IC Markets Europe Fundamental Forecast | 30 May 2023
What happened in the Asia session?
The NZD faced downward pressure due to a 2.6% decrease in Building Consents m/m, deviating from a forecasted 6.6% rise, suggesting an economic slowdown.
The GBP fell despite the BRC Shop Price Index y/y increasing by 9.0%, surpassing the previous 8.8%, indicating higher inflation and potential economic health.
The JPY also weakened despite seeing the Unemployment Rate fell to 2.6% against a forecasted 2.7% and a previous rate of 2.8%, suggesting an improving labour market.
Similarly, AUD weakened against the USD due to a sharp 8.1% drop in Building Approvals m/m, notably lower than a forecasted 2.3% rise and the previous month’s decline of -1.0%, indicating potential economic contraction.
What does it mean for the Europe & US Sessions?
The DXY is likely to advance higher towards the round-figure resistance of 105.00. However, a dip in the US CB Consumer Confidence data could motivate profit-taking to 104.00 before 103.55.
The Dollar Index (DXY)
Key news events today
CB Consumer Confidence data
What can we expect from DXY today?
The upcoming release of CB Consumer Confidence data, with a previous reading of 101.3 and a forecasted reading of 99.1, is expected to impact the USD. A decline in consumer confidence may weaken the greenback as it suggests reduced spending and slower economic growth.
Central Bank Notes:
- The committee raised the target range for the federal funds rate to 5 to 5-1/4 per cent. The U.S. banking system is sound and resilient.
- Tighter credit conditions for households and businesses may weigh on economic activity, hiring, and inflation.
- The committee is committed to returning inflation to its 2% objective
- The committee will adjust monetary policy as appropriate if risks emerge that could impede the attainment of goals
- Next meeting is on 14 June 2023
Next 24 Hours Bias
Weak bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
A decline in US consumer confidence may weaken the greenback, leading investors to seek safe-haven assets like gold. Consequently, the demand for gold could increase, potentially driving its price upward.
Next 24 Hours Bias
Weak bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The upcoming data release for Building Approvals m/m in Australia is forecasted to show a 2.3% increase compared to the previous month’s decline of -0.1%. If the actual data meets or exceeds this forecast, it could positively impact the AUD, signalling growth in the construction sector and attracting foreign investors.
Central Bank Notes:
- The Official Cash Rate was increased by 25 basis points to 3.85%.
- Inflation in Australia has passed its peak but remains high at 7%, and it may take some time to return to the target range.
- GDP is forecast to increase by 1.25% this year and around 2% over the year to mid-2025.
- Next meeting on 6 June 2023
Next 24 Hours Bias
Weak bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Previously, the NZ Building Consents m/m data showed a substantial growth of 7.0%, signalling confidence in the construction sector. A continued growth trend would strengthen the NZD, while a downturn could lead to its depreciation.
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
Mixed
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The upcoming release of Japan’s Unemployment Rate data is forecasted to decrease from 2.8% to 2.7%. A lower unemployment rate signifies a healthier economy, potentially leading to increased demand for the JPY. This could increase its value against other currencies, as investors view low unemployment rates as a sign of stability and growth.
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 15 June 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 upcoming release of the Spanish Flash CPI y/y data is expected to decrease from 4.1% to 3.6%. This could affect the ECB’s previously hawkish tone regarding interest rate hikes as inflation in the Eurozone shows signs of easing. A lower-than-expected Spanish CPI reading may lead to re-evaluating the ECB’s rate hike path, potentially causing a delay or modification of planned interest rate increases.
Central Bank Notes:
- The ECB has decided to raise the three key interest rates by 25 basis points as the inflation outlook continues to be too high for too long.
- The ECB will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Renewed financial market tensions and Russia’s war against Ukraine remain significant economic downside risks.
- The continued resilience of the labour market could lead to higher growth than anticipated.
- Next meeting on 15 June 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 release of Switzerland’s GDP data, with a forecasted growth of 0.1% compared to the previous quarter’s gain of 0.0%, is expected to have a modest impact on the currency.
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
Mixed
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The British Retail Consortium’s Shop Price Index, a vital economic indicator, recorded an 8.8% increase year-over-year in its previous release. The upcoming data release is crucial; a higher figure suggests growing UK inflation, potentially strengthening the GBP if the Bank of England reacts with interest rate hikes. Conversely, a lower rate could weaken the GBP due to diminished pressure on the bank to raise interest rates.
Central Bank Notes:
- The MPC of the BoE voted 7-2 to increase Bank Rate by 0.25 percentage points to 4.5%.
- 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.
- CPI increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- Next meeting on 22 June 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 upcoming release of the Canadian Current Account data, with a decrease from -10.6B to -9.9B, suggests a widening deficit, which could put downward pressure on the CAD. It may be perceived as a sign of weaker economic fundamentals, potentially leading to a depreciation of the CAD against other major currencies.
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?
Oil prices could experience another volatile trading session on Tuesday, with the focus still on a tentative U.S. debt ceiling deal that could prevent a default by the world’s top oil consumer. Additionally, sellers remain backed by concerns over potential Federal Reserve interest rate hikes that might curb energy demand.
Next 24 Hours Bias
Weak bearish
