IC Markets Europe Fundamental Forecast | 31 March 2023
What happened in the Asia session?
The Tokyo Core CPI y/y data release showed a 3.2% increase, beating the forecast of 3.1% and the previous reading of 3.3%. This indicates that inflation remains stubborn in Japan.
The Australian Private Sector Credit m/m data release showed a 0.3% increase, falling short of the forecasted and previous readings of 0.4%. This suggests that lending to the private sector has slowed down in Australia. However, better-than-expected Chinese Manufacturing & Non-Manufacturing PMIs could cushion the weakness of the AUD.
What does it mean for the Europe & US Sessions?
The focus for the two sessions should hinge on EUR/USD since a slew of second-tier data releases adds to the critical inflation announcements, namely the CPI Flash Estimate y/y for Europe and the Core PCE Price Index m/m for the US.
At the time of writing, the pair hovers below the recent highs around 1.0930. Higher inflation data for the Eurozone or a lower-than-expected US PCE could open a 100-pip rise towards 1.1030. A break above the psychological resistance at 1.1000 would reinforce an upward scenario.
The Dollar Index (DXY)
Key news events today
Core PCE Price Index m/m
What can we expect from DXY today?
The US Core PCE Price Index is forecasted with a 0.4% increase. Previous data showed 0.6%. A lower-than-expected figure would weaken the USD since the Fed will likely be less likely to raise rates in the face of a recovery banking turmoil.
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?
The US Core PCE Price Index m/m is expected to increase slower, suggesting that inflationary pressures are moderating, which could reduce the demand for gold as a hedge against inflation.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Australian Private Sector Credit m/m data is expected to remain unchanged at 0.4%, indicating steady growth in lending to businesses and individuals. This may neutrally impact the AUD, as it does not suggest any significant changes in the lending market.
However, the Chinese Manufacturing and Non-Manufacturing PMI are forecasted to decrease from previous figures, indicating a slowdown in the sectors. This may hurt the AUD, as China is Australia’s largest trading partner.
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
Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
While no major news event from New Zealand could significantly influence NZD’s price direction, the upcoming Australian and Chinese data could provide some volatility for the closely-linked currency.
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
Tokyo Core CPI y/y
What can we expect from JPY today?
A mixed implication can be expected from a slew of Japanese data releases today, including Tokyo Core CPI y/y (forecast 3.1%, previous 3.3%), Unemployment Rate: (forecast 2.4%, previous 2.4%), Prelim Industrial Production m/m (forecast 2.8%, previous -5.3%), Retail Sales y/y (forecast 5.9%, previous 5.0), Housing Starts y/y (forecast -0.5%, previous 6.6%)
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
Mixed
The Euro (EUR)
Key news events today
CPI Flash Estimate y/y
Core CPI Flash Estimate y/y
ECB President Lagarde Speaks
What can we expect from EUR today?
Upcoming Eurozone CPI Flash Estimate y/y data is expected to decrease from 8.5% to 7.1%, indicating a cooling of inflationary pressures. However, Core CPI Flash Estimate y/y data will likely increase from 5.6% to 5.7%, suggesting underlying inflationary pressures persist. ECB President Lagarde’s remarks during the US session may also infuse volatility into 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
Mixed
The Swiss Franc (CHF)
Key news events today
Gov Board Member Maechler Speaks
What can we expect from CHF today?
The speech by Governing Board Member Maechler could provide insights into the central bank’s monetary policy stance and future decisions. Meanwhile, Switzerland’s Retail Sales y/y report is expected to improve from the previous reading of -2.2%, with a forecast of -1.0%. The KOF Economic Barometer is also likely to show a slight improvement from the prior reading of 100.0, with a forecast of 100.4. The higher-than-expected readings could lead to a stronger 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 11 April 2023
Next 24 Hours Bias
Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Mixed signals are expected from the second-tier UK data releases today, with slight improvements in Current Account and Nationwide HPI m/m that may support GBP, while lack of growth in Final GDP q/q may limit gains.
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 Canadian economy is expected to turn around with an anticipated growth rate of 0.4%, indicating a potential improvement from the previous period, which had declined by -0.1%. A higher-than-expected GDP growth rate in the current period could boost the CAD.
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
Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
The upcoming OPEC+ meeting on Monday is expected to see the cartel stick to its current production cuts while refraining from reacting to the recent drop in oil prices, which is being cushioned by Iraq’s export disruptions.
Next 24 Hours Bias
Bullish
