IC Markets Europe Fundamental Forecast | 7 July 2023
What happened in the Asia session?
Despite the blowout non-farm payroll (NFP) numbers from ADP, DXY retreated as quickly as it rose and is currently trading around 103. With the much-anticipated NFP report by the Bureau of Labor Statistics hitting the news wires later today, markets could tread with caution as the final trading day of the week gets underway.
What does it mean for the Europe & US sessions?
As investors and traders await the most-anticipated economic event of the week, markets could move with caution as the DXY continues to drift lower as Europe comes online. However, should there be another round of robust employment gains, we can expect DXY to rebound strongly and head towards 103.50.
The Dollar Index (DXY)
Key news events today
BLS Non-farm Employment Report (12:30 pm GMT)
Unemployment Rate (12:30 pm GMT)
What can we expect from DXY today?
The unemployment rate has been printing between 3.4% and 3.7% since July of 2022 while NFP job gains from the BLS have been coming in stronger than estimates for most parts of 2023. Another round of robust employment gains coupled with a low unemployment rate will most definitely send DXY surging towards 103.60. Until then, markets could proceed with caution.
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 Bearish
Gold (XAU)
Key news events today
BLS Non-farm Employment Report (12:30 pm GMT)
Unemployment Rate (12:30 pm GMT)
What can we expect from Gold today?
Robust NFP figures from ADP battered gold as it tumbled as low as $1,904/oz. Spot prices have managed to stay above $1,900/oz for now but with the highly-anticipated NFP data taking centre stage today, gold could dive further should job growth in the US continue to accelerate.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Robust NFPs by the ADP caused the Aussie to crash as low as 0.6600 before finding support around this level before retracing higher. Another round of robust employment gains coupled with a low unemployment rate will most definitely send the Aussie crashing towards 0.6600 once more.
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?
Just like its neighbour, the Kiwi fell hard overnight but found support around 0.6130 before retracing higher. With no major news on the calendar for these Pacific currency pairs, expect them to trade in tandem while awaiting the biggest economic event of the week.
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
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
US equity markets fell for the second day in a row as the volatility index (VIX) rose above 15 for the first time in a month to signal a risk-off sentiment in markets. With volatility creeping back into equity markets, safe-haven currencies such as the Japanese yen are likely to benefit as USDJPY broke below 144.00. Further downward pressures can be expected for this pair until the BLS NFP figures are released.
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
ECB President Lagarde Speaks (9:00 am GMT)
What can we expect from EUR today?
ECB President Christine Lagarde is due to speak at the Economic Meetings of Aix-En-Provence, in France, later today but it is quite likely that the BLS employment report from the US will overshadow any other economic event scheduled today. The Euro dived below 1.0850 twice yesterday but rebounded quite strongly overnight and could tread with caution during the Asia session.
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 Bullish
The Swiss Franc (CHF)
Key news events today
Unemployment Rate (5:45 am GMT)
Foreign Currency Reserves (7:00 am GMT)
What can we expect from CHF today?
With volatility creeping back into equity markets and risk-off sentiment growing, safe-haven currencies such as the Swiss franc could gain as USDCHF dropped as low as 0.8950. Further downwards pressures can be expected for this pair until the BLS NFP figures are released.
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 Bearish
The Pound (GBP)
Key news events today
MPC Member Mann Speaks (2:30 pm GMT)
What can we expect from GBP today?
MPC Member Catherine Mann will be participating in a panel discussion entitled “Challenges for Policy After the Return of Inflation” at the Annual Meeting of the Central Bank Research Association, in New York. However, the US labour market report will most definitely dominate the news today and provide the catalyst for most FX pairs.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
Employment Change (12:30 pm GMT)
Unemployment Rate (12:30 pm GMT)
What can we expect from CAD today?
Canada will also be releasing its version of NFPs at the same time as its neighbour down to the south. Thus, we can expect the Loonie to experience a significant amount of volatility during this period.
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
No major news events.
What can we expect from Oil today?
EIA inventories also marked another round of stronger-than-expected drawdown as stockpiles fell by 1.5M barrels versus the estimate of 980k while OPEC wrapped up its seminar in Vienna yesterday. Following the supply cuts by Saudi Arabia, Russia and Algeria, crude prices have been provided a boost with WTI climbing above the $71.50 per barrel region after falling hard on strong US employment data. Another round of robust job gains from the US could trigger a sell-off for crude later today.
Next 24 Hours Bias
Medium Bullish
