IC Markets Europe Fundamental Forecast | 28 July 2025
What happened in the Asia session?
Asia-Pacific equities and high-beta currencies advanced as global risk sentiment improved amid easing trade tensions. Indian equity markets, however, declined, reflecting concerns over domestic data softness despite supportive global tailwinds. Oil prices rose on demand optimism, while gold retreated as reduced safe-haven demand dominated market psychology.
AUD and JPY were the most notably affected, with AUD supported by stronger risk appetite and JPY influenced by nuanced BoJ communication and shifting investor sentiment. The Asia session was driven by optimism over international trade developments, anticipation of upcoming domestic economic releases, and continued central bank signaling, with the most pronounced impacts seen across equity indices, commodity markets, and key regional currencies.
What does it mean for the Europe & US sessions?
Many specifics of the US-EU deal remain unclear, potentially creating volatility as more details emerge. The outcome of today’s US-China talks in Stockholm will be crucial for sustaining the current positive sentiment. Despite trade optimism, underlying economic fundamentals are showing signs of deceleration, with U.S. GDP growth projected to slow to 1.5% in 2025. Today’s trading sessions will likely be driven by positive momentum from the US-EU trade deal, but traders should remain vigilant for any developments from the ongoing China discussions and prepare for a data-heavy week ahead, featuring key employment metrics and Federal Reserve policy decisions.
The Dollar Index (DXY)
Key news events today
No major news event
What can we expect from DXY today?
The U.S. Dollar enters the week of July 28 with a consolidative tone. Short-term technicals are neutral to mildly constructive, but a soft macro backdrop and dovish Fed expectations continue to weigh on the broader trend. The next major catalyst will be the Fed’s midweek meeting and any potential changes to U.S. trade policy. The most impacted markets are likely to include EUR/USD, USD/JPY, gold, and U.S.
Treasuries, as investors position ahead of key event risks and month-end flows. The dollar index strengthened to 97.8 on Friday but remained on track for a 0.8% weekly loss, its worst in a month, as traders weighed evolving trade developments and looked ahead to next week’s Federal Reserve policy meeting. Reports indicate that U.S. and EU officials are nearing a trade agreement that would impose a 15% tariff on most EU goods, mirroring a similar deal recently struck with Japan.
Central Bank Notes:
- The Board of Governors of the Federal Reserve System voted unanimously to maintain the Federal Funds Rate in a target range of 4.25 to 4.50% on 18 June 2025.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run; uncertainty around the economic outlook has diminished but remains elevated.
- The Committee is attentive to the risks to both sides of its dual mandate and judges that the unemployment rate remains low, labour market conditions remain solid, but inflation is somewhat elevated.
- Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace.
- GDP growth forecasts were revised downward for 2025 (1.4% vs. 1.7% in the March projection) while PCE inflation projections have been adjusted higher for 2025, with core inflation expected to reach 3.1% (vs. 2.8% in the March projection), partly due to tariff-related pressures.
- 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 its goals.
- Beginning in April, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25B to $5B while maintaining the monthly redemption cap on agency debt and agency mortgage-backed securities at $35B.
- The next meeting is scheduled for 29 to 30 July 2025.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
No major news event
What can we expect from Gold today?
Domestic and global gold prices experienced a volatile trading week, repeatedly testing the $3,400/ounce threshold. Prices are forecast to reach a record high by year-end. Although currently consolidating below recent highs, pressured by reduced safe-haven demand and profit-taking, gold remains supported on a year-to-date basis.
Demand for jewelry and gold bars remains weak in Asia, while investment flows have held up better. In the short term, gold’s direction will depend on macroeconomic data, central bank policies, and shifts in global risk sentiment. Traders and investors should closely monitor volatility in global risk assets, interest rate expectations, and potential changes in trade or geopolitical narratives for clues on gold’s next move.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news event
What can we expect from AUD today?
Markets are awaiting both the monthly and quarterly CPI figures. RBA Governor Michele Bullock and policymakers have adopted a “slow and steady” approach, signaling a reluctance to cut rates until there is clear evidence that inflation is sustainably aligned with the 2–3% target range. This caution is keeping the AUD somewhat supported relative to previous lows. The Australian dollar is modestly softer from recent highs as traders lock in profits and brace for critical inflation data and policy signals from the RBA. The near-term direction will depend on domestic price data, RBA guidance, and global risk trends.
