IC Markets Europe Fundamental Forecast | 30 July 2024
What happened in the Asia session?
Demand for the greenback was strong, sending the dollar index (DXY) higher towards 104.70 – the immediate resistance barrier appears to be around 105.15 today. Meanwhile, selling pressures remain strong for crude with WTI oil looking to break under $76.50 per barrel.
What does it mean for the Europe & US sessions?
Inflation in Germany has eased significantly over the past ten months with headline and core CPI slowing to 2.2% and 2.9% respectively YoY in June. Should inflationary pressures continue to dissipate in Germany along with the broader Euro Area, the Euro could come under selling pressures today.
The Dollar Index (DXY)
Key news events today
JOLTS Job Openings (2:00 pm GMT)
CB Consumer Confidence (2:00 pm GMT)
What can we expect from DXY today?
Job vacancies in the U.S. have moderated significantly lower since mid-2022 to highlight the slowdown in hiring practices by large corporations as well as small- and medium-sized businesses. The JOLTS job openings showed 8.14M vacancies in May and June’s estimate of 8.02M points to a further slowdown.
Meanwhile, the Conference Board Consumer Confidence Index weakened slightly in June as persistent concerns on future expectations continue to weigh on consumer optimism. July’s estimate suggests that consumer confidence will edge lower once again. Should job vacancies dwindle more-than-anticipated while confidence takes another beating, this set of results could cap the recent gains in the DXY.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the seventh meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks. Inflation has eased over the past year but remains elevated and in recent months, there has been modest further progress toward the Committee’s 2% inflation objective.
- Recent indicators suggest that economic activity has continued to expand at a solid pace while job gains have remained strong, and the unemployment rate has remained low.
- In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks and does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.
- In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
- The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.
- Next meeting runs from 30 to 31 July 2024.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
JOLTS Job Openings (2:00 pm GMT)
CB Consumer Confidence (2:00 pm GMT)
What can we expect from Gold today?
Job vacancies in the U.S. have moderated significantly lower since mid-2022 to highlight the slowdown in hiring practices by large corporations as well as small- and medium-sized businesses. The JOLTS job openings showed 8.14M vacancies in May and June’s estimate of 8.02M points to a further slowdown.
Meanwhile, the Conference Board Consumer Confidence Index weakened slightly in June as persistent concerns on future expectations continue to weigh on consumer optimism. July’s estimate suggests that consumer confidence will edge lower once again. Should job vacancies dwindle more-than-anticipated while confidence takes another beating, this set of results could cap the recent gains in the DXY and potentially lift gold later today.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie stabilized around 0.6550 overnight after diving strongly over the last couple of weeks. This currency pair was trading around 0.6540 as Asian markets came online but overhead pressures remain – these are the support and resistance levels for today.
Support: 0.6465
Resistance: 0.6580
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the ninth pause out of the last ten board meetings.
- Over the year to April, the monthly CPI indicator rose by 3.6% in headline terms, and by 4.1% excluding volatile items and holiday travel, which was similar to its pace in December 2023.
- The central forecasts published in May were for inflation to return to the target range of 2–3% in the second half of 2025 and to the midpoint in 2026 while there have been indications that momentum in economic activity is weak, including slow growth in GDP, a rise in the unemployment rate and slower-than-expected wages growth.
- Inflation is easing but has been doing so more slowly than previously expected and it remains high and the Board expects that it will be some time yet before inflation is sustainably in the target range.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.
- Next meeting is on 6 August 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?
Significant weakness in the Kiwi has caused it to decline nearly 4.1% over the past three weeks but it stabilized around 0.5880 yesterday. This currency pair was trading around 0.5870 at the beginning of the Asia session and further downside can be expected for the Kiwi – these are the support and resistance levels for today.
Support: 0.5800
Resistance: 0.5980
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the eighth meeting in a row and agreed that restrictive monetary policy is reducing domestic demand and consumer price inflation.
- The Committee is confident that inflation will return to within its 1-3% target range over the second half of 2024.
- The decline in inflation reflects receding domestic pricing pressures, as well as lower inflation for goods and services imported into New Zealand while recent monthly Selected Price Indexes suggest weakening in some of the more volatile inflation components, while survey measures of cost pressures and pricing intentions have continued to decline.
- Non-performing bank loans and corporate insolvencies have increased from low levels in line with declining economic activity while bank credit growth also remains very subdued, in line with weakness in the domestic economy and low business and consumer confidence.
- Next meeting is on 14 August 2024.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The yen strengthened significantly over the last three weeks causing USD/JPY to dive over 4.1% but it found a floor around the 153-level yesterday. This currency pair was edging higher towards 154 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 152.00
Resistance: 154.00
Central Bank Notes:
- The Bank considers that the policy framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control and the negative interest rate policy to date have fulfilled their roles. With the price stability target of 2%, it will conduct monetary policy as appropriate, guiding the short-term interest rate as a primary policy tool.
- The Bank of Japan decided on the following measures:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1% while continuing its Japanese government bonds (JGB) purchases in accordance with the decisions made at the March 2024 MPM.
- The Bank decided, by an 8-1 majority vote, that it would reduce its purchase amount of JGBs thereafter to ensure that long-term interest rates would be formed more freely in financial markets.
- Underlying CPI inflation is expected to increase gradually, since it is projected that the output gap will improve and that medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify.
- In the second half of the projection period of the April 2024 Outlook for Economic Activity and Prices (Outlook Report), it is likely to be at a level that is generally consistent with the price stability target of 2%.
- The year-on-year rate of increase in the CPI (all items less fresh food), has been in the range of 2.0-2.5% recently, as services prices have continued to rise moderately, reflecting factors such as wage increases, although the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices have waned. Inflation expectations have risen moderately.
