IC Markets Europe Fundamental Forecast | 13 May 2022

IC Markets No Comments

 

What happened across the Asia session?

BoJ Governor Kuroda stated that Japan has yet to reach its inflation target at 2%, hence justifying the continuation of its ultra-accommodative monetary policy. Even if the inflation rate reaches the target in the short term, it is not likely to be sustainable as the price increase would be largely energy-driven. 

What does it mean for Europe and US Sessions?

With a lack of first-tier data releases going into the weekend, the US consumer sentiment report is likely to take centre stage. After that, directional influences are expected to come from overarching drivers, i.e. Russia-Ukraine war, central bank divergences, etc. 

The Dollar Index (DXY) Update

Key news events today

No major news events.

What can we expect from DXY today?

A lower-than-expected US Prelim UoM Consumer Sentiment (expected 64.1, previous 65.2) may serve as a prelude to a decline in Retail Sales. 70% of US economic activity is dependent on consumer spending.

Central Bank Notes:

  • Confirmed that the committee expects further 50bps hikes to be appropriate; 75bps hikes off the table
  • Balance sheet reduction push up to $60b (treasuries) and $35b (MBS) over a three-month timeframe
  • Next meeting on 15 June 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?

The anticipated rate hikes by global central banks in 2022 are likely to keep the lid on the non-interest-bearing precious metal. 

Next 24 Hours Bias

Weak Bearish

The Euro (EUR)

Key news events today

No major news events.

What can we expect from EUR today?

The latest ECB-speak call for a rate hike in either June or July this year but reaffirms the ‘gradual’ approach touted by the central bank President Lagarde.

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. 
  • Next meeting on 9 June 2022

 

Next 24 Hours Bias

Mixed-to-Weak Bullish

The Swiss Franc (CHF)

Key news events today

No major news events.

What can we expect from CHF today?

The much higher-than-expected Swiss month-on-month PPI at 1.3% (expected 0.9%, previous 0.8%) may prompt the Swiss National Bank towards a ‘less dovish’ lean.

Central Bank Notes:

  • Kept all policies unchanged as expected, 
  • More concerned with the Real Effective Exchange Rate than the nominal. 
  • Remains very dovish and in no way expected to change anytime soon. 
  • Next meeting on 16 June 2022

Next 24 Hours Bias

Mixed-to-Weak Bullish

The Pound (GBP)

Key news events today

No major news events.

What can we expect from GBP today?

ECB’s Ramsden anticipates more interest rate hikes due to increasing inflation risks and the prospect of a downturn in the economy remains slim. The North Ireland protocol is likely to drag on a pound recovery.

Central Bank Notes:

  • A third of the six members who voted for a hike viewed that the latest increase marked the end of the current hiking cycle
  • Peak inflation revised to more than 10%, which added to the stagflation fears; possible GDP contraction in 2023. 
  • Quantitative tightening plans to be updated at the August meeting
  • Next meeting on 16 June 2022

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 Bank of Canada played down expectations of hikes in excess of 50 bps per turn despite Deputy Governor Gravelle stating that the near-term inflation forecast is likely to be increased.

Central Bank Notes:

  • Announced a start to passive quantitative tightening from the end of April by ending its reinvestment of maturing bonds. 
  • Increased their neutral rate estimate to 2.5% from 2.25%. 
  • Next meeting on 1 June 2022

Next 24 Hours Bias

Mixed-to-Weak Bearish

Oil

Key news events today

No major news events.

What can we expect from Oil today?

OPEC stated that the world oil demand growth forecast is revised down by 300k bpd in its latest monthly oil market report, while the IEA projected a smaller decline at 70k bpd.

Next 24 Hours Bias

Mixed-to-Weak Bearish