. The price increase was recorded at 2.7%, below the anticipated 3.0% and the previous reading of 3.1%. This decline in CPI suggests the existence of deflationary forces, which could prompt the central bank to continue its current accommodative monetary policy.
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
ECB President Lagarde Speaks
What can we expect from EUR today?
The forecasted value of -29.5 for the German GfK Consumer Climate index is slightly higher than the previous value of -30.5, which could be interpreted as a positive sign for the Euro.
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 Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
An outcome in line with the previous Credit Suisse’s Economic Expectations score of -12.3 could negatively impact the CHF due to decreased investor demand and potential monetary policy changes.
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
Mixed
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Mixed expectations on M4 Money Supply m/m, Mortgage Approvals, and Net Lending to Individuals m/m will likely shift attention to the FPC Meeting Minutes and FPC Statement as these documents provide insights into the BoE’s assessment of the financial system and potential policy changes.
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
No major news events.
What can we expect from CAD today?
The latest Canadian annual budget forecasts 0.3% real GDP growth in 2023, followed by 1.5% in 2024, 2.3% in 2025, 2.2% in 2026, and 1.9% in 2027. The impact on CAD in the short term is likely negative, with private-sector economists predicting a shallow recession in 2023.
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 Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Expectations are that oil prices will continue to rise because of the ongoing risks of supply disruptions in Iraqi Kurdistan and the hope that the banking sector’s instability will be controlled.
Next 24 Hours Bias
Bullish