- Japan’s economy has recovered moderately, although some weakness has been seen in part while is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions.
- Next meeting is on 31 July 2024.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
Germany CPI (Tentative)
What can we expect from EUR today?
Inflation in Germany has eased significantly over the past ten months with headline and core CPI slowing to 2.2% and 2.9% respectively YoY in June. Should inflationary pressures continue to dissipate in Germany along with the broader Euro Area, the Euro could come under selling pressures today.
Central Bank Notes:
- The Governing Council today decided to keep the three key ECB interest rates unchanged in July, following a 25 basis points cut in June.
- Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 4.25%, 4.50% and 3.75% respectively.
- Monetary policy is keeping financing conditions restrictive but at the same time, domestic price pressures are still high, services inflation is elevated and headline inflation is likely to remain above the target well into next year.
- While some measures of underlying inflation ticked up in May owing to one-off factors, most measures were either stable or edged down in June.
- The incoming information indicates that the euro area economy grew in the second quarter, but likely at a slower pace than in the first quarter.
- Services continue to lead the recovery, while industrial production and goods exports have been weak – investment indicators point to muted growth in 2024, amid heightened uncertainty.
- The Eurosystem no longer reinvests all of the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP), reducing the PEPP portfolio by €7.5 billion per month on average and the Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024.
- The Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim and is not pre-committing to a particular rate path.
- Next meeting is on 12 September 2024.
Next 24 Hours Bias
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Stronger demand for the dollar lifted USD/CHF overnight as it climbed above 0.8850. This currency pair was edging higher towards 0.8870 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.8800
Resistance: 0.8920
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points for the second consecutive meeting, going from 1.50% to 1.25% in June.
- The underlying inflationary pressure has decreased again compared to the previous quarter but inflation had risen slightly since the last monetary policy assessment, and stood at 1.4% in May.
- The inflation forecast puts average annual inflation at 1.3% for 2024, 1.1% for 2025 and 1.0% for 2026, based on the assumption that the SNB policy rate is 1.25% over the entire forecast horizon.
- Swiss GDP growth was moderate in the first quarter of 2024 with the services sector continuing to expand, while manufacturing stagnated.
- Growth is likely to remain moderate in Switzerland in the coming quarters as the SNB anticipates GDP growth of around 1% this year while currently expecting growth of around 1.5% for 2025.
- Next meeting is on 26 September 2024.
Next 24 Hours Bias
Medium Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Stronger demand for the greenback pushed Cable as low as 1.2807 yesterday before retracing above 1.2850 by the end of the U.S. session. However, this currency pair reversed course and was retreating away from this level as Asian markets came online – these are the support and resistance levels for today.
Support: 1.2776
Resistance: 1.2885
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 7-to-2 to maintain its Official Bank Rate at 5.25% for the seventh consecutive meeting.
- Two members preferred to reduce the Bank Rate by 25 basis points to 5%, an increase of one from the previous meeting.
- Twelve-month CPI inflation fell to 2.0% in May from 3.2% in March, close to the May Monetary Policy Report projection. CPI inflation is expected to rise slightly in the second half of this year, as declines in energy prices last year fall out of the annual comparison.
- Reflecting a margin of slack in the economy, CPI inflation had been projected to be 1.9% in two years’ time and 1.6% in three years.
- UK GDP appears to have grown more strongly than expected during the first half of this year. Business surveys, however, remain consistent with a slower pace of underlying growth, of around 0.25% per quarter.
- UK real GDP had increased by 0.6% in 2024 Q1, 0.2% stronger than had been expected in the May Monetary Policy Report and Bank staff now expect GDP growth of 0.5% in 2024 Q2 as a whole, stronger than the 0.2% rate that had been incorporated in the May Report.
- The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation.
- Next meeting is on 1 August 2024.
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Robust demand for the dollar lifted USD/CAD above 1.3850 overnight. Strong tailwinds remain in place for this currency pair as it continued climbing towards 1.3870 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 1.3780
Resistance: 1.3880
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 25 basis points to 4.50% while continuing its policy of balance sheet normalization.
- Canada’s economic growth likely picked up to about 1.5% through the first half of this year and is forecasted to increase in the second half of 2024 and through 2025.
- Overall, the Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.4% in 2026, reflecting stronger exports and a recovery in household spending and business investment as borrowing costs ease.
- CPI inflation moderated to 2.7% in June after increasing in May as broad inflationary pressures eased.
- The Bank’s preferred measures of core inflation have been below 3% for several months and the breadth of price increases across components of the CPI is now near its historical norm but shelter price inflation remains high, driven by rent and mortgage interest costs, and is still the biggest contributor to total inflation.
- These preferred measures of core inflation are expected to slow to about 2.5% in the second half of 2024 and ease gradually through 2025 and CPI inflation is expected to come down below core inflation in the second half of this year, largely because of base year effects on gasoline prices.
- There are signs of slack in the labour market with the unemployment rate rising to 6.4%, as employment continues to grow more slowly than the labour force and job seekers taking longer to find work. Wage growth is showing some signs of moderation, but remains elevated.
- The Governing Council’s future monetary policy decisions will be guided by incoming information and assessment of their implications for the inflation outlook.
- Recent data has increased the council’s confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain.
- Next meeting is on 4 September 2024.
Next 24 Hours Bias
Medium Bullish
Oil
Key news events today
API Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
Crude oil prices tumbled nearly 2.1% after Israeli officials stated that they wanted to avoid a broader Middle East conflict – WTI oil fell under the $77-mark and was drifting lower towards $76.50 per barrel as Asian markets came online. Overhead pressures for this commodity continue to build further and even the higher-than-anticipated drawdown in U.S. oil inventories over the past four weeks have failed to put a floor under oil prices thus far.
Next 24 Hours Bias
Medium Bearish
