IC Markets Europe Fundamental Forecast | 11 May 2023
What happened in the Asia session?
The Japanese Bank Lending year-on-year (y/y) data was released at 3.2%, higher than the forecasted and previous values of 3.0%. The Current Account data showed a value of 1.01T JPY, which was lower than the predicted value of 1.31T JPY and the previous value of 1.23T JPY. The 30-year Bond Auction had a bid-to-cover ratio of 1.25, higher than the last value of 1.35, indicating that the auction was well-received by investors. The Economy Watchers Sentiment data was released, showing a value of 54.6, higher than the forecasted and previous values of 53.3 and 54.1, respectively. These data releases may have a mixed impact on the JPY.
What does it mean for the Europe & US Sessions?
A higher than 25bps hike from the BoE could see the GBP/USD pair rally to recent highs approaching 1.2700. Should the US PPI data set show easing inflation on the supply side, the pair could easily sustain a rally above the stated round figure.
The Dollar Index (DXY)
Key news events today
Core PPI m/m
PPI m/m
Unemployment Claims
What can we expect from DXY today?
The upcoming data releases from the US include Core PPI m/m with a forecast of 0.2% and previous data of -0.1%, PPI m/m with a forecast of 0.3% and prior data of -0.5%, and Unemployment Claims with a forecast of 245K and earlier data of 242K. If the actual data meets or exceeds the forecasts for Core PPI m/m and PPI m/m, it could put upward pressure on the USD due to potential inflationary pressures. Conversely, if the actual data for Unemployment Claims exceed the forecast, it could weaken the USD as investors become more cautious about the economic outlook.
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?
A slowing inflation rate in the US could lead to a decrease in demand and a subsequent reduction 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 previous reading for the MI Inflation Expectations was 4.6%. Suppose the upcoming data release shows an increase in inflation expectations compared to the last reading. In that case, it may strengthen the Australian Dollar, as it would signal that the economy will likely experience higher inflation.
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
Mixed
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The previous data for New Zealand’s Food Price Index (FPI) shows a 0.8% month-on-month increase. If the upcoming data release confirms the previous trend, we can expect a positive impact on the NZD, indicating a healthy and stable economic outlook.
Central Bank Notes:
- OCR increased by 50bps from 4.75% to 5.25%
- Recent severe weather events in the North Island have led to higher prices, increasing the risk of inflation expectations exceeding the target range.
- New Zealand’s economic growth is expected to slow through 2023 due to the slowing global economy, reduced residential building activity, and the ongoing effects of monetary policy tightening.
- Next meeting is on 25 May 2023
Next 24 Hours Bias
Weak bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Based on the central bank’s report, the BoJ Summary of Opinions may affect the Japanese yen’s value. Traders would be looking for signs of less dovishness as the BoJ has remained very accommodating about the monetary policies.
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
No major news events.
What can we expect from EUR today?
No major news event is affecting the EUR today, so its price direction is likely to draw from upcoming economic data releases. The French Final CPI m/m is expected to remain at 0.6%. Traders and investors will monitor the release of the French Final CPI m/m closely, as it provides insights into the inflation rate, which is a critical factor in determining the monetary policy decisions of 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 Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Traders will be closely watching SNB Chairman Thomas Jordan’s statements for any indications of any forthcoming changes in monetary policy or concerns about the Swiss economy.
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?
The Official Bank Rate is expected to rise to 4.50% from 4.25%. The previous MPC Official Bank Rate Votes showed a 7-0-2 split, forecasted to remain the same. If the MPC maintains its current voting split and the Official Bank Rate increases as expected, the GBP could strengthen against other currencies due to the higher interest rate environment. On the other hand, if there are any surprises in the data releases, such as a change in the voting split or a deviation from the forecasted Official Bank Rate, the market reaction could be more volatile.
Central Bank Notes:
- The BoE’s MPC increased the Bank Rate by 25bps to 4.25%, with a majority of 7-2 in favour of the hike
- The UK banking system is judged to be robust and resilient.
- CPI inflation increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
- The MPC will continue to monitor inflationary pressures and adjust Bank Rate as necessary.
- Next meeting on 11 May 2023
Next 24 Hours Bias
Mixed
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The CAD is not expected to be influenced by significant news events today. Instead, the CAD’s price direction will likely draw from the previously released data, particularly the Building Permits m/m figures. The latest statistics show a growth of 11.3%, significantly higher than the forecasted decline of 2.3% and the previous increase of 5.5%. This positive trend in the Canadian economy, specifically in the construction sector, may attract more investors and potentially strengthen the CAD in the short term.
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 Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
The recent release of crude oil from the Strategic Petroleum Reserve in the US has led to a build-up of crude oil stocks, with exports dropping. However, there has been a drawdown in US fuel stocks, which has limited the decline in oil prices.
Next 24 Hours Bias
Mixed
