IC Markets Europe Fundamental Forecast | 9 January 2024
What happened in the Asia session?
Retail sales exceeded the market estimate of 1.2% as sales grew 2.0% MoM in November. This latest print marked the strongest pace of growth, boosted by Black Friday sales and events and could provide a tailwind for the Aussie today.
What does it mean for the Europe & US sessions?
Germany’s industrial production has declined over the past five consecutive months as the manufacturing sector remains in contraction territory. November’s estimate of 0.4% points to the first gain in seven months.
Meanwhile, the unemployment rate for the Eurozone is set to remain unchanged at 6.5%. Should industrial production come in strong and the unemployment rate remain steady, it could function as a bullish catalyst for the Euro.
The Dollar Index (DXY)
Key news events today
Trade Balance (1:30 pm GMT)
FOMC Member Barr Speaks (5:00 pm GMT)
What can we expect from DXY today?
The US trade balance widened slightly to $64.3B in October as total exports dropped – this trade deficit was the highest amount in three months. Should the deficit widen again, it could hamper the dollar’s recent gains.
In addition, Federal Reserve Bank Governor Michael Barr will be participating in a fireside chat about bank regulation at an event hosted by Women in Housing and Finance in Washington DC. Although the topic is not focused on monetary policy, any ‘hawkish’ comments during the chat could function as a bullish catalyst for the dollar later today.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the third meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- The Committee will continue to assess additional information and its implications for monetary policy.
- In determining the extent of any additional policy firming that may be appropriate to return inflation to 2.0% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.
- Next meeting runs from 30 to 31 January 2024.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
Trade Balance (1:30 pm GMT)
FOMC Member Barr Speaks (5:00 pm GMT)
What can we expect from Gold today?
The US trade balance widened slightly to $64.3B in October as total exports dropped – this trade deficit was the highest amount in three months. Should the deficit widen again, it could hamper the dollar’s recent gains and lift gold prices.
In addition, Federal Reserve Bank Governor Michael Barr will be participating in a fireside chat about bank regulation at an event hosted by Women in Housing and Finance in Washington DC. Although the topic is not focused on monetary policy, any ‘hawkish’ comments during the chat could function as a bullish catalyst for the dollar and thus weigh on this precious metal later today.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Retail Sales (12:30 am GMT)
What can we expect from AUD today?
Retail sales exceeded the market estimate of 1.2% as sales grew 2.0% MoM in November. This latest print marked the strongest pace of growth, boosted by Black Friday sales and events and could provide a tailwind for the Aussie today.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the fifth pause out of the last six board meetings.
- Inflation in Australia has passed its peak but is still too high and the progress in bringing inflation back to the target range of 2% to 3% was looking slower than earlier forecast.
- Any further tightening of monetary policy to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.
- Next meeting is on 6 February 2024.
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 Kiwi found support around the 0.6220-level overnight as it rebounded quite strongly as Asian markets came online. This currency was rising beyond 0.6250 and could stay elevated today.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fourth meeting in a row.
- The Committee is confident that the current level of the OCR is restricting demand. However, ongoing excess demand and inflationary pressures are of concern, given the elevated level of core inflation.
- If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further.
- The Committee agreed that interest rates will need to remain at a restrictive level for a sustained period of time, so that consumer price inflation returns to target and to support maximum sustainable employment.
- Next meeting is on 28 February 2024.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
Average Cash Earnings (11:30 pm GMT)
What can we expect from JPY today?
On an annualised basis, average cash earnings have remained relatively stable over the past few months as nominal wage growth lagged the core CPI rate. Should earnings growth wane once more, it could provide a tailwind for USD/JPY.
Central Bank Notes:
- The Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a stable manner.
- 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 at around 0% while regarding the upper bound of 1.0% for 10-year JGB yields as a reference in its market operations.
- Inflation expectations have risen moderately with underlying CPI inflation likely to increase gradually towards achieving the price stability target, as the output gap turns positive and as medium- to long-term inflation expectations and wage growth rise.
- Japan’s economy is likely to continue recovering moderately for the time being, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies.