Central Bank Notes:
- The RBA held its cash rate steady at 3.85% at the July meeting on 8 July 2025, following a 25bps reduction in May and line with widespread market expectations after recent data showed inflation tracking within the target band.
- Inflation continues to ease from its peak, with higher interest rates helping to rebalance demand and supply across the Australian economy. Data for the June quarter signalled ongoing progress, though underlying pressures persist in certain sectors.
- Trimmed mean inflation for the June quarter likely remained near 2.9% and headline CPI around 2.4%, both within the RBA’s 2–3% target range. The Board noted further evidence of inflation convergence, but flagged that not all price categories are moving in tandem.
- Financial markets have shown increased volatility in the wake of global tariff and trade policy developments—especially as a result of recent U.S. and EU announcements. This has pushed asset prices higher but contributed to an uncertain outlook for domestic growth and employment.
- Private domestic demand showed a tentative recovery. Real household incomes improved and signs of easing household financial stress emerged, but some business sectors continued to face subdued demand, limiting their ability to pass on cost increases.
- Labour market conditions remained tight overall. Employment continued to expand, with low rates of underutilisation. Business surveys suggest labour availability remains a constraint, though there are signs of a gradual easing compared to earlier in 2025.
- Underlying wage growth softened modestly, though unit labour cost growth remains elevated due to below-trend productivity gains. The Board remains attentive to developments in wage and productivity dynamics as cost pressures continue to evolve.
- Uncertainties persist for both domestic activity and inflation. Consumption growth has risen, but more slowly than anticipated three months ago, with global and domestic factors both contributing to the cautious outlook.
- There remains a risk that household spending picks up more slowly than forecast, which could result in ongoing subdued aggregate demand and a sharper deterioration in employment conditions.
- Given that inflation is expected to remain around the target band, the Board judged that it was appropriate to keep policy settings unchanged in July, maintaining a position that is still mildly restrictive.
- The Board continues to monitor all incoming data and assesses risks carefully, with a focus on global trends, domestic demand indicators, inflation outcomes, and the labour market outlook.
- The RBA remains committed to its mandate of price stability and full employment and stands ready to adjust policy as needed to achieve these objectives.
- The next meeting is on August 11–12 2025.
Next 24 Hours Bias
Medium Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news event
What can we expect from NZD today?
The New Zealand dollar remains rangebound above 0.60 against the U.S. dollar, supported by a global shift toward risk appetite and trade optimism. However, key headwinds include subdued domestic growth and the potential for an RBNZ rate cut in August. Traders should monitor labor market and inflation data for direction. Risks to the NZD remain tilted to the downside if global trade negotiations deteriorate or local economic data underperforms. Conversely, any positive surprises from U.S. trade developments or Federal Reserve signals could provide short-term support for the kiwi.
Central Bank Notes:
- The Monetary Policy Committee (MPC) agreed to hold the Official Cash Rate (OCR) at 3.25% on 9 July, marking the first pause following six consecutive rate cuts.
- The MPC cited heightened uncertainty and near-term inflation risks as reasons to wait until August for further action.
- Although the annual consumer price index inflation increased to 2.5% in the first quarter of 2025, it remained within the MPC’s target range of 1 to 3%, noting that the outlook for medium-term inflation pressures has evolved broadly in line with the May MPS projections.
- While it is expected to be near the upper end of the band in the second and third quarters of this year, easing core inflation and spare capacity in the economy should help return it toward the 2% midpoint over time.
- The MPC noted that, despite global factors, domestic financial conditions are evolving broadly as expected, as mortgage and deposit interest rates have continued to decline, reflecting a lower OCR, strong bank liquidity, and soft credit growth.
- In aggregate, GDP growth over the December and March quarters was stronger than expected, reflecting a pick-up in household consumption and business investment, but higher frequency indicators suggest weaker than expected growth in April and May.
- Large economic policy shifts overseas and concerns about sovereign risk could result in additional financial market volatility and increased bond yields, while prolonged economic uncertainty might induce further precautionary behaviour by households and firms, slowing the domestic economic recovery.
- Subject to medium-term inflation pressures continuing to ease in line with the Committee’s central projections, the Committee expects to lower the OCR further, broadly consistent with the projection outlined in May.
- The next meeting is on 20 August 2025.
