IC Markets Europe Fundamental Forecast | 7 June 2023
What happened in the Asia session?
Australia’s GDP growth for the quarter is lower than expected at 0.2%, compared to the forecast of 0.3% and the previous 0.6%. This weaker economic growth could adversely affect the AUD. Mixed Chinese trade balance figures, with a lower USD-denominated trade balance of 65.8B (against a forecast of 95.2B and previous 90.2B) and a higher CNY-denominated trade balance of 452B (against a projection of 676B and previous 618B), suggest fluctuating demand for Australian exports, leading to potential AUD volatility.
Japan’s slightly below-forecast leading indicators at 97.6% (forecasted 98.3%, previous 97.7%) may negatively impact the JPY.
What does it mean for the Europe & US Sessions?
The USD/CAD pair gyrates 1.3400 ahead of the BoC interest rate announcement and rate statement. Any surprise from the Canadian central bank that leads to a hawkish perception by traders would see the Loonie test 1.3460 before the round figure resistance at 1.3500. Conversely, the pair may drop to 1.3420 in the event of perceived dovishness.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
The upcoming US Trade Balance data, forecasted at -75.8B, compared to the previous -64.2B, suggests an increasing trade deficit which might negatively impact the USD. Additionally, a decline in Consumer Credit from 26.5B to a forecasted 22.2B indicates weaker consumer borrowing. Both these factors, indicating reduced demand domestically and overseas, might lead to USD depreciation if the forecasts hold.
Central Bank Notes:
- The committee raised the target range for the federal funds rate to 5 to 5-1/4 per cent. The U.S. banking system is sound and resilient.
- Tighter credit conditions for households and businesses may weigh on economic activity, hiring, and inflation.
- The committee is committed to returning inflation to its 2% objective
- The committee will adjust monetary policy as appropriate if risks emerge that could impede the attainment of goals
- Next meeting is on 14 June 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 modest increase in the IBD/TIPP Economic Optimism Index hints at some economic optimism and could support the USD, which could pressure gold prices. However, the slight rise in the index might not cause a significant rally in the USD, possibly limiting the negative impact on gold.
Next 24 Hours Bias
Mixed
The Australian Dollar (AUD)
Key news events today
RBA Gov Lowe Speaks
GDP q/q
What can we expect from AUD today?
RBA Governor Lowe and Deputy Governor Bullock’s speeches may impact the Australian Dollar based on their insights into monetary policy. The Q/Q GDP data, forecasted at 0.3% compared to the previous 0.5%, is also critical. A hawkish tone from the RBA and exceeding GDP expectations may bolster the AUD, while dovish remarks or a GDP slowdown may weaken it.
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
Weak bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The New Zealand Dollar’s price direction may hinge on recent data due to a lack of significant news. The ANZ Commodity Prices rose by 0.3%, improving from a prior -1.7%, potentially providing upward momentum. However, the Global Dairy Trade Price Index declined by -0.9%, identical to the previous value, which might counterbalance gains.
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
Mixed
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The forecasted leading indicators data for the Japanese yen is 98.3%, while the previous data was 97.7%. This suggests a positive outlook for the JPY. A higher reading in leading indicators indicates a strong and growing Japanese economy, potentially attracting foreign investments and strengthening the value of the JPY.
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 15 June 2023
Next 24 Hours Bias
Weak bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
Forecasted figures show a growth of 0.7% for German Industrial Production, a trade deficit of -7.7B for the French Trade Balance, and a retail sales growth of 0.3% in Italy. Positive outcomes in these data releases, such as exceeding the forecasted figures, could boost confidence in the EUR, while adverse outcomes may hurt the EUR.
Central Bank Notes:
- The ECB has decided to raise the three key interest rates by 25 basis points as the inflation outlook continues to be too high for too long.
- The ECB will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Renewed financial market tensions and Russia’s war against Ukraine remain significant economic downside risks.
- The continued resilience of the labour market could lead to higher growth than anticipated.
- Next meeting on 15 June 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?
The upcoming economic indicators for Switzerland include the Unemployment Rate, forecasted to hold steady at 1.9%, and the Foreign Currency Reserves, last noted at CHF 732B. The CHF’s strength will likely persist if the unemployment rate matches expectations, showing job market stability. However, a higher rate could weaken the CHF, hinting at economic instability. Similarly, increasing foreign currency reserves could boost the CHF by showing a more robust crisis response capacity, while a decrease might depreciate it due to economic uncertainty concerns.
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 22 June 2023
Next 24 Hours Bias
Mixed
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Halifax House Price Index (HPI) m/m for GBP is forecasted to increase by 0.2%, indicating a positive change in average house prices compared to the previous month’s decline of -0.3%. If the predicted data is realised, it could positively impact the GBP, signalling economic growth and stability.
Central Bank Notes:
- The MPC of the BoE voted 7-2 to increase Bank Rate by 0.25 percentage points to 4.5%.
- 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.
- CPI increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- Next meeting on 22 June 2023
Next 24 Hours Bias
Weak bullish
The Canadian Dollar (CAD)
Key news events today
BOC Rate Statement
Overnight Rate
What can we expect from CAD today?
The upcoming data releases for the Canadian Dollar include the Labour Productivity, expected to rise to 0.1% from -0.5%, and the Trade Balance, forecasted to decrease to 0.5B from 1.0B. The Bank of Canada’s Overnight Rate is projected to remain steady at 4.50%. While a productivity improvement could support the CAD, the anticipated reduction in Trade Balance and the potentially ambiguous BOC Rate Statement might exert downward pressure.
Central Bank Notes:
- Bank of Canada holds its target for the overnight rate at 4.5%
- Labour markets remain tight with persistent price pressures, especially for services
- Economic growth in Q1 looks to be stronger than projected; to be weak through the remainder of this year before strengthening gradually next year
- Prepared to increase the policy rate further to return inflation to the 2% target.
- Next meeting on 7 June 2023
Next 24 Hours Bias
Mixed
Oil
Key news events today
No major news events.
What can we expect from Oil today?
The upcoming report from the US Energy Information Administration (EIA) is expected to show a 1.2-million-barrel increase in crude oil inventories, lower than last week’s 4.5 million. This could suggest either stronger demand or lower production, possibly leading to a rise in oil prices.
Next 24 Hours Bias
Weak bullish
