IC Markets Europe Fundamental Forecast | 31 July 2024
What happened in the Asia session?
The Bank of Japan (BoJ) hiked its key policy rate by 15 basis points, raising it from 0.1% to 0.25% this morning while indicating that it will reduce its bond purchases in half in the coming two years as part of its bond tapering plan. Monthly purchases of the Japanese Government Bonds (JGB) will be reduced to ¥3T by the first quarter of 2026, compared to the current pace of ¥6T. The BoJ also projected that consumer inflation would be 2.1% for fiscal 2025 and 1.9% for fiscal 2026, an indication of consumer prices achieving its target of 2% on a sustained basis.
The yen experienced wild swings in the immediate aftermath of this news release with USD/JPY initially diving as low as 151.60 before reversing sharply to surge towards 154 before retreating away from this level to tumble under 153 – this currency pair was trading around 152.50 by midday Asia.
What does it mean for the Europe & US sessions?
Inflation in the Euro Area has eased significantly over the past ten months with headline and core CPI slowing to 2.5% and 2.9% respectively YoY in June. However, the latest readings remain above the ECB’s target of 2%. Meanwhile, the flash estimates for July point to another month of marginal moderation – should inflation ease more than originally anticipated; the Euro could come under intense selling pressures as European markets get under way.
The Dollar Index (DXY)
Key news events today
ADP Employment Report (12:15 pm GMT)
FOMC Statement (6:00 pm GMT)
FOMC Press Conference (6:30 pm GMT)
What can we expect from DXY today?
June’s ADP report showed job creation in the U.S slowed down for the third month in a row, with 150K jobs being added to the labour market which was also lower than the 12-month average of 162K. July’s estimate points to another month of ‘softer’ job gains with 147K jobs. Should the ADP report miss the market estimates, it could trigger a sharp sell-off in the dollar.
After which, markets will be awaiting the highly anticipated outcome of July’s FOMC meeting. Although the Federal Reserve is expected to maintain its Fed Funds rates on hold at 5.25% to 5.50% once more, Chairman Jerome Powell could very well prepare market participants by giving a clear hint for the first rate cut at September’s meeting. Should Powell communicate a dovish outlook on future monetary policy action, we can expect the dollar to come under intense selling pressures later today.
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 Bearish
Gold (XAU)
Key news events today
ADP Employment Report (12:15 pm GMT)
FOMC Statement (6:00 pm GMT)
FOMC Press Conference (6:30 pm GMT)
What can we expect from Gold today?
June’s ADP report showed job creation in the U.S slowed down for the third month in a row, with 150K jobs being added to the labour market which was also lower than the 12-month average of 162K. July’s estimate points to another month of ‘softer’ job gains with 147K jobs. Should the ADP report miss the market estimates, it could trigger a sharp sell-off in the dollar.
After which, markets will be awaiting the highly anticipated outcome of July’s FOMC meeting. Although the Federal Reserve is expected to maintain its Fed Funds rates on hold at 5.25% to 5.50% once more, Chairman Jerome Powell could very well prepare market participants by giving a clear hint for the first rate cut at September’s meeting. Should Powell communicate a dovish outlook on future monetary policy action, we can expect the dollar to come under intense selling pressures later today. Whatever the outcome, it is bound to be an extremely volatile period for gold.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
CPI (1:30 am GMT)
What can we expect from AUD today?
Although inflation in Australia has eased lower over the past five quarters, it still remains above the RBA’s target of 2 to 3%. Headline inflation eased to 3.6% YoY in the first quarter of this year but on a monthly basis, prices have increased over the past three months – rising from 3.4% in February to 4.0% YoY in May. Should inflationary pressures remain persistently sticky, it could provide a boost for the Aussie this morning.
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?
The Kiwi edged higher towards 0.5900 yesterday before finally climbing above this level overnight. This currency pair was trading around 0.5910 at the beginning of the Asia session and could continue its upward ascend as the day progresses – these are the support and resistance levels for today.
