IC Markets Europe Fundamental Forecast | 3 July 2024
What happened in the Asia session?
Retail sales in Australia beat market estimates of a 0.3%-gain to rise 0.6% MoM in May as consumers took advantage of early end-of-financial-year promotions and sales events. This latest reading marked the fastest pace of sales since January with segments such as household goods retailing, clothing, footwear and personal accessory retailing, and food retailing led the gains. The Aussie rose following this news release, reversing from 0.6665 to hit a high of 0.6678 – this currency pair could continue to see tailwinds as the day progresses.
What does it mean for the Europe & US sessions?
S&P Global will release its final report on Composite PMI activity for June with recovery in the Euro Area expected to slow as new orders – an indicator of future demand – fall for the first time in four months. The slowdown in business activity is attributed to a softer expansion in the services sector and a more pronounced decrease in manufacturing production. Should the final reading miss the market forecast of 50.8, the Euro could come under heavy selling pressures before European markets begin trading.
There is a barrage of macroeconomic data due for release during the U.S. trading hours and they are bound to inject higher volatility for financial markets later today. The ADP employment report is expected to show job gains edging up to 163K from 152K in May while unemployment claims are forecast to come in at a virtually unchanged figure of 234K as compared to the previous week. ISM Services PMI is set to expand steadily for the second month in a row and the day will conclude with the release of the minutes from the FOMC meeting that took place in mid-June.
The Dollar Index (DXY)
Key news events today
ADP Employment Report (12:15 pm GMT)
Unemployment Claims (12:30 pm GMT)
ISM Services PMI (2:00 pm GMT)
FOMC Meeting Minutes (6:00 pm GMT)
What can we expect from DXY today?
There is a barrage of macroeconomic data due for release during the U.S. trading hours and they are bound to inject higher volatility for financial markets later today. The ADP employment report is expected to show job gains edging up to 163K from 152K in May while unemployment claims are forecast to come in at a virtually unchanged figure of 234K as compared to the previous week. ISM Services PMI is set to expand steadily for the second month in a row and the day will conclude with the release of the minutes from the FOMC meeting that took place in mid-June.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the seventh meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks. Inflation has eased over the past year but remains elevated and in recent months, there has been modest further progress toward the Committee’s 2% inflation objective.
- Recent indicators suggest that economic activity has continued to expand at a solid pace while job gains have remained strong, and the unemployment rate has remained low.
- In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks and does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.
- In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
- The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.
- Next meeting runs from 30 to 31 July 2024.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
ADP Employment Report (12:15 pm GMT)
Unemployment Claims (12:30 pm GMT)
ISM Services PMI (2:00 pm GMT)
FOMC Meeting Minutes (6:00 pm GMT)
What can we expect from Gold today?
There is a barrage of macroeconomic data due for release during the U.S. trading hours and they are bound to inject higher volatility for financial markets later today. The ADP employment report is expected to show job gains edging up to 163K from 152K in May while unemployment claims are forecast to come in at a virtually unchanged figure of 234K as compared to the previous week. ISM Services PMI is set to expand steadily for the second month in a row and the day will conclude with the release of the minutes from the FOMC meeting that took place in mid-June. Gold prices could finally spring to life later today.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Retail Sales (1:30 am GMT)
What can we expect from AUD today?
Retail sales in Australia beat market estimates of a 0.3%-gain to rise 0.6% MoM in May as consumers took advantage of early end-of-financial-year promotions and sales events. This latest reading marked the fastest pace of sales since January with segments such as household goods retailing, clothing, footwear and personal accessory retailing, and food retailing led the gains. The Aussie rose following this news release, reversing from 0.6665 to hit a high of 0.6678 – this currency pair could continue to see tailwinds as the day progresses.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the ninth pause out of the last ten board meetings.
- Over the year to April, the monthly CPI indicator rose by 3.6% in headline terms, and by 4.1% excluding volatile items and holiday travel, which was similar to its pace in December 2023.
- The central forecasts published in May were for inflation to return to the target range of 2–3% in the second half of 2025 and to the midpoint in 2026 while there have been indications that momentum in economic activity is weak, including slow growth in GDP, a rise in the unemployment rate and slower-than-expected wages growth.
- Inflation is easing but has been doing so more slowly than previously expected and it remains high and the Board expects that it will be some time yet before inflation is sustainably in the target range.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.
