IC Markets Europe Fundamental Forecast | 12 January 2022

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What happened across the Asia session?

The Bank of Japan raised assessment for all of the country’s regions. This follows Governor Kuroda’s comment that the economy is expected to recover ahead as the impact from the coronavirus eases.

What does it mean for the Europe and US Sessions?

A softer reading on the upcoming US CPI data set, with headline likely to edge higher from 6.8% to 7% and core seen accelerating to 5.4% from 4.9% in November, would see further losses on the greenback, following US Fed Chair Powell’s less hawkish comments with regards to the balance sheet run-off.

The Dollar Index (DXY) Update

Key news events today

CPI m/m, 1330 GMT

Core CPI m/m, 1330 GMT

What can we expect from DXY today?

Fed speak from policymakers Bostic, Mester and George ran along the lines of the hawks, notably with Bostic highlighting a risk of four rate hikes in 2022. The market consensus is three rate hikes by the central bank this year.

Central Bank Notes:

  • Taper pace increased to US30 billion from January; end in March 2022
  • Emphasised clear divide between tapering and rate lift-off
  • Next meeting on 26 January 2022

Next 24 Hours Bias

Weak bullish

Gold (XAU) Update

Key news events today

No major news events.

What can we expect from Gold today?

Following the comments from Fed Chair Powell on a balance sheet runoff possibility only later in the year, the relatively dovish statement helped the precious metal to bounce off $1,800 as investors priced in firmer tightening after the release of the FOMC Minutes from the December meeting

Next 24 Hours Bias

Weak Bullish

The Euro (EUR)

Key news events today

No major news events.

What can we expect from EUR today?

ECB policymakers seem to be standing up from the dovish camp, evident from Bundesbank President Joachim Nagel saying that inflation could remain high for longer than expected., complemented by acknowledgement from ECB chief Lagarde.

Central Bank Notes:

  • PEPP will discontinue from March 2022.
  • Surprise decline in monthly APP purchases which will see it increased to EUR 40 billion from EUR 20 billion from 2Q22 and then subsequently lowered.
  • Reiterated that rates are unlikely to rise next year.
  • Next meeting on 3 February 2022

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?

As Scotland lifts restrictions on large scale events in the face of Omicron, this development highlights the easing concerns over the covid variant and consequently, a drop in safe-haven demand impacting the Swiss franc.

Central Bank Notes:

  • Kept all polices in line with the previous meeting.
  • More concerned with the Real Effective Exchange Rate as opposed to the nominal.
  • Next meeting on 24 March 2022

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 lack of first-tier currency-specific data releases and news flow from the UK is likely to see its gains lag other risk currencies amid the broad weakness in the US dollar.

Central Bank Notes:

  • Surprised with a 15bps rate hike.
  • Inflation expectations sees a peak close to 6% in April 2022
  • Next meeting on 3 February 2022

Next 24 Hours Bias

Weak bullish

The Canadian Dollar (CAD)

Key news events today

No major news events.

What can we expect from CAD today?

The loonie is likely to continue to see strength, with influence from firm oil prices. The country is not releasing any first-tier data for the week. A better-than-expected US Crude Oil Inventories report (expected -2.1m, prev. -2.1m) could see the oil exporter sustain its recent gains.

Central Bank Notes:

  • Expects rates at current levels (0.25%) until the middle of 2022.
  • An earlier hike is possible with solid growth momentum and strong labour markets.
  • Next meeting on 26 January 2022

Next 24 Hours Bias

Weak Bullish

Oil

Key news events today

No major news events.

What can we expect from Oil today?

The latest EIA STEO reported that global oil demand growth forecast for 2022 was raised slightly to 3.6m bpd (prev. 3.55m bpd) and 1.8m bpd for 2023.

OPEC+ Notes:

  • The cartel agreed on a roadmap in July to gradually raise its collective output quota by 400,000 barrels per day every month from August to April 2022.
  • Maintenance of world oil demand growth forecast for 2021 and 2022, with Q1’ 22 raised by 1.11m barrels per day (bpd) to 99.13m bpd.
  • Next meeting on 2 February 2022.

Next 24 Hours Bias

Weak Bullish