IC Markets Europe Fundamental Forecast | 9 May 2023
What happened in the Asia session?
The AUD remained stable following the release of Retail Sales m/m data, with an actual figure of 0.4% in line with forecasted and previous figures. On the other hand, the CNY Trade Balance data showed a significant increase in the exact figure of 618B compared to the forecasted 500B and the previous 601B, indicating that China’s trade sector is performing better than expected. This data release may positively impact the AUD due to China’s close trading relationship with Australia.
Japan’s Average Cash Earnings y/y figure, which was 0.8% actual, missing the forecasted figure of 1.0%. The Household Spending y/y figure was -1.9% actual, significantly lower than the previous month’s figure and the forecasted figure of 0.9% and 1.6%, respectively. Lastly, the 10-year Bond Auction results had a lower yield of 0.43%, indicating less demand for JPY-denominated bonds. Collectively, these factors may lead to a decrease in demand for JPY in the short term.
What does it mean for the Europe & US Sessions?
The USD failed to sustain the technical rebound earlier in the Asia session. The in-play currencies for the European session, namely the GBP and EUR each against the USD, could retest the recent intra-day highs forged around 1.2670 and 1.1050, respectively.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
The NFIB Small Business Index is forecasted to decrease from 90.1 to 89.6, potentially indicating a slowdown in the small business sector. The IBD/TIPP Economic Optimism Index is predicted to increase from 47.4 to 48.2, potentially indicating growing economic confidence, which could strengthen the currency.
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
Mixed
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
A higher US CPI indicates inflation, which tends to devalue the USD and make gold a more attractive investment. If the actual data aligns with the forecasts, a short-term increase in the price of gold is likely. However, the impact on gold may be muted if the data releases do not deviate much from the previous readings.
Next 24 Hours Bias
Mixed
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The upcoming data releases for CNY, specifically the New Loans and M2 Money Supply y/y, have the potential to impact the AUD. The forecasted New Loans for the current period for China is 1400B, while the previous period recorded 3890B. If the actual data falls short of the forecast, it could negatively impact the AUD. On the other hand, the forecasted M2 Money Supply y/y for the current period is 12.5%, slightly lower than the previous period’s 12.7%. If the actual data release comes in as forecasted or higher, it could positively affect the AUD.
Central Bank Notes:
- The Official Cash Rate was increased by 25 basis points to 3.85%.
- Inflation in Australia has passed its peak but remains high at 7%, and it may take some time to return to the target range.
- GDP is forecast to increase by 1.25% this year and around 2% over the year to mid-2025.
- Next meeting on 6 June 2023
Next 24 Hours Bias
Mixed
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The NZD could also be impacted by the upcoming data releases from China, specifically the New Loans and M2 Money Supply y/y. If the actual New Loans data falls short of the forecasted 1400B, it could negatively affect the NZD. Conversely, if the M2 Money Supply y/y data release is higher than 12.5%, it could positively impact the NZD.
Central Bank Notes:
- OCR increased by 50bps from 4.75% to 5.25%
- Recent severe weather events in the North Island have led to higher prices, increasing the risk of inflation expectations exceeding the target range.
- New Zealand’s economic growth is expected to slow through 2023 due to the slowing global economy, reduced residential building activity, and the ongoing effects of monetary policy tightening.
- Next meeting is on 25 May 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 for Japan is 97.9%, slightly lower than the previous value of 98.0%. While the leading indicators are essential for predicting economic trends, the slight change in forecasted value is unlikely to impact the JPY significantly.
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
Mixed
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The upcoming forecasted data of -9.5B for the French Trade Balance and the previous data of -9.9B show that France is importing more goods and services than it is exporting. A higher-than-expected negative trade balance may indicate a weak economy and lower demand for the Euro. In contrast, a lower-than-expected negative trade balance could suggest a more robust economy and lead to a rise in the value of the Euro.
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?
No significant news impacts the CHF today; the available data likely influences its price movement. The market should focus on the CPI m/m, which has a value of 0.0%. This figure falls below the predicted value of 0.2% for the current period and is identical to the previous period. Consequently, the CHF’s value against other major currencies may decline due to this development.
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 upcoming data releases from the UK include the BRC Retail Sales Monitor year-on-year forecast of 4.7%, slightly lower than the previous reading of 4.9%, and the Halifax House Price Index month-on-month forecast of 0.2%, which is lower than the last reading of 0.8%. The impact on the GBP may be mixed, as weaker retail sales can suggest a weaker economy, potentially leading to a decrease in the value of GBP, while a lower-than-expected house price index may also imply a potential slowdown in the housing market, causing investors to shy away from the currency.
Central Bank Notes:
- The BoE’s MPC increased the Bank Rate by 25bps to 4.25%, with a majority of 7-2 in favour of the hike
- The UK banking system is judged to be robust and resilient.
- CPI inflation increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- The MPC will continue to monitor inflationary pressures and adjust Bank Rate as necessary.
- Next meeting on 11 May 2023
Next 24 Hours Bias
Mixed
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The CAD will likely draw its price direction from upcoming data releases, as no major news events are affecting it today. The Building Permits m/m data release is particularly significant, with the forecasted figure indicating a potential decrease of 2.3% from the previous period’s optimistic growth rate of 8.6%. If the actual data exceeds the forecast, CAD’s value may increase, while a decline may lead to a decrease in value.
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
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
This week’s focus is on the release of US inflation data and the OPEC report, which could significantly impact the market. If inflation continues to rise, it may lead to a decrease in demand for oil, while a tight supply indicated by the OPEC report may help to maintain the current rally.
Next 24 Hours Bias
Mixed