Next 24 Hours Bias
Weak Bearish
The Japanese Yen (JPY)
Key news events today
No major news event
What can we expect from JPY today?
The Japanese yen is under modest pressure to start the week, weighed down by softer inflation, lingering political uncertainty, and cautious market positioning ahead of key Bank of Japan (BoJ) and global rate decisions. Expect further volatility in response to new political headlines, BoJ commentary, and global trade or policy news.
Later in the week, markets will be watching for the BoJ’s rate decision and updated inflation forecast. Any dovish signals or remarks concerning trade risks could further weaken the yen. Ongoing questions about government stability may also continue to affect both the yen and Japanese equities. Movements in the U.S. dollar remain a primary driver of JPY crosses, especially amid shifting risk sentiment and evolving expectations around Federal Reserve policy.
Central Bank Notes:
- The Policy Board of the Bank of Japan decided on 17 June, by a unanimous vote, to set the following guidelines for money market operations for the inter-meeting period:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0.5%.
- The Bank will continue its plan to reduce the amount of its monthly outright purchases of JGBs. The scheduled amount of monthly long-term government bond purchases will, in principle, be reduced by about ¥400 billion each quarter from January to March 2026, and by about ¥200 billion each quarter from April to June 2026 onward, aiming for a level of around ¥2 trillion in January to March 2027.
- Japan’s economy, while showing some weak movements in certain areas, is recovering moderately. Overseas economies, though partly exhibiting weakness due to the effects of various countries’ trade policies, are generally growing at a moderate pace. Exports and industrial production, while showing some last-minute demand due to the U.S. tariff increases, are basically moving sideways.
- On the price front, looking at the year-on-year rate of change in consumer prices (excluding fresh food), the rate is currently in the mid-3% range, reflecting continued pass-through of wage increases to sales prices, as well as the effects of past rises in import prices and recent increases in food prices such as rice. Expected inflation rates are rising moderately.
- As for consumer prices (excluding fresh food), the effects of past import price increases and recent rises in food prices such as rice, which have pushed up inflation so far, are expected to wane. During this period, the underlying rate of increase in consumer prices may stagnate somewhat due to the slowdown in growth pace.
- Looking ahead, the Japanese economy is expected to slow its growth pace, as overseas economies decelerate due to the effects of various countries’ trade policies, putting downward pressure on Japanese corporate profits, etc., although accommodative financial conditions will provide some support. Thereafter, as overseas economies return to a moderate growth path, Japan’s growth rate is expected to increase.
- As the growth rate rises, labour shortages intensify, and medium- to long-term expected inflation rates rise, inflation is expected to gradually increase. In the latter half of the projection period in the “Outlook Report,” inflation is expected to move at a level generally consistent with the “price stability target”.
- There are various risk factors, but in particular, the outlook for the development of trade policies in various countries and the resulting uncertainty regarding overseas economic and price trends is extremely high. It is necessary to closely monitor the impact on financial and foreign exchange markets, as well as on Japan’s economy and prices.
- The next meeting is scheduled for 31 July 2025.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
No major news event
What can we expect from EUR today?
The euro enters the week steady but cautious, amid subdued economic growth, inflation near target, and looming policy and trade risks. Upcoming inflation and GDP data, along with any headlines regarding EU-U.S. tariffs, will be key catalysts for EUR and regional asset movements this week. Eurozone traders are closely watching the release of Q2 flash GDP and preliminary July inflation data, scheduled for July 29–30. Quarterly GDP growth is expected to remain subdued (consensus: +0.6% QoQ), with annual growth around 1.5%, as the region continues to face global demand weakness and trade-related headwinds.
Central Bank Notes:
- The Governing Council kept the three key ECB interest rates unchanged at its July 24 meeting, maintaining the main refinancing rate at 2.15%, the marginal lending facility at 2.40%, and the deposit facility at 2.00%, following eight consecutive cuts preceding this decision.
- The decision to hold rates steady was driven by evidence that inflation is stabilizing near the Governing Council’s medium-term target of 2%. Policymakers communicated that further moves on rates would be data-dependent, explicitly refraining from pre-committing to any future path amid persistent global and domestic uncertainties.
