IC Markets Europe Fundamental Forecast | 13 February 2024
What happened in the Asia session?
One-year inflation expectations in New Zealand eased further in the first quarter of 2024, falling from 3.6% in the previous quarter to 3.2% on an annualised basis. Inflation expectations continue to trend lower putting downward pressure on the Kiwi – this currency hit a low of 0.6095 following the release of this data point.
What does it mean for the Europe & US sessions?
Inflation in the US has eased significantly throughout 2023 but the recent data highlights a slowdown in the pace of deceleration. Especially with the prices indices from the ISM Manufacturing and Services PMI surveys reporting price increases over the last couple of months, there is a strong possibility that January’s readings for both headline and core CPI are likely to increase. Should the latest CPI figures indicate a return of inflationary pressures, it is likely to ignite a strong demand for the dollar during the US session.
The Dollar Index (DXY)
Key news events today
CPI (1:30 pm GMT)
What can we expect from DXY today?
Inflation in the US has eased significantly throughout 2023 but the recent data highlights a slowdown in the pace of deceleration. Especially with the prices indices from the ISM Manufacturing and Services PMI surveys reporting price increases over the last couple of months, there is a strong possibility that January’s readings for both headline and core CPI are likely to increase. Should the latest CPI figures indicate a return of inflationary pressures, it is likely to ignite a strong demand for the dollar during the US session.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the third meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- Recent indicators suggest that economic activity has been expanding at a solid pace.
- Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low.
- Inflation has eased over the past year but remains elevated.
- In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2.0%.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.
- Next meeting runs from 19 to 30 March 2024.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
CPI (1:30 pm GMT)
What can we expect from Gold today?
Inflation in the US has eased significantly throughout 2023 but the recent data highlights a slowdown in the pace of deceleration. Especially with the prices indices from the ISM Manufacturing and Services PMI surveys reporting price increases over the last couple of months, there is a strong possibility that January’s readings for both headline and core CPI are likely to increase. Should the latest CPI figures indicate a return of inflationary pressures, it is likely to ignite a strong demand for the dollar and put significant downward pressure on gold during the US session.
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 Aussie briefly touched the near-term resistance level of 0.6542 before retreating away from this level once more overnight. This currency was sliding lower towards 0.6520 at the beginning of the Asia session and is likely to remain under pressure today.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the sixth pause out of the last seven board meetings.
- Inflation continues to ease in the December quarter but remains high at 4.1% YoY.
- The central forecasts are for inflation to return to the target range of 2 to 3% in 2025, and to the midpoint in 2026.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.
- Next meeting is on 19 March 2024.
Next 24 Hours Bias
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
Inflation Expectations (2:00 am GMT)
What can we expect from NZD today?
One-year inflation expectations in New Zealand eased further in the first quarter of 2024, falling from 3.6% in the previous quarter to 3.2% on an annualised basis. Inflation expectations continue to trend lower putting downward pressure on the Kiwi – this currency hit a low of 0.6095 following the release of this data point.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fourth meeting in a row.
- The Committee is confident that the current level of the OCR is restricting demand. However, ongoing excess demand and inflationary pressures are of concern, given the elevated level of core inflation.
- If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further.
- The Committee agreed that interest rates will need to remain at a restrictive level for a sustained period of time, so that consumer price inflation returns to target and to support maximum sustainable employment.
- Next meeting is on 28 February 2024.
Next 24 Hours Bias
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Japanese yen remains weak versus the dollar causing USD/JPY to hit a high of 149.50 last week. This currency pair traded close to this level once more overnight but was pulling back slightly as Asian markets came online. It was hovering around 149.30 but could slide lower initially before resuming the uptrend.
Central Bank Notes:
- The Bank will continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC), aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a sustainable and stable manner.
- The Bank of Japan decided on the following measures:
- YCC: Negative interest rate of -0.1% on policy-rate balances and purchase of Japanese government bonds to keep 10-year JGB yields at around 0% while regarding the upper bound of 1.0% for 10-year JGB yields as a reference in its market operations.
- Inflation expectations are expected to rise moderately toward the end of the projection period, with continued improvement in the output gap and changes in firms’ wage- and price-setting behaviour and in labour-management wage negotiations.