- Next meeting is on 23 January 2024.
Next 24 Hours Bias
Weak Bearish
The Euro (EUR)
Key news events today
German Industrial Production (7:00 am GMT)
EU Unemployment Rate (10:00 am GMT)
What can we expect from EUR today?
Germany’s industrial production has declined over the past five consecutive months as the manufacturing sector remains in contraction territory. November’s estimate of 0.4% points to the first gain in seven months.
Meanwhile, the unemployment rate for the Eurozone is set to remain unchanged at 6.5%. Should industrial production come in strong and the unemployment rate remain steady, it could function as a bullish catalyst for the Euro.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a second consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- While inflation has dropped in recent months, it is likely to pick up again temporarily in the near term.
- Underlying inflation has eased further but domestic price pressures remain elevated, primarily owing to strong growth in unit labour costs.
- The past interest rate increases continue to be transmitted forcefully to the economy as tighter financing conditions are dampening demand, and this is helping to push down inflation.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 25 January 2024.
Next 24 Hours Bias
Weak Bullish
The Swiss Franc (CHF)
Key news events today
Foreign Currency Reserves (8:00 am GMT)
What can we expect from CHF today?
Switzerland’s foreign exchange reserves have trended lower since the beginning of 2023, dwindling from CHF780B in January to CHF642B in November, shedding nearly 18%. Should the reserves slide lower once again, it highlights the Swiss National Bank’s continued purchasing of the Swiss franc in the open market, adding downward pressure on USD/CHF.
Central Bank Notes:
- The SNB kept the policy rate unchanged at 1.75% for a second consecutive meeting in December.
- The inflation forecast puts average annual inflation at 2.1% for 2023, 1.9% for
2024 and 1.6% for 2025.
- GDP growth is likely to be weak in the coming quarters; subdued demand from abroad and the tighter financing conditions are having a dampening effect.
- Switzerland’s GDP is likely to grow by around 1% this year. For 2024, the SNB currently expects growth of between 0.5% and 1%.
- Next meeting is on 21 March 2024.
Next 24 Hours Bias
Weak Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound hit a high of 1.2765 overnight before pulling back by the end of the US session. This currency found support around 1.2745 at the start of the Asia session and could edge higher as the day progresses.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6-to-3 to maintain its Official Bank Rate at 5.25%.
- Three members preferred to increase the Bank Rate by 0.25 percentage points to 5.5%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation falling sharply from 6.7% in September to 4.6% in October while services price inflation declined to 6.6%.
- The decline in CPI inflation over recent months could largely be attributed to falls in energy, food, and core goods price inflation, as external cost pressures had continued to abate. Services price inflation had remained elevated, however.
- The mean projection for CPI inflation is 2.2% and 1.9% at the two- and three-year horizons, respectively.
- Next meeting is on 1 February 2024.
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
Trade Balance (1:30 pm GMT)
What can we expect from CAD today?
Canada reported a record trade surplus of C$2.9B for the month of October as exports rose for the fourth consecutive month while imports declined. Should November’s balance of trade point to a wider-than-expected surplus, demand for the Loonie could increase causing USD/CAD to fall during the US session.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the third meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled through the middle quarters of 2023 with real GDP contracting at a rate of 1.1% in the third quarter, following a growth of 1.4% in the second quarter.
- The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices, leading to the easing of CPI inflation to 3.1% YoY in October.
- The Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed and would also like to see further and sustained easing in core inflation.
- Next meeting is on 24 January 2024.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
API Crude Oil Stock (9:30 pm GMT)
What can we expect from Oil today?
Crude oil prices tumbled overnight as price cuts by top exporter Saudi Arabia overshadowed escalating geopolitical tensions in the Middle East. WTI oil fell over 4% as it slid under $71 per barrel. Prices found support around the level at the start of the Asia session to retrace higher but overhead pressures remain. Last Wednesday, API stockpiles experienced its largest decline since August of 2023 and another round of higher drawdowns could provide a much-needed boost to crude prices later today.
Next 24 Hours Bias
Medium Bearish