- According to the latest Eurosystem staff projections, headline inflation is expected to remain around 2.0% for 2025, with projections indicating 1.6% for 2026 and a rebound to 2.0% in 2027. Downward revisions from previous forecasts primarily reflect lower energy price assumptions and a stronger euro. Inflation excluding energy and food is seen averaging 2.4% in 2025 and 1.9% in 2026–2027, little changed from prior projections.
- Real GDP growth for the Eurozone is forecast at 0.9% in 2025, 1.1% in 2026, and 1.3% in 2027. The projections note that a strong first quarter offsets a weaker outlook for the rest of 2025. While business investment and exports are dampened by ongoing trade policy uncertainties—including recent U.S. tariff measures—rising government investment, particularly in defense and infrastructure, is expected to progressively underpin growth.
- Household spending should be supported by firm real income gains and a still-solid labour market. More favorable financing conditions are expected to help strengthen the economy’s resilience to further global shocks. Wage growth, although still elevated, continues to moderate, with profit margins partially absorbing cost pressures.
- Amid significant geopolitical and economic uncertainty, the Governing Council underscored its commitment to ensuring inflation stabilises sustainably at the 2% target. The ECB reiterated it would pursue a meeting-by-meeting, data-dependent approach to its monetary policy stance.
- Future rate decisions will be guided by the assessment of incoming economic and financial data, the outlook for inflation and underlying inflation dynamics, and the effectiveness of monetary policy transmission. The Council continues to stress that it is not pre-committed to any specific rate trajectory.
- The asset purchase programme (APP) and pandemic emergency purchase programme (PEPP) portfolios are continuing to decline in an orderly and predictable way, as the Eurosystem has ceased reinvesting principal payments from maturing securities.
- The next meeting is on 11 September 2025
Next 24 Hours Bias
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news event
What can we expect from CHF today?
The Swiss franc begins the new week modestly stronger but is encountering some short-term selling pressure against the U.S. dollar and certain emerging market currencies. With global markets remaining cautious amid trade and political uncertainties, the CHF is likely to stay supported by risk aversion. However, traders are closely monitoring key technical levels for the next directional signal.
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points, from 0.25% to 0% on 19 June 2025, marking the sixth consecutive reduction.
- Inflationary pressure has decreased further as compared to the previous quarter, decreasing from 0.3% in February to -0.1% in May, mainly attributable to lower prices in tourism and oil products.
- Compared to March, the new conditional inflation forecast is lower in the short term. In the medium term, there is hardly any change from March, putting the average annual inflation at 0.2% for 2025, 0.5% for 2026 and 0.7% for 2027.
- The global economy continued to grow at a moderate pace in the first quarter of 2025 but the global economic outlook for the coming quarters has deteriorated due to the increase in trade tensions.
- Swiss GDP growth was strong in the first quarter of 2025, but this development was largely because, as in other countries, exports to the U.S. were brought forward.
- Following the strong first quarter, growth is likely to slow again and remain rather subdued over the remainder of the year; the SNB expects GDP growth of 1% to 1.5% for 2025 as a whole, while also anticipating GDP growth of 1% to 1.5% for 2026.
- The SNB will continue to monitor the situation closely and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.
- The next meeting is on 25 September 2025.
Next 24 Hours Bias
Medium Bearish
The Pound (GBP)
Key news events today
No major news event
What can we expect from GBP today?
The pound opened the week under pressure, weighed down by a mix of disappointing economic data, expectations of further rate cuts from the Bank of England, and ongoing fiscal uncertainty. Technical indicators suggest further downside risk unless key support levels hold. The GBP closed last Friday at 1.3427 against the USD after a 0.56% daily drop, breaking below the key 1.3500 support level. This reflects renewed dollar strength and continued weakness in the pound, following disappointing UK retail sales and a strong U.S. labor report.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6 to 3 to maintain the Bank Rate at 4.25% on 19 June 2025, with three members preferring to reduce the Bank Rate by 25 basis points.
- The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes and financed by the issuance of central bank reserves, by £100 billion over the next 12 months to a total of £558 billion, starting in October 2024. On 19 June 2025, the stock of UK government bonds held for monetary policy purposes was £590 billion.
- There has been substantial disinflation over the past two years, as previous external shocks have receded, and as the restrictive stance of monetary policy has curbed second-round effects and stabilised longer-term inflation expectations.
- Twelve-month CPI inflation increased to 3.4% in May from 2.6% in March, in line with expectations in the May Monetary Policy Report. The rise was largely due to a range of regulated prices and previous increases in energy prices.
