IC Markets Europe Fundamental Forecast | 6 July 2023
What happened in the Asia session?
Australia’s trade balance registered a surplus of $11.79B, growing $1.34B in May. The stronger-than-expected reading provided lift to the Aussie after it dived overnight on the back of hawkish minutes from June’s FOMC meeting. Overhead pressures remain for this pair but it is currently pushing higher.
What does it mean for the Europe & US sessions?
As investors and traders digest the latest FOMC minutes, demand for the dollar index (DXY) was strong during the Asia session but it pulled back towards 103.20 at the start of the Europe session – dollar strength should be a running theme for today.
The Dollar Index (DXY)
Key news events today
ADP Non-farm Employment Report (12:15 pm GMT)
Unemployment Claims (12:30 pm GMT)
JOLTS Job Openings (2:00 pm GMT)
ISM Services PMI (2:00 pm GMT)
What can we expect from DXY today?
A barrage of data showing the state of the labour market will be released today while the latest ISM survey will provide further insights into the level of growth for the services sector and its associated inflationary pressures. A possible combination of softer labour market data and higher unemployment claims coupled with slower growth in service-related activity could trigger a potential sell-off for the US dollar in the latter part of the day.
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
Medium Bullish
Gold (XAU)
Key news events today
ADP Non-farm Employment Report (12:15 pm GMT)
Unemployment Claims (12:30 pm GMT)
JOLTS Job Openings (2:00 pm GMT)
What can we expect from Gold today?
Gold prices tumbled below $1,920/oz as traders digested the hawkish minutes from June’s FOMC meeting and went scrambling in search of US dollars. This precious metal remains under pressure but prices could potentially rebound strongly should the US labour market begin to show some signs of cracks.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
Trade Balance (1:30 am GMT)
What can we expect from AUD today?
Australia’s trade balance registered a surplus of $11.79B, growing $1.34B in May. The stronger-than-expected reading provided lift to the Aussie after it dived overnight on the back of hawkish minutes from June’s FOMC meeting. Overhead pressures remain for this pair but it is currently pushing higher.
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?
Despite strong demand for the US dollar, the Kiwi is showing resilience and climbing higher as the Asia trading session gets under way. If data from the US labour market comes in softer-than-expected, the Kiwi is likely to push higher.
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?
Hawkish FOMC minutes and the ongoing divergence in monetary policy between the Federal Reserve and the Bank of Japan continue to keep USDJPY elevated despite the VIX edging higher overnight to indicate potential risk-off sentiment. USDJPY fell together with the major US indices but it has found support above 144-level once more. Could softer US labour market data finally drive it below this recent support in the latter part of the day?
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
Strong Bearish
The Euro (EUR)
Key news events today
Retail Sales (9:00 am GMT)
What can we expect from EUR today?
Retail sales in the Eurozone has been relatively anemic for most parts of 2023 and the forecast for the month of May shows a marginal growth of just 0.2% MoM. Weak sales figures are likely to weigh on this pair especially with markets digesting the hawkish minutes from June’s FOMC meeting.
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
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
What can we expect from CHF today?
The FOMC meeting minutes carried USDCHF up to 0.8990 where this pair ran into resistance. It is currently pulling back from this level but could potentially reverse as dollar bulls are spurred on by hawkish minutes from the Federal Reserve
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
Weak Bullish
The Pound (GBP)
Key news events today
Construction PMI (8:30 am GMT)
What can we expect from GBP today?
Construction activity in the UK has picked up over the past few months and the forecast for the month of May indicates continued expansion for this sector but at a slower pace. Hawkish FOMC minutes drove Cable under 1.2700 but it has climbed above this level as Asia came online.
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
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
Trade Balance (12:30 pm GMT)
What can we expect from CAD today?
Hawkish FOMC minutes lifted USDCAD strongly to bring it close to 1.3300 before finally losing steam. This pair has pulled back slightly this morning but the uptrend could continue as the day progresses. The Canadian trade balance is expected to post a decline from the previous month and could potentially increase the pressure on the Loonie.
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 Bullish
Oil
Key news events today
OPEC Seminar (5th to 6th July)
EIA Crude Oil Inventories (3:00 pm GMT)
What can we expect from Oil today?
As the 8th OPEC International Seminar got underway in Vienna, Saudi Arabia announced that it would extend its voluntary output cut of 1 million barrels per day (bpd) up until August while Russia and Algeria also lowered both their output and export levels. In addition, the API crude oil stock fell by over 4 million barrels versus an estimate of 1.8 million, registering a surprise drawdown for the third week in a row to provide an additional catalyst to crude prices. Should EIA inventories also mark a stronger-than-expected drawdown, crude prices are likely to see additional gains.
Next 24 Hours Bias
Medium Bullish
