IC Markets Europe Fundamental Forecast | 4 January 2024
What happened in the Asia session?
Japan’s S&P Global Manufacturing PMI reading of 47.9 highlights the intensifying downturn for this sector as production and new orders experienced sharper falls. December’s print marked the seventh consecutive month of contraction as demand from key export markets like China, Europe and North America were all down, reflecting the steepest reduction in exports for six months. Weaker economic growth vindicates the Bank of Japan’s ultra-dovish monetary policy stance, keeping USD/JPY elevated.
What does it mean for the Europe & US sessions?
ADP job gains have eased in recent months as hiring growth moderated while pay gains slowed again in November – hiring and wage growth are both expected to moderate further in 2024. December’s forecast of 120k points to another month of tepid job gains. Should the ADP print miss market expectations of 120k, it could trigger a sell-off in the dollar.
Meanwhile, unemployment claims rose noticeably higher last week with the figure of 218k coming in higher than the estimate of 211k. The latest forecast points to 217k claims and another stronger-than-expected figure would function as another bearish catalyst for the dollar.
The Dollar Index (DXY)
Key news events today
ADP Non-Farm Employment Change (1:15 pm GMT)
Unemployment Claims (1:30 pm GMT)
What can we expect from DXY today?
ADP job gains have eased in recent months as hiring growth moderated while pay gains slowed again in November – hiring and wage growth are both expected to moderate further in 2024. December’s forecast of 120k points to another month of tepid job gains. Should the ADP print miss market expectations of 120k, it could trigger a sell-off in the dollar.
Meanwhile, unemployment claims rose noticeably higher last week with the figure of 218k coming in higher than the estimate of 211k. The latest forecast points to 217k claims and another stronger-than-expected figure would function as another bearish catalyst for the dollar.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the third meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- The Committee will continue to assess additional information and its implications for monetary policy.
- In determining the extent of any additional policy firming that may be appropriate to return inflation to 2.0% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.
- Next meeting runs from 30 to 31 January 2024.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
ADP Non-Farm Employment Change (1:15 pm GMT)
Unemployment Claims (1:30 pm GMT)
What can we expect from Gold today?
ADP job gains have eased in recent months as hiring growth moderated while pay gains slowed again in November – hiring and wage growth are both expected to moderate further in 2024. December’s forecast of 120k points to another month of tepid job gains. Should the ADP print miss market expectations of 120k, it could trigger a sell-off in the dollar and provide a strong tailwind for gold.
Meanwhile, unemployment claims rose noticeably higher last week with the figure of 218k coming in higher than the estimate of 211k. The latest forecast points to 217k claims and another stronger-than-expected figure would function as another bearish catalyst for the dollar and thus boost gold prices.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie dropped as low as 0.6700 yesterday before retracing higher by the end of the US session. Downward pressures remain for this currency and it is expected to test the threshold of 0.6700 once more today.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the fifth pause out of the last six board meetings.
- Inflation in Australia has passed its peak but is still too high and the progress in bringing inflation back to the target range of 2% to 3% was looking slower than earlier forecast.
- Any further tightening of monetary policy to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.
- Next meeting is on 6 February 2024.
Next 24 Hours Bias
Medium Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Along with its Pacific neighbour, the Kiwi tumbled during the US session to hit a low of 0.6220. This currency retraced as high as 0.6250 as Asian markets came online but overhead pressures remain.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fourth meeting in a row.
- The Committee is confident that the current level of the OCR is restricting demand. However, ongoing excess demand and inflationary pressures are of concern, given the elevated level of core inflation.
- If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further.
- The Committee agreed that interest rates will need to remain at a restrictive level for a sustained period of time, so that consumer price inflation returns to target and to support maximum sustainable employment.
- Next meeting is on 28 February 2024.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
Manufacturing PMI (12:30 am GMT)
What can we expect from JPY today?
Japan’s S&P Global Manufacturing PMI reading of 47.9 highlights the intensifying downturn for this sector as production and new orders experienced sharper falls. December’s print marked the seventh consecutive month of contraction as demand from key export markets like China, Europe and North America were all down, reflecting the steepest reduction in exports for six months. Weaker economic growth vindicates the Bank of Japan’s ultra-dovish monetary policy stance, keeping USD/JPY elevated.