- Underlying UK GDP growth appears to have remained weak, and the labour market has continued to loosen, leading to clearer signs that a margin of slack has opened up over time.
- Measures of pay growth have continued to moderate and, as in May, the Committee expects a significant slowing over the rest of the year.
- Global uncertainty remains elevated while energy prices have risen owing to an escalation of the conflict in the Middle East, prompting the Committee to remain sensitive to heightened unpredictability in the economic and geopolitical environment.
- There remain two-sided risks to inflation. Given the outlook and continued disinflation, a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate and the Committee will continue to monitor closely the risks of inflation persistence and what the evidence may reveal about the balance between aggregate supply and demand in the economy.
- Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further and the Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting.
- The next meeting is on 7 August 2025.
Next 24 Hours Bias
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
No major news event
What can we expect from CAD today?
The CAD is currently stable and performing well by 2025 standards, tracking risk sentiment and U.S. dollar movements. Key risk events this week include the Bank of Canada (BoC) meeting and any fresh trade or tariff headlines from the U.S.Domestic economic data remains mixed: recent business confidence has weakened, and Q2 growth is likely stagnating or negative. However, strong labor market performance and resilient inflation have kept the BoC on hold.
Global factors such as tariffs, commodity price swings, and central bank policies are expected to drive the CAD this week. Most analysts anticipate little short-term direction change unless major news emerges. The Canadian dollar is trading near a three-week high against the U.S. dollar, benefiting from improved global risk sentiment and expectations that the BoC will maintain its benchmark rate. Recently, the loonie has moved in tandem with global market risk trends and the U.S. dollar index, showing limited reaction to domestic developments.
Central Bank Notes:
- The Bank of Canada maintained its target for the overnight rate at 2.75%, with the Bank Rate at 3% and the deposit rate at 2.70% on 4th June – marking the second consecutive meeting where rates were kept on hold.
- The Governing Council noted that the ongoing increase and decrease of various U.S. tariffs, coupled with highly uncertain outcomes of bilateral trade negotiations and tariff rates remaining well above their levels at the beginning of 2025, placed downside risks on growth and lifted inflation expectations, warranting caution regarding the continuation of monetary easing.
- The higher uncertainty stemmed from the absence of a clear tariff path by the U.S. and persistent threats of new trade actions, which prompted the BoC Governing Council to highlight risks such as the extent to which higher US tariffs reduce demand for Canadian exports.
- Canada’s economic growth in the first quarter came in at 2.2%, slightly stronger than the original forecast, while the composition of GDP growth was largely as expected. Consumption slowed from its very strong fourth-quarter pace, but continued to grow despite a large drop in consumer confidence.
- Housing activity was down, driven by a sharp contraction in resales, while government spending also declined. The economy is expected to be considerably weaker in the second quarter, with the strength in exports and inventories reversing and final domestic demand remaining subdued.
- The labour market has weakened, particularly in trade-intensive sectors, and unemployment has risen to 6.9% while CPI inflation eased to 1.7% in April, as the elimination of the federal consumer carbon tax reduced inflation by 0.6%.
- The Bank’s preferred measures of core inflation, as well as other measures of underlying inflation, moved up, while recent surveys indicate that households continue to expect that tariffs will raise prices and many businesses say they intend to pass on the costs of higher tariffs.
- The Governing Council will continue to assess the timing and strength of both the downward pressures on inflation from a weaker economy and the upward pressures on inflation from higher costs while proceeding carefully, with particular attention to the risks and uncertainties facing the Canadian economy.
- The Governing Council will focus on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval by supporting economic growth while ensuring that inflation remains well-controlled.
- The next meeting is on 30 July 2025.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
No major news event
What can we expect from Oil today?
Oil prices entered Monday’s Asia session on a soft note, weighed down by uncertainty over potential OPEC+ supply increases, mixed global demand signals, and ongoing trade policy developments. Markets will be watching the upcoming OPEC+ meeting and key U.S. economic data for fresh direction as the week begins. Sentiment remains cautious. Recent softness in U.S. and Chinese economic indicators, particularly in demand and investment, has put downward pressure on prices. However, there remains optimism about the potential positive impact of recent and upcoming U.S. trade deals, which could ultimately support global growth and oil demand.
Next 24 Hours Bias
Weak Bullish