- Next meeting is on 6 August 2024.
Next 24 Hours Bias
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi climbed off its lows of 0.6050 early yesterday before rising towards 0.6075 during the U.S. session. This currency pair was trading around 0.6080 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.6040
Resistance: 0.6110
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the seventh meeting in a row and agreed that interest rates need to remain at a restrictive level for a sustained period to ensure annual headline CPI inflation returns to the 1 to 3% target range.
- Restrictive monetary policy is contributing to an easing in capacity pressures while headline inflation, core inflation, and most measures of inflation expectations are continuing to decline. However, domestic inflation has fallen more slowly than expected and headline CPI inflation remains above the Committee’s target band.
- Higher dwelling rents, insurance costs, council rates, and other domestic services price inflation have resulted in a slow decline in domestic inflation, posing a risk to inflation expectations.
- GDP declined by 0.1% in the December 2023 quarter with economic growth having now been negative for four of the past five quarters. High interest rates have reduced household spending, as well as residential and business investment, despite very strong population growth. Recent indicators of economic activity have been weak, as expected.
- Next meeting is on 10 July 2024.
Next 24 Hours Bias
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The yen remains the weakest currency in 2024 as USD/JPY hit an overnight high of 161.62. This currency was climbing towards 161.70 as Asian markets came online – these are the support and resistance levels for today.
Support: 160.20
Resistance: 162.80
Central Bank Notes:
- The Bank considers that the policy framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control and the negative interest rate policy to date have fulfilled their roles. With the price stability target of 2%, it will conduct monetary policy as appropriate, guiding the short-term interest rate as a primary policy tool.
- The Bank of Japan decided on the following measures:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1% while continuing its Japanese government bonds (JGB) purchases in accordance with the decisions made at the March 2024 MPM.
- The Bank decided, by an 8-1 majority vote, that it would reduce its purchase amount of JGBs thereafter to ensure that long-term interest rates would be formed more freely in financial markets.
- Underlying CPI inflation is expected to increase gradually, since it is projected that the output gap will improve and that medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify.
- In the second half of the projection period of the April 2024 Outlook for Economic Activity and Prices (Outlook Report), it is likely to be at a level that is generally consistent with the price stability target of 2%.
- The year-on-year rate of increase in the CPI (all items less fresh food), has been in the range of 2.0-2.5% recently, as services prices have continued to rise moderately, reflecting factors such as wage increases, although the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices have waned. Inflation expectations have risen moderately.
- Japan’s economy has recovered moderately, although some weakness has been seen in part while is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions.
- Next meeting is on 31 July 2024.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
Composite PMI (8:00 am GMT)
What can we expect from EUR today?
S&P Global will release its final report on Composite PMI activity for June with recovery in the Euro Area expected to slow as new orders – an indicator of future demand – fall for the first time in four months. The slowdown in business activity is attributed to a softer expansion in the services sector and a more pronounced decrease in manufacturing production. Should the final reading miss the market forecast of 50.8, the Euro could come under heavy selling pressures before European markets begin trading.
Central Bank Notes:
- The Governing Council today decided to lower the three key ECB interest rates by 25 basis points after nine months of holding rates steady.
- Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 4.25%, 4.50% and 3.75% respectively, with effect from 12 June 2024.
- Since September 2023, inflation has fallen by more than 2.5% and the inflation outlook has improved markedly while underlying inflation has also eased, reinforcing the signs that price pressures have weakened, and inflation expectations have declined at all horizons.
- At the same time, despite the progress over recent quarters, domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year – the latest Eurosystem staff projections for both headline and core inflation have been revised up for 2024 and 2025 compared with the March projections.
- Projections now show headline inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026 while economic growth is expected to pick up to 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026.
- The Council also confirmed that it will reduce the Eurosystem’s holdings of securities under the pandemic emergency purchase programme (PEPP) by €7.5 billion per month on average over the second half of the year.
- The Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim and is not pre-committing to a particular rate path.
- Next meeting is on 18 July 2024.
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Despite demand for the greenback falling overnight, the profound weakness in the franc has continued to keep USD/CHF elevated as it hit a high of 0.9050. This currency pair was trading around 0.9040 at the beginning of the Asia session and it should remain elevated once more today – these are the support and resistance levels for today.
