IC Markets Europe Fundamental Forecast | 4 July 2023
What happened in the Asia session?
The Reserve Bank of Australia (RBA) kept their cash rate unchanged at 4.10% as the monthly CPI indicator for the month of May declined further last week. However, RBA Governor Philip Lowe mentioned that inflation is still too high and will remain so for quite some time. In addition, he also indicated that some further tightening may still be required to ensure that inflation returns to target in a reasonable period of time and that the board will continuously assess how the economy and inflationary pressures evolve.
What does it mean for the Europe & US sessions?
The Australian dollar initially fell upon the release of the RBA cash rate announcement but rebounded swiftly as a relatively hawkish statement provided support. Furthermore, the dollar index has started to sell off once more, propping up the Aussie to recover almost all the losses earlier this morning.
The Dollar Index (DXY)
Key news events today
Independence Day
What can we expect from DXY today?
US markets are closed on the 4th of July for Independence Day celebrations and will fully reopen on the 5th. As such, we can expect lower trading volume during the latter part of the day. The latest ISM survey findings should have resulted in further downside action for the DXY but it failed to break below 102.75. Apart from the upcoming RBA cash rate announcement, the calendar is pretty quiet.
Central Bank Notes:
- The federal funds rate target range will be 5 to 5-1/4 per cent.
- The Committee is strongly committed to returning inflation to its 2% target.
- The Committee will adjust monetary policy if risks emerge that could hinder achieving its goals.
- Various factors will be considered, including labour market conditions, inflation pressures, inflation expectations, and international and financial developments.
- Next meeting is on 26 July 2023
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Contracting manufacturing activity and falling prices from the ISM PMI survey propelled gold higher as spot prices went beyond $1,930/oz briefly before retreating to $1,920/oz region. With demand for DXY fading as we approach the start of the Europe session, gold is climbing towards $1,930/oz again.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
RBA Cash Rate Statement (4:30 am GMT)
What can we expect from AUD today?
The Australian dollar initially fell upon the release of the RBA cash rate announcement but rebounded swiftly as a relatively hawkish statement provided support. Furthermore, the dollar index has started to sell off once more, propping up the Aussie to recover almost all the losses earlier this morning.
Central Bank Notes:
- The RBA increased the cash rate target by 25 basis points to 4.10%.
- Inflation in Australia has passed its peak but remains high at 7% and needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 4 July 2023
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?
As noted in this morning’s report, the Kiwi has tracked the Australian dollar down to a T. With the DXY also beginning to look fragile, the Kiwi is one of the strongest performing currencies thus far.
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
Strong Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
With a relatively quiet calendar today and US equities registering small gains overnight, risk-on sentiment remains in play and USDJPY could continue to grind higher with pullbacks along the way.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2%
- 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 around 0%.
- Inflation is expected to decelerate temporarily but is projected to accelerate moderately later, supported by improvements in the output gap and inflation expectations.
- Japan’s economy is expected to recover gradually
- Next meeting is on 27 July 2023
Next 24 Hours Bias
Weak Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The latest ISM survey findings should have resulted in further gains for the Euro but it ran out of steam after hitting 1.0930 overnight. This pair retreated to 1.0910 and continued to slide lower during the Asia session but it is now gaining traction to rise towards 1.0920 again..
Central Bank Notes:
- The ECB raised the three key interest rates by 25 basis points.
- Economic growth projections have been slightly lowered.
- The Governing Council will ensure interest rates are sufficiently restrictive to achieve the inflation target and keep them at those levels as long as needed.
- Rate decisions will be data-dependent, considering inflation outlook, economic data, underlying inflation dynamics, and monetary policy transmission strength.
- Next meeting on 27 July 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?
After falling as low as 0.8960 overnight on the back of weak ISM PMI data out of the US, USDCHF rose slightly during the Asia session. The pair has now reversed to drop lower as Europe comes online.
Central Bank Notes:
- SNB has tightened its monetary policy further, raising the SNB policy rate by 0.25 percentage points to 1.75%.
- The new forecast predicts average annual inflation at 2.2% for 2023 and 2024 and 2.1% for 2025. Without the rate increase, the estimates would be even higher.
- SNB predicts modest growth for the rest of the year due to subdued foreign demand, loss of purchasing power from inflation, and stricter financial conditions. The GDP is projected to grow around 1% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Medium Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Along with the Euro, Cable soared on the back of weak PMI data out of the U.S. as this pair broke above 1.2720 once more. However, it retreated sharply and fell as low as 1.2670. The Pound has since found its footing and is making another push towards 1.2720.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.5 percentage points to 5%.
- Two members preferred to maintain the Bank Rate at 4.5%.
- CPI inflation is expected to fall significantly due to developments in energy prices.
- 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.
- Next meeting on 3 August 2023
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
Manufacturing PMI (1:30 pm)
What can we expect from CAD today?
Canadian manufacturing activity contracted in the previous month’s reading and another weak print can be expected later today. With DXY beginning to sell-off prior to the European open, USDCAD is sliding towards 1.3220.
Central Bank Notes:
- The Bank of Canada increased its target for the overnight rate to 4.75%.
- Canada’s economy was more substantial than expected in the first quarter of 2023, with GDP growth of 3.1%.
- The Bank expects CPI inflation to ease to around 3% in the summer, but concerns have increased about inflation staying above the 2% target.
- Next meeting on 12 July 2023
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Continued contraction in the US manufacturing sector caused crude prices to fall overnight as WTI oil tumbled below the $70 per barrel mark. Crude prices have found some support as WTI climbed above $70 per barrel but could run into headwinds as the day progresses.
Next 24 Hours Bias
Weak Bullish