Central Bank Notes:
- The Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a stable manner.
- 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 at around 0% while regarding the upper bound of 1.0% for 10-year JGB yields as a reference in its market operations.
- Inflation expectations have risen moderately with underlying CPI inflation likely to increase gradually towards achieving the price stability target, as the output gap turns positive and as medium- to long-term inflation expectations and wage growth rise.
- Japan’s economy is likely to continue recovering moderately for the time being, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies.
- Next meeting is on 23 January 2024.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
Composite PMI (9:00 am GMT)
What can we expect from EUR today?
The Composite PMI has contracted over the past six months in the Eurozone and December’s estimate of 47.0 points to further deterioration. Components such as new orders, work backlogs and employment have all declined as demand continues to remain weak. A weaker-than-expected PMI reading could function as a bearish catalyst for the Euro.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a second consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- While inflation has dropped in recent months, it is likely to pick up again temporarily in the near term.
- Underlying inflation has eased further but domestic price pressures remain elevated, primarily owing to strong growth in unit labour costs.
- The past interest rate increases continue to be transmitted forcefully to the economy as tighter financing conditions are dampening demand, and this is helping to push down inflation.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 25 January 2024.
Next 24 Hours Bias
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Recent dollar strength has lifted USD/CHF as high as 0.8550 but this currency pair pulled back by the end of the US session. It was trading around the 0.8500 region at the start of the Asia session and could resume the uptrend today.
Central Bank Notes:
- The SNB kept the policy rate unchanged at 1.75% for a second consecutive meeting in December.
- The inflation forecast puts average annual inflation at 2.1% for 2023, 1.9% for
2024 and 1.6% for 2025.
- GDP growth is likely to be weak in the coming quarters; subdued demand from abroad and the tighter financing conditions are having a dampening effect.
- Switzerland’s GDP is likely to grow by around 1% this year. For 2024, the SNB currently expects growth of between 0.5% and 1%.
- Next meeting is on 21 March 2024.
Next 24 Hours Bias
Medium Bullish
The Pound (GBP)
Key news events today
Composite PMI (9:30 am GMT)
What can we expect from GBP today?
Overall economic activity in the UK rebounded in November as the Composite PMI signalled a return to expansion, led by an upturn in services output. However, the manufacturing sector remains in contraction. December’s estimate of 51.7 points to a second consecutive month of overall growth and a stronger-than-expected print could provide a much-needed boost for the Pound.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6-to-3 to maintain its Official Bank Rate at 5.25%.
- Three members preferred to increase the Bank Rate by 0.25 percentage points to 5.5%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation falling sharply from 6.7% in September to 4.6% in October while services price inflation declined to 6.6%.
- The decline in CPI inflation over recent months could largely be attributed to falls in energy, food, and core goods price inflation, as external cost pressures had continued to abate. Services price inflation had remained elevated, however.
- The mean projection for CPI inflation is 2.2% and 1.9% at the two- and three-year horizons respectively.
- Next meeting is on 1 February 2024.
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Recent dollar strength has provided a strong tailwind for USD/CAD as it hit a high of 1.3370 overnight. This currency pair pulled back slightly at the start of the Asia session but it is likely to resume the upturn today.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the third meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled through the middle quarters of 2023 with real GDP contracting at a rate of 1.1% in the third quarter, following a growth of 1.4% in the second quarter.
- The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices, leading to the easing of CPI inflation to 3.1% YoY in October.
- The Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed and would also like to see further and sustained easing in core inflation.
- Next meeting is on 24 January 2024.
Next 24 Hours Bias
Medium Bullish
Oil
Key news events today
EIA Crude Oil Inventories (4:00 pm GMT)
What can we expect from Oil today?
The API stockpile experienced a larger than expected drawdown with 7.4M barrels of crude being used versus the forecast of a 2.9M decline, signalling higher demand in the US. Combined with a production disruption at Libya’s top oilfield as well as mounting tensions in the Middle East, crude prices surged overnight as WTI oil gained 3.3% – the highest daily rise since mid-December. Another round of stronger drawdowns in the EIA inventories could drive WTI oil towards $74 per barrel during the US session.
Next 24 Hours Bias
Medium Bullish
