IC Markets Europe Fundamental Forecast | 30 June 2023
What happened in the Asia session?
While the Tokyo Core CPI y/y increased to 3.2%, signalling higher inflation and potentially bolstering the yen, the industrial production contracted by 1.6%, which may hinder its growth. The unemployment rate remained stable at 2.6%, and a remarkable recovery in housing starts y/y at 3.5%.
The Australian Dollar might face downward pressure due to a decrease in month-on-month private sector credit growth to 0.4% from the previous 0.6%.
What does it mean for the Europe & US sessions?
The upcoming US Core PCE Price Index m/m, Fed’s preferred inflation gauge, could see the support at 102.80 broken to the tested trough at 102.50 or a rejuvenated upward move to 103.00 before 103.30.
The Dollar Index (DXY)
Key news events today
Core PCE Price Index m/m
What can we expect from DXY today?
The upcoming release of the Core PCE Price Index m/m, with a forecasted value of 0.3% compared to the previous data of 0.4%, is expected to impact the USD moderately. This index is a significant measure of inflationary pressures and is closely monitored by the Federal Reserve. Suppose the actual data confirms the forecasted decrease. In that case, it may lead to a decline in market expectations for future interest rate hikes by the Federal Reserve, potentially exerting downward pressure on the USD.
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
Weak bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
A lower-than-expected Core PCE Price Index m/m may reduce market expectations for future interest rate hikes by the Federal Reserve, potentially weakening the USD. This could positively impact gold prices as a weaker USD tends to make gold more attractive to investors.
Next 24 Hours Bias
Weak bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The upcoming release of Australia’s Private Sector Credit m/m data is forecasted to show a growth rate of 0.4%, a slight decrease from the previous figure of 0.6%. This data measures changes in new credit issued by private sector institutions. The forecasted reduction may have a mixed impact on the AUD, potentially leading to decreased investor confidence and currency depreciation.
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 bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The upcoming Reserve RBNZ Statement of Intent provides important insights into the central bank’s objectives and plans. A more hawkish-than-expected outlook could strengthen the New Zealand dollar.
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
Mixed
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The upcoming Tokyo Core CPI y/y data release is expected to show a forecasted increase of 3.4%, surpassing the previous reading of 3.2%. This suggests a potential rise in the Consumer Price Index for Tokyo, indicating increased inflationary pressure. If the actual data exceeds expectations, it can positively impact the Japanese yen.
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
Weak bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The forecasted figures indicate a CPI Flash Estimate of 5.6% and a Core CPI Flash Estimate of 5.5%. These high inflation rates may lead the European Central Bank to implement measures to control inflation, potentially strengthening the EUR. However, high inflation could also erode purchasing power, impacting economic growth and potentially putting downward pressure on the EUR.
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 upcoming data releases for the Swiss franc include the Retail Sales y/y figures, with a previous decline of 3.7% and a forecasted decline of 2.5%. The KOF Economic Barometer also has a prior reading of 90.2 and a predicted decrease of 89.1. If the actual data aligns with the forecast, it could positively impact CHF, indicating a potential improvement in retail sales and an increase in consumer confidence. However, a decrease in the KOF Economic Barometer may lead to some uncertainty in the market and have a neutral to negative impact on the Swiss franc.
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?
The upcoming data for the GBP forecast a £9.8B current account deficit, 0.1% GDP growth, -0.3% Nationwide HPI, and 0.7% business investment. The increased debt and declining housing index may exert downward pressure on the GBP, while stagnant GDP and consistent business investment could provide some stability.
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
Mixed
The Canadian Dollar (CAD)
Key news events today
GDP m/m
What can we expect from CAD today?
The upcoming release of Canada’s GDP month-on-month (m/m) data is expected to show a 0.2% growth, an improvement from the previous month’s 0.0% change. If the actual growth meets or exceeds the forecasted 0.2%, it could strengthen the CAD and attract foreign investors. Conversely, if the development falls short of expectations, it may weaken the CAD.
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
Weak bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Rising expectations of interest rate hikes and weak economic data from China are causing concerns about slow global economic growth. This uncertainty significantly impacts the oil industry, with potential consequences such as decreased oil demand.
Next 24 Hours Bias
Weak bearish
