IC Markets Europe Fundamental Forecast | 27 June 2023
What happened in the Asia session?
The UK’s BRC Shop Price Index reported a lower-than-previous inflation rate at 8.4% YoY, potentially dampening the GBP’s appeal by delaying potential interest rate hikes by the Bank of England.
Meanwhile, Japan’s Core CPI matched its forecast at 3.1% YoY, slightly higher than the previous 3.0%, signalling a gradual inflation increase that might support the JPY by leading to a potential monetary policy tightening by the Bank of Japan.
What does it mean for the Europe & US Sessions?
Soft Canadian CPI numbers could see the USD/Cad pair recovering to 1.3170. A bigger dip in the consumer price data set could spark a further upward move to 1.3200. Otherwise, the Loonie could resume its drop to 1.3100, after which a steep decline towards 1.3000 would be on the cards.
The Dollar Index (DXY)
Key news events today
CB Consumer Confidence
What can we expect from DXY today?
The upcoming release of CB Consumer Confidence data is expected to improve from the previous value of 102.3 to a forecasted value of 103.9. Higher consumer confidence will likely stimulate increased consumer spending, leading to economic growth. As a result, the USD is expected to strengthen against other currencies.
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
Bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The forthcoming US CB Consumer Confidence data is forecasted to indicate improved consumer optimism and potential economic growth. This growth might lead to a stronger USD, negatively impacting gold prices. This is due to gold’s role as a safe-haven asset often inversely correlating with economic growth and a strong USD making gold more costly for non-USD currency holders.
Next 24 Hours Bias
Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Today, the Australian dollar (AUD) will see no major price movement due to a lack of significant news. Its future direction will likely be influenced by upcoming economic data, notably the year-on-year Consumer Price Index (CPI), which previously showed an increase of 6.8%. This high inflation reading could pressure the central bank to raise interest rates, possibly strengthening the AUD.
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?
With no important news impacting the New Zealand Dollar (NZD) today, its value is expected to be shaped by upcoming data releases. The previous ANZ Business Confidence index stood at -31.1, reflecting a pessimistic outlook from businesses. This sentiment might negatively affect the NZD if it continues.
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
Weak bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The upcoming release of the BOJ Core CPI y/y data is expected to show a forecasted increase of 3.1%, slightly higher than the previous reading of 3.0%. A higher-than-expected inflation rate may strengthen the JPY, signalling a stronger economy and attracting foreign investment. However, concerns about the central bank’s ability to control prices could lead to speculation of monetary policy tightening, potentially negatively impacting the JPY.
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
Mixed
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
ECB President Christine Lagarde is set to deliver a highly anticipated speech at the ECB Forum on Central Banking in Sintra. A more hawkish tone indicating a potential policy tightening could strengthen the euro against other major currencies. Conversely, a more dovish stance could put downward pressure on the Euro.
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
Mixed
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The Swiss National Bank’s (SNB) forthcoming Quarterly Bulletin will be critical for the Swiss Franc (CHF), particularly following the previous -32.2 score from the recent Credit Suisse Economic Expectations report. Depending on the SNB’s stance, the CHF could either gain strength with a more optimistic outlook or face pressure if further monetary easing is implied.
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
Mixed
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
If the upcoming BRC Shop Price Index, which last reported a 9.0% year-on-year increase, rises further, the Bank of England could raise interest rates, strengthening the GBP. Conversely, a drop or steadiness in the index could ease inflation concerns and result in a softer GBP.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase Bank Rate by 0.5 percentage points to 5%.
- Two members preferred to maintain 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
Bearish
The Canadian Dollar (CAD)
Key news events today
CPI m/m
Median CPI y/y
Trimmed CPI y/y
What can we expect from CAD today?
The upcoming data releases for the Canadian dollar (CAD) include the CPI m/m (Forecasted at 0.4%, Previous: 0.7%), Median CPI y/y (Forecasted at 4.0%, Previous: 4.2%) and Trimmed CPI y/y (Forecasted at 3.9%, Previous: 4.2%). The forecasted CPI m/m suggests a slight deceleration in inflation, while the Median CPI y/y indicates stable inflation. However, the Trimmed CPI y/y forecast suggests a potential decrease in the inflation rate.
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
Mixed
Oil
Key news events today
No major news events.
What can we expect from Oil today?
OPEC projects global oil demand to reach 110 million barrels daily by 2045, mainly fuelled by emerging markets. The economic impact could stimulate growth in oil-rich countries but might also increase oil prices.
Next 24 Hours Bias
Bullish