Support: 0.5850
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
Medium Bullish
The Japanese Yen (JPY)
Key news events today
BoJ Monetary Policy Statement (Tentative)
BoJ Press Conference (Tentative)
What can we expect from JPY today?
The Bank of Japan (BoJ) hiked its key policy rate by 15 basis points, raising it from 0.1% to 0.25% this morning while indicating that it will reduce its bond purchases in half in the coming two years as part of its bond tapering plan. Monthly purchases of the Japanese Government Bonds (JGB) will be reduced to ¥3T by the first quarter of 2026, compared to the current pace of ¥6T. The BoJ also projected that consumer inflation would be 2.1% for fiscal 2025 and 1.9% for fiscal 2026, an indication of consumer prices achieving its target of 2% on a sustained basis.
The yen experienced wild swings in the immediate aftermath of this news release with USD/JPY initially diving as low as 151.60 before reversing sharply to surge towards 154 before retreating away from this level to tumble under 153 – this currency pair was trading around 152.50 by midday Asia.
Central Bank Notes:
- The Policy Board of the Bank of Japan decided, by a 7-2 majority vote, to set the following guideline for money market operations for the intermeeting period and decided on the following measures:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0.25% while reducing its purchase amount of Japanese government bonds (JGB) by a unanimous vote.
- The Bank decided, by a unanimous vote, on a plan to reduce the amount of its monthly outright purchases of JGBs so that it will be about 3 trillion yen in January-March 2026; the amount will be cut down by about 400 billion yen each calendar quarter in principle.
- The year-on-year rate of increase in the CPI (all items less fresh food) is likely to be at around 2.5% for fiscal 2024 and then be at around 2% for fiscal 2025 and 2026.
- Meanwhile, 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, it is likely to be at a level that is generally consistent with the price stability target of 2%.
- Japan’s economy 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 20 September 2024.
Next 24 Hours Bias
Medium Bearish
The Euro (EUR)
Key news events today
CPI (9:00 am GMT)
What can we expect from EUR today?
Inflation in the Euro Area has eased significantly over the past ten months with headline and core CPI slowing to 2.5% and 2.9% respectively YoY in June. However, the latest readings remain above the ECB’s target of 2%. Meanwhile, the flash estimates for July point to another month of marginal moderation – should inflation ease more than originally anticipated; the Euro could come under intense selling pressures as European markets get under way.
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
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Demand for the dollar waned overnight as USD/CHF retreated from 0.8870 to tumble quite strongly. This currency pair was sliding lower towards 0.8800 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.8780
Resistance: 0.8875
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 Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Demand for the dollar waned overnight as Cable reversed from an overnight high of 1.2865 to dip under 1.2850 by the end of the U.S. session. This currency pair was trading around 1.2845 as Asian markets came online and could edge higher as the day progresses – these are the support and resistance levels for today.
Support: 1.2775
Resistance: 1.2890
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 Bullish
The Canadian Dollar (CAD)
Key news events today
GDP (12:30 pm GMT)
What can we expect from CAD today?
Monthly economic output in Canada has averaged around 0.22% in 2024, much higher than the second half of last year. However, May’s estimate of a 0.1% growth points to a relatively low reading based on the recent data. Should the monthly GDP result surprise to the upside, it could bolster the Loonie later today which would in turn rein in the recent rise in USD/CAD.
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
Weak Bearish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
The API stockpile experienced a higher-than-anticipated drawdown for the fifth straight week but that was not enough to put a floor under oil prices. WTI oil has already shed 2.4% over the last couple of days as it dropped under $76 per barrel. Weak demand from China continues to worry traders while OPEC+ appears to stick to its plans to increase production levels – both events dampening oil prices. The EIA inventories will be released later today but even another large drawdown is unlikely to stabilize this commodity.
Next 24 Hours Bias
Medium Bearish
