IC Markets Europe Fundamental Forecast | 8 August 2023
What happened in the Asia session?
China released its trade balance data this morning which came in at 576B yuan for the month of July, increasing from 491B yuan from the previous month. Although July’s surplus was higher than the estimate of 495B yuan, China’s crude oil imports fell 18.8% MoM which was the lowest level since January as domestic stocks continue to build. With China being the world’s biggest oil importer, this slowdown in oil imports and a build up of inventory levels do not bode well for crude prices.
What does it mean for the Europe & US sessions?
Crude oil prices could come under pressure during the Europe session but should API stockpiles register another stronger than expected drawdown towards the end of the US session, oil prices could remain lifted. After hitting a high of 102.35 this morning, the dollar index (DXY) is now pulling back from this level.
The Dollar Index (DXY)
Key news events today
NFIB Small Business Index (10:00 am GMT)
Trade Balance (12:30 pm GMT)
What can we expect from DXY today?
The NFIB Small Business Index has been relatively weak for almost a year as small businesses struggle with inflation and labour shortages. In addition, owners remain very pessimistic about future business conditions and sales prospects. Meanwhile, the US trade deficit decreased to -$69.0B in May of 2023 from -$74.4B in April as both imports and exports edged lower. The estimate for June shows the deficit continuing to narrow down to -$65.1B which could function as a positive catalyst for the DXY.
Central Bank Notes:
- The federal funds rate target range will be 5.25% to 5.50%.
- The Committee is strongly committed to returning inflation to its 2.0% 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 runs from 19 to 20 September 2023.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
Trade Balance (12:30 pm GMT)
What can we expect from Gold today?
The US trade deficit decreased to -$69.0B in May of 2023 from -$74.4B in April as both imports and exports edged lower. The estimate for June shows the deficit continuing to narrow down to -$65.1B which could function as a positive catalyst for the DXY which in turn could ramp up the downward pressure on gold prices.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
NAB Business Confidence (1:30 am GMT)
What can we expect from AUD today?
The NAB Business Confidence jumped from -1 to +2 in July, registering a positive reading for only the second time this year. Business confidence and conditions in Australia are generally holding up but the Composite PMI did fall into contraction last month – potentially signalling further deterioration in economic activity.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the second consecutive meeting.
- Inflation in Australia has passed its peak and is trending lower but needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 5 September 2023.
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?
With demand for the US dollar picking up strongly this morning, the Kiwi tumbled from 0.6100 to a low of 0.6070 making it one of the weakest currency pairs 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 16 August 2023.
Next 24 Hours Bias
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Household spending declined on an annualised basis for the fourth month in a row while average cash earnings also increased at a slower pace which allows the Bank of Japan to maintain its ultra-dovish monetary policy stance. With strong demand for the greenback this morning, USDJPY broke above 143.00 with ease as it is one of the strongest currencies pairs this morning.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2.0%.
- 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 +0.5%.
- 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 22 September 2023.
Next 24 Hours Bias
Strong Bullish
The Euro (EUR)
Key news events today
Germany CPI (6:00 am GMT)
What can we expect from EUR today?
Inflation in Germany, the industrial powerhouse of the EU, continues to increase at a slower pace as manufacturing activity remains in contraction. Although negative for overall economic growth, this major slowdown in the manufacturing sector has helped to provide relief on the inflation aspect. Another weak CPI print combined with a stronger US dollar today could drive the Euro lower.
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 14 September 2023.
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The unemployment rate in Switzerland edged slightly higher to 2.1% in July after remaining steady at 2.0% for the previous two months – indicating that the labour market is still resilient despite high interest rates. Despite strong demand for the US dollar, the Swiss franc is holding up well, capping the gains on USDCHF.
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 1.0% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Bank of England Chief Economist Huw Pill’s hawkish remarks overnight caused the Pound to climb as high as 1.2790 overnight but the demand for the greenback has caused it to fall as low as 1.2752 this morning.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.25 percentage points to 5.25%.
- One member preferred to maintain the Bank Rate at 5.0% while another two preferred to increase it by 0.5 percentage points.
- CPI inflation is expected to fall significantly to around 5% by the end of the year, accounted for by lower energy prices but services price inflation is projected to remain elevated in the near term.
- The updated projections show that CPI inflation is expected to decline to 2.0% and 1.9% at the two and three-year horizons respectively.
- Next meeting on 21 September 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?
After suffering a large deficit in June’s trade balance figures, July’s forecast signals a second consecutive month of trade deficit but at a slightly lower narrow figure of -$2.8B. Stronger demand for the US dollar caused USDCAD to hit 1.3400 this morning and a larger than expected deficit could cause this pair to remain elevated later today.
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 3.0% in the summer, but concerns have increased about inflation staying above the 2.0% target.
- Next meeting on 6 September 2023.
Next 24 Hours Bias
Medium Bullish
Oil
Key news events today
China Trade Balance (Tentative)
API Weekly Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
China released its trade balance data this morning which came in at 576B yuan for the month of July, increasing from 491B yuan from the previous month. Although July’s surplus was higher than the estimate of 495B yuan, China’s crude oil imports fell 18.8% MoM which was the lowest level since January as domestic stocks continue to build. With China being the world’s biggest oil importer, this slowdown in oil imports and a build up of inventory levels do not bode well for crude prices. However, another large drawdown in API stock levels would function as a bullish catalyst for crude prices later today.
Next 24 Hours Bias
Weak Bullish
