IC Markets Europe Fundamental Forecast | 1 June 2023
What happened in the Asia session?
The Japanese Yen might see continued strength due to a higher-than-expected Capital Spending at 11.0% (vs forecasted 6.1%, previous 7.7%), indicating optimistic business sentiment. However, a slight drop in Manufacturing PMI to 50.6 (from the predicted and previous 50.8) may temper this impact.
For the Australian Dollar, data shows mixed signs, with a better-than-expected Private Capital Expenditure at 2.4% (vs forecasted 1.1%) but lower than the previous 3.0%, indicating slowing growth in business investment. However, a boost from the Chinese Manufacturing PMI of 50.9, beating the forecasted and previous 49.5, maybe on the cards.
What does it mean for the Europe & US Sessions?
Favourable data from the US front may see the DXY seek new intraday highs above 104.60. Otherwise, a drop to the tested 103.70 regions would be on the cards. A bullish failure to sustain 104.00 before the data releases would reaffirm the preference for a down leg.
The Dollar Index (DXY)
Key news events today
ADP Non-Farm Employment Change
Unemployment Claims
ISM Manufacturing PMI
What can we expect from DXY today?
The US ADP Non-Farm Employment Change is forecasted at 173K (previous: 296K), Unemployment Claims at 236K (previous: 229K), and ISM Manufacturing PMI at 47.0 (prior: 47.1). If the actual data deviates significantly from the forecasts, it can lead to market volatility and impact the value of the USD.
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
Mixed
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The higher-than-expected US JOLTS Job Openings data could strengthen the US dollar as it encourages the Fed’s hawkish stance, which might lead to a decrease in the price of gold.
Next 24 Hours Bias
Weak bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Australian Dollar could face pressure from upcoming data releases. Forecasts suggest a decline in Private Capital Expenditure from 2.2% to 1.1% q/q, indicating a possible economic slowdown. Retail Sales, crucial to domestic demand, are stagnant at 0.0%, potentially hinting at weaker economic activity. Lastly, with the previous figure of Commodity Prices showing a substantial -19.2% decrease year-on-year, the AUD could be negatively impacted unless the upcoming data show improvement, given Australia’s major role as a commodity exporter.
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 bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Today, no major news events will impact the NZD. Therefore, its direction will likely be influenced by upcoming data releases. The Overseas Trade Index (OTI) for the q/q period forecasted data suggests a 1.5% decrease, indicating a decline in New Zealand’s overseas trade compared to the previous quarter. If the data matches this forecast, it could negatively impact the NZD’s value. However, if the OTI q/q data exceeds expectations and shows a higher value, such as the previous reading of 1.8% growth, it may positively affect the NZD.
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 Japanese Capital Spending is expected to drop to 6.1% from 7.7%, which could weaken the JPY due to slower economic growth. The Manufacturing PMI, anticipated to stay at 50.8, may maintain the currency’s status quo. However, a higher or lower figure could strengthen or weaken the JPY. The 10-year Bond Auction previously recorded a yield of 0.43 and a bid-to-cover ratio of 3.6. Higher yield or lower demand could lead to depreciation of the JPY, while the opposite might support it.
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
CPI Flash Estimate y/y
What can we expect from EUR today?
The forecast for the Eurozone’s CPI Flash Estimate y/y is 6.3%, lower than the previous reading of 7.0%. If the actual data matches the prediction, it could lead to a short-term depreciation of the EUR as s lower inflation rate may reduce expectations of interest rate hikes by the ECB.
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 Swiss Franc faces potential depreciation with an expected decrease in Trade Balance from 4.53B to 3.73B and a slight drop in Manufacturing PMI from 45.3 to 44.5. However, Gov Board Member Schlegel’s upcoming speech might influence the currency’s trajectory. His optimistic views on the economy could mitigate the adverse effects of these figures, while alignment with these bearish indicators could intensify the CHF’s decline.
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
Weak bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The upcoming data releases for the GBP include the Nationwide HPI m/m (-0.5%), Final Manufacturing PMI (46.9), M4 Money Supply m/m (-0.2%), Mortgage Approvals (54K), and Net Lending to Individuals m/m (1.6B). Adverse changes in house prices, manufacturing PMI, and a contraction in the money supply may put downward pressure on the GBP. On the other hand, an increase in mortgage approvals and stable lending to individuals could have a positive or neutral impact on the currency.
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 Manufacturing PMI for Canada is forecasted to be 50.2, indicating slight expansion in the manufacturing sector. Depending on whether the actual data aligns with, exceeds, or falls short of this prediction, the CAD could remain stable, appreciate, or depreciate, respectively, as it reflects the health of the manufacturing sector and overall economy.
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
Mixed
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Chinese Manufacturing PMI has shown a decrease, signalling a potential economic slowdown and a possible dip in oil demand due to reduced industrial activity. However, the Non-Manufacturing PMI rose from 55.1 to 56.4, indicating robust growth in the services and construction sectors, which could partially offset the reduced oil demand from manufacturing.
Next 24 Hours Bias
Mixed
