IC Markets Europe Fundamental Forecast | 05 July 2022

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What happened across the Asia session?

The RBA hiked rates in Australia by 50bps, taking rates to 1.35%. However, this hike had been signalled to markets, therefore it is likely that it had been priced in, as the AUDUSD fell, following release of the news.  

What does it mean for Europe and US Sessions?

Look for a resurgence in the DXY as the Euro services PMI data provides a signal of economic performance in the Eurozone and the US returns from the bank holiday, increasing overall market liquidity.

The Dollar Index (DXY) Update

Key news events today

No major news events.  

What can we expect from DXY today?

As Euro markets opened, the DXY rebounded strongly from 104.80 moving towards the 105.30 resistance. This move in the DXY is likely to continue with significant upside potential if price is able to close above the 105.30 level. With no major news schedule today, volatility in the DXY would be driven by the performance of the other currency pairs.

Central Bank Notes:

  • Forecasting 75bps hike at next meeting 
  • Next meeting on 26 July 2022
  • Balance Sheet reduction plan to continue at $60b (treasuries) and $35b (MBS) over a three-month timeframe

 

Next 24 Hours Bias

Weak Bullish

 

Gold (XAU)

Key news events today

No major news events. 

What can we expect from Gold today?

Gold traded in consolidation through the 1800 area. As the DXY climbs, gold price is likely to test lower. Look for price to break below 1800 for a confirmation of further downside towards 1785.

Next 24 Hours Bias

Weak Bearish

 

The Euro (EUR)

Key news events today

EUR Services PMI

What can we expect from EUR today?

A series of services PMI is due to be released, with the Eurozone PMI data likely to remain unchanged at 52.8. As the EURUSD trades strongly lower from the 1.0445 level, look for this move to continue. However price will need to break below near term support of 1.0370 for further downside. 

Central Bank Notes:

  • Plans to phase out the APP into Q3 remained intact by reducing purchases from 40bln to 30bln in May and then down to 20bln in June. 
  • Highlighted risks for the economic outlook are tilted to the downside and have recently intensified with geopolitical and virus-related challenges. 
  • Expected to raise rates by 25bps after APP ends in July and 50bps in September
  • Next meeting on 21 July 2022

 

Next 24 Hours Bias

Medium-to-Strong Bearish

The Swiss Franc (CHF)

Key news events today

No major news events.  

What can we expect from CHF today?

Yesterday, the CHF CPI data was released at 0.5% m/m and 3.4% y/y which took the USDCHF towards the lower bound of the current trading range of 0.9560. However this move recovered towards the upside on the back of a stronger DXY. 

With no clear directional bias, the USDCHF is likely to stay within the current range as further CHF strength is likely to be offset by a recovery in the DXY.

Central Bank Notes:

  • Surprise rate hike by 50bps to -0.25%
  • Next meeting on 22 September 2022

Next 24 Hours Bias

Weak Bullish

The Pound (GBP)

Key news events today

Services PMI

Financial Stability Report

BoE Gov Bailey Speaks

What can we expect from GBP today?

The GBPUSD continues to be resisted by the 1.21 level. BoE Gov Bailey will be speaking at the Financial Stability Report press conference. Expect further downside, towards 1.1970 on the GBPUSD, if he signals further concerns about inflation growth in the UK, or continues to present a dovish stance towards further policy tightening. 

Central Bank Notes:

  • Rate hike by 25bps to 1.25%
  • Peak inflation revised to more than 10%, adding to the stagflation fears; possible GDP contraction in 2023. 
  • Quantitative tightening plans to be updated at the August meeting
  • Next meeting on 4 August 2022

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?

Overnight, the Canadian manufacturing PMI was released at 54.6 (17 month low) and business outlook survey signalled that consumers and businesses expected inflation to stay above 3% for the next two years. This brought volatility to the USDCAD, as price rejected the 1.29 level through renewed anticipation that the BoC will increase rates by 75bps at the next meeting.

However, with the DXY recovery, the USDCAD is likely to test 1.29 again with significant upside potential, if price is able to close above the key resistance level. 

Central Bank Notes:

  • Increasing likelihood of 75bps rate hike from BoC 
  • Next meeting on 13 July 2022

Next 24 Hours Bias

Medium Bearish

Oil

Key news events today

No major news events.  

What can we expect from Oil today?

Oil price is unlikely to change significantly, as Brent trades at 116 and WTI just below 112. Following the OPEC+ decision to increase oil production levels, relieving the pressures on increasing energy prices, a clear directional bias is yet to be formed. 

Next 24 Hours Bias

Weak Bearish