Support: 0.8960
Resistance: 0.9090
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points for the second consecutive meeting, going from 1.50% to 1.25% in June.
- The underlying inflationary pressure has decreased again compared to the previous quarter but inflation had risen slightly since the last monetary policy assessment, and stood at 1.4% in May.
- The inflation forecast puts average annual inflation at 1.3% for 2024, 1.1% for 2025 and 1.0% for 2026, based on the assumption that the SNB policy rate is 1.25% over the entire forecast horizon.
- Swiss GDP growth was moderate in the first quarter of 2024 with the services sector continuing to expand, while manufacturing stagnated.
- Growth is likely to remain moderate in Switzerland in the coming quarters as the SNB anticipates GDP growth of around 1% this year while currently expecting growth of around 1.5% for 2025.
- Next meeting is on 26 September 2024.
Next 24 Hours Bias
Medium Bullish
The Pound (GBP)
Key news events today
Composite PMI (8:30 am GMT)
What can we expect from GBP today?
S&P Global will release its final report on U.K. Composite PMI activity for June as growth is expected to ease to a 7-month low. A drop-off in the services sector offset a stronger manufacturing output as business activity is expected to expand at its slowest pace since last November. Should the final reading miss the market forecast of 51.7, the Cable could come under pressure at the beginning of the European trading hours.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 7-to-2 to maintain its Official Bank Rate at 5.25% for the seventh consecutive meeting.
- Two members preferred to reduce the Bank Rate by 25 basis points to 5%, an increase of one from the previous meeting.
- Twelve-month CPI inflation fell to 2.0% in May from 3.2% in March, close to the May Monetary Policy Report projection. CPI inflation is expected to rise slightly in the second half of this year, as declines in energy prices last year fall out of the annual comparison.
- Reflecting a margin of slack in the economy, CPI inflation had been projected to be 1.9% in two years’ time and 1.6% in three years.
- UK GDP appears to have grown more strongly than expected during the first half of this year. Business surveys, however, remain consistent with a slower pace of underlying growth, of around 0.25% per quarter.
- UK real GDP had increased by 0.6% in 2024 Q1, 0.2% stronger than had been expected in the May Monetary Policy Report and Bank staff now expect GDP growth of 0.5% in 2024 Q2 as a whole, stronger than the 0.2% rate that had been incorporated in the May Report.
- The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation.
- Next meeting is on 1 August 2024.
Next 24 Hours Bias
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Demand for the dollar waned significantly overnight causing USD/CAD to fall from 1.3730 and dive as low as 1.3680 by the end of the U.S. session. This currency pair was trading around 1.3675 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 1.3660
Resistance: 1.3750
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 25 basis points to 4.75% while continuing its policy of balance sheet normalization.
- Canada’s economic growth resumed in the first quarter of 2024 after stalling in the second half of last year. At 1.7%, first-quarter GDP growth was slower than forecast in the MPR but consumption growth was solid at about 3%, and business investment and housing activity also increased.
- Inflation remains above the 2% target and shelter price inflation is high but total CPI inflation has declined consistently over the course of this year, and indicators of underlying inflation increasingly point to a sustained easing.
- CPI inflation has eased from 3.4% in December to 2.7% in April while the preferred measures of core inflation have come down from about 3.5% last December to about 2.75% in April and the 3-month rate of core inflation slowed from about 3.5% in December to under 2% in March and April.
- In the labour market, businesses are continuing to hire workers as employment has been growing, but at a slower pace than the working-age population while elevated wage pressures look to be moderating gradually.
- The Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- Recent data has increased the council’s confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain.
- Next meeting is on 24 July 2024.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
The API stockpiles declined more than anticipated as nearly 9.2M barrels of crude were removed from inventories versus the estimate of a meagre 0.2M-drawdown. This was the largest draw since last August and caused oil prices to briefly spike with WTI oil rising from $83.39 to $83.84 per barrel in a matter of a few minutes. However, prices fell swiftly as fears surrounding potential disruptions caused by Hurricane Beryl to offshore oil production areas in the U.S.-regulated northern Gulf of Mexico faded as the hurricane headed towards Jamaica instead.
The EIA inventories will be released later today and should they also experience a higher-than-expected drawdown, crude prices could receive another shot in the arm – WTI oil was trading around $83.40 per barrel as Asian markets came online.
Next 24 Hours Bias
Weak Bearish