- Japan’s economy is likely to continue recovering moderately for the time being, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies.
- Next meeting is on 19 March 2024.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
ZEW Economic Sentiment (10:00 am GMT)
What can we expect from EUR today?
The ZEW Economic Sentiment has improved quite significantly over the past three months in the Eurozone with both December’s and January’s readings printing above 20. This marked the first time in 11 months that the index had registered a reading above 20. The estimate for February points to the index edging slightly lower from 22.7 to 20.1 but sentiment has been quite optimistic on overall improvement in economic conditions. A stronger-than-expected result from the ZEW could provide strong tailwinds for the Euro during the European trading hours.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a third consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- The incoming information has broadly confirmed its previous assessment of the medium-term inflation outlook.
- Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions.
- Tight financing conditions are dampening demand, and this is helping to push down inflation.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 7 March 2024.
Next 24 Hours Bias
Weak Bearish
The Swiss Franc (CHF)
Key news events today
CPI (7:30 am GMT)
What can we expect from CHF today?
Inflation in Switzerland has remained relatively stable over the past 12 months with CPI averaging around 2% over this period. CPI increased slightly from 1.4% in November to 1.7% in December on an annualised basis and January’s estimate of 1.6% points to a relatively stable figure. Should inflation continue to moderate lower, it could cause the Swiss franc to weaken and provide a strong lift for USD/CHF.
Central Bank Notes:
- The SNB kept the policy rate unchanged at 1.75% for a second consecutive meeting in December.
- The inflation forecast puts average annual inflation at 2.1% for 2023, 1.9% for
2024 and 1.6% for 2025.
- GDP growth is likely to be weak in the coming quarters; subdued demand from abroad and the tighter financing conditions are having a dampening effect.
- Switzerland’s GDP is likely to grow by around 1% this year. For 2024, the SNB currently expects growth of between 0.5% and 1%.
- Next meeting is on 21 March 2024.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
Labour Force Report (7:00 am GMT)
What can we expect from GBP today?
The UK will release its Labour Force Report for the month of January where the unemployment rate is expected to edge lower from 4.2% to 4.0% while the claimant count change is anticipated to rise from 11.7k to 15.2k. In addition, the Average Earnings Index is expected to moderate lower from 6.5% to 5.6% on an annualised basis. The current estimates indicate potentially mixed results for employment in the UK and is likely to inject volatility into the Pound during the Europe session.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6-to-3 to maintain its Official Bank Rate at 5.25% for the fourth consecutive meeting.
- Two members preferred to increase the Bank Rate by 0.25% to 5.50% while one member preferred to reduce Bank Rate by 0.25% to 5.00%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation increasing from 3.9% in November to 4.0% in December 2023 while wage growth has eased across a number of measures and is projected to decline further in coming quarters, although still elevated.
- This downside news has been broad-based, reflecting lower fuel, core goods and services price inflation.
- CPI inflation is projected to be 2.3% in two years’ time and 1.9% in three years.
- Next meeting is on 21 March 2024.
Next 24 Hours Bias
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The Loonie has strengthened versus the dollar since the beginning of February causing USD/CAD to slide lower. This currency pair hit an overnight low of 1.3430 before rebounding quite strongly and could continue to climb higher as the day progresses.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the fourth meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy has stalled since the middle of 2023 with real GDP forecasted to grow 0.8% in 2024 and 2.4% in 2025.
- The slowdown in demand is reducing price pressures in a broader number of CPI components, with CPI inflation expected to remain close to 3% in the first half of 2024 before gradually easing, returning to the target of 2% in 2025.
- The Governing Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation, and wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- Next meeting is on 10 April 2024.
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
API Crude Oil stocks (9:30 pm GMT)
What can we expect from Oil today?
Crude oil prices remained relatively unchanged overnight as concerns surrounding high interest rates and global demand caused the market to take a breather after last week’s jump of 6.3%. Geopolitical tensions in the Middle East continue to weigh on potential supply disruptions in this region – WTI oil hit an overnight high of $76.95 per barrel before retreating away from this level as Asian markets came online.
Next 24 Hours Bias
Weak Bullish
