IC Markets Europe Fundamental Forecast | 18 May 2022

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What happened across the Asia session?

The Australian quarter-on-quarter Wage Price Index came in at 0.7% (expected 0.8%, previous 0.7%). It is a leading indicator of consumer inflation as businesses pass on the higher cost of labour to the consumer.

What does it mean for Europe and US Sessions?

The CPI data from the UK (expected 9.1%, previous 7.0%) and Canada (expected 0.5%, previous 1.4%). would set expectations for the pace of rate increases amid toppish inflation levels in the US.

The Dollar Index (DXY) Update

Key news events today

No major news events. 

What can we expect from DXY today?

Fed chair Powell stated that there is broad support for the FOMC to have 50bps hikes on the table at the next two meetings. The central bank will not hesitate to raise rates until inflation comes down.

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

Strong Bullish

Gold (XAU) Update

Key news events today

No major news events. 

What can we expect from Gold today?

The assertion by the US central bank chief on the interest rate hike path to quell inflation is likely to weigh 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?

ECB’s Knot stated that a 25bps hike in rates is realistic while a 50bps bump is also likely but dependent on incoming data that would suggest that inflation is widespread. 

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?

With the slow but gradual turn expected from the ECB, the SNB is likely to follow suit since the latter tends to lag the former in terms of monetary policy directives.

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

CPI y/y, 0600 GMT

What can we expect from GBP today?

BoE’s Cunliffe hinted at a drop in risky assets as quantitative tightening progresses. A lower-than-expected UK CPI (expected 9.1%, previous 7.0%) would tame hawkish expectations somewhat.

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

CPI m/m, 1230 GMT

What can we expect from CAD today?

The country could add up to 500k in oil exports in 2022 and another 400k bpd in 2023.

The US crude oil inventories report is expected to see a build of 2.1m (previous 8.5m) while the month-on-month Canadian CPI is expected at 0.5% (previous 1.4%). 

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?

The improving Covid-19 situation in China on the demand front is likely to be balanced by a proposed global cap on Russian oil prices on the supply front. 

Next 24 Hours Bias

Mixed