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IC Markets Europe Fundamental Forecast | 2 June 2023

IC Markets Europe Fundamental Forecast | 2 June 2023

What happened in the Asia session?

The recent -1.5% decrease in New Zealand’s Overseas Trade Index, meeting the forecast, signals a potential weakening of the NZD due to reduced trade activity. On the other hand, Japan’s Monetary Base decrease of -1.1%, better than the forecasted -1.4% and previous -1.7%, indicates a possible short-term strengthening of the JPY, as it suggests less contraction in the monetary base, potentially stimulating economic activity.

What does it mean for the Europe & US Sessions?

A lower-than-expected US labour data set could propel EUR/USD to the round figure resistance at 1.0800. Otherwise, the pair could retrace to the 1.0730 support before initiating a retest of intra-day highs of around 1.0770.

The Dollar Index (DXY)

Key news events today

Average Hourly Earnings m/m

Non-Farm Employment Change

Unemployment Rate

What can we expect from DXY today?

The forecasted US labour figures are as follows: Average Hourly Earnings m/m – 0.3% (previous: 0.5%), Non-Farm Employment Change – 193K (previous: 253K), and Unemployment Rate – 3.5% (previous: 3.4%). Slower wage growth and a potential decline in job creation may put downward pressure on the USD, while a slightly higher unemployment rate can weigh on the currency. 

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?

The positive US ADP Non-Farm Employment Change data is likely to have an impact on gold prices. Typically, a robust job market in the US strengthens the greenback, decreasing the demand for gold. As a result, the price of gold may face downward pressure.

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?

With no major events affecting the AUD today, traders will likely rely on previous economic indicators for guidance. Although the quarter’s Private Capital Expenditure surpassed expectations at 2.4%, it fell from last quarter’s 3.0%, potentially pressuring the AUD. Meanwhile, the stagnant Retail Sales at 0.0% suggest lacklustre consumer demand. The sharp 22.2% decline in Commodity Prices year on year is most worrisome, a significant factor for a commodity-exporting country like Australia. This data might hint at a downward trend for the AUD today.

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

Weak bearish


The Kiwi Dollar (NZD)

Key news events today

No major news events.

What can we expect from NZD today?

The forecasted decline of 1.5% in the Overseas Trade Index q/q suggests a potential decrease in the value of goods and services traded between New Zealand and other countries, compared to the previous quarter’s growth of 1.8%. This could negatively affect the NZD, indicating a possible slowdown in international trade activities and reduced demand for the currency. 

Central Bank Notes:

  • The Monetary Policy Committee has raised the OCR from 5.25% to 5.50%
  • The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the target range while supporting maximum sustainable employment
  • The Committee voted by a majority of five to two to increase the OCR by 25 basis points to 5.50%
  • Interest rates must remain restrictive to ensure inflation returns to the target range while supporting maximum sustainable employment
  • Next meeting is on 12 July 2023

Next 24 Hours Bias

Weak bearish


The Japanese Yen (JPY)

Key news events today

No major news events.

What can we expect from JPY today?

The upcoming release of Japan’s Monetary Base y/y data is expected to show a decrease of 1.4%, compared to the previous data, which indicated a decline of 1.7%. This could lead to tightening monetary policy and potentially higher interest rates, making the JPY more attractive to foreign investors. However, it may also signal a decrease in economic activity, reducing demand for the currency. 

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?

The upcoming data releases for the Euro include French Industrial Production m/m with a forecasted figure of 0.3% (previous: -1.1%) and Spanish Unemployment Change with a predicted figure of -40.1K (previous: -73.9K). Positive outcomes in these data releases could strengthen the EUR, while disappointing figures may weaken it. 

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

Mixed


The Swiss Franc (CHF)

Key news events today

No major news events.

What can we expect from CHF today?

Today, no major news events are affecting the Swiss Franc. Previously released data should influence the currency’s price direction. The trade balance for CHF was 2.60B (actual), lower than the forecasted value of 3.73B and the previous figure of 4.53B. This indicates a decrease in the trade surplus, potentially putting downward pressure on the Swiss Franc. The manufacturing PMI for CHF was 43.2 (actual), lower than the forecasted value of 44.5 and the previous reading of 45.3. This suggests a further contraction in the manufacturing sector, which could negatively impact the Swiss Franc.

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

Weak bearish


The Pound (GBP)

Key news events today

No major news events.

What can we expect from GBP today?

Today, there is no major news event impacting the GBP. The previously released data suggests mixed trends in the housing