IC Markets Europe Fundamental Forecast | 31 May 2023
What happened in the Asia session?
The Japanese Yen could face pressure due to a contraction in Industrial Production (-0.4%) and slower growth in retail sales (5.0% y/y). A fall in Housing Starts (-11.9% y/y) adds to the bearish outlook despite a slight uptick in Consumer Confidence (36.0).
The Australian Dollar has the potential for strength, given a higher-than-expected Consumer Price Index (6.8% y/y), indicating rising inflation. Construction Work Done also saw robust growth (1.8% q/q), and a significant increase in Private Sector Credit (0.6% m/m) suggests possible economic expansion.
The Chinese Yuan might be under pressure following a disappointing Manufacturing PMI (48.8) and Non-Manufacturing PMI (54.5), signalling a slowdown in both sectors.
Finally, the New Zealand Dollar saw improved ANZ Business Confidence (-31.1), suggesting less pessimistic business sentiment, potentially supporting the NZD.
What does it mean for the Europe & US Sessions?
Above the tested support of around 103.70, the DXY will likely retest recent highs around 104.50. Should the bulls succeed, a reach for the round figure resistance at 105.00 is on the cards. Otherwise, a failure to maintain 103.70 would allow the bears a breather to the psychological support at 103.00
The Dollar Index (DXY)
Key news events today
JOLTS Job Openings
What can we expect from DXY today?
The upcoming release of JOLTS Job Openings data for the USD is expected to show a slight decrease. The forecasted data suggests 9.41 million job openings, compared to the previous figure of 9.59 million. This could negatively impact the USD, as a decrease in job openings may raise concerns about the country’s overall economic health, potentially leading to a reduction in investor confidence and a depreciation in the USD’s value against other currencies.
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
Weak bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The upcoming release of the JOLTS Job Openings data from the US is expected to show a slight decrease. Consequently, investors may turn to gold as a safe-haven asset, increasing its demand and potentially driving its price.
Next 24 Hours Bias
Weak bullish
The Australian Dollar (AUD)
Key news events today
CPI y/y
What can we expect from AUD today?
The forecasted Australian CPI y/y figure stands at 6.4%, slightly higher than the previous figure of 6.3%. A higher-than-expected CPI could positively impact the AUD, potentially leading to increased interest rates.
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
Weak bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The ANZ Business Confidence index for New Zealand stood at -43.8 last month, indicating significant pessimism in the business sector. Upcoming data could influence the NZD further: if business confidence improves, even if it remains negative, the NZD could strengthen. However, a further decline in confidence could exacerbate the NZD’s weakness.
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 forecasted figures for key Japanese economic indicators are as follows: Prelim Industrial Production m/m is predicted at 1.4% (previous: 1.1%), Retail Sales y/y is forecasted at 7.1% (previous: 7.2%), Consumer Confidence is forecasted at 36.1 (prior: 35.4), and Housing Starts y/y is predicted at -0.9% (previous: -3.2%).
Positive surprises in industrial production and retail sales, higher consumer confidence and growth in housing starts can favour the JPY. Conversely, if the data falls short of expectations, it may negatively affect the currency.
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
German Prelim CPI m/m
What can we expect from EUR today?
The upcoming release of the German Prelim CPI m/m data, with a previous figure of 0.4% and a forecasted figure of 0.2%, is expected to impact the EUR significantly. The predicted lower figure suggests a moderation in inflationary pressures, which may dampen expectations of future interest rate hikes by the ECB and result in a weaker EUR.
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 bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The upcoming Retail Sales y/y data, forecasted to improve from -1.9% to -1.4%, may provide a minor boost to the Swiss Franc by indicating stabilising consumption in the Swiss economy. The Credit Suisse Economic Expectations figure, previously at a significant -33.3, could strengthen the CHF if it shows an uplift, suggesting rising economic optimism. Lastly, the CHF’s reaction to SNB Chairman Thomas Jordan’s speech will hinge on his tone: a hawkish stance may boost the currency, while a dovish tone could weaken it.
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?
MPC Member Jonathan Haskel’s upcoming speech could significantly impact the British pound (GBP). If he hints at a potential increase in interest rates, this could boost the GBP, attracting more foreign capital. Conversely, maintaining or cutting rates could decrease its value.
Central Bank Notes:
- The MPC of the BoE voted 7-2 to increase Bank Rate by 0.25 percentage points to 4.5%.
- 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.
- CPI increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- Next meeting on 22 June 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 the Canadian GDP m/m data is expected to show a decline of -0.1%, indicating a contraction compared to the previous month’s growth of 0.1%. This could lead to decreased investor confidence and a potential weakening of the CAD. A lower GDP growth rate suggests reduced economic activity, which may dampen market sentiment and impact foreign investments in Canada.
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?
Some US Republicans oppose the debt-ceiling deal, potentially causing economic uncertainty. Saudi Arabia warns speculators of more pain, indicating possible production cuts, as the OPEC+ meeting approaches. Russia leans towards maintaining current oil output levels, which could disrupt discussions within OPEC+ and impact global oil supply and demand.
Next 24 Hours Bias
Weak bearish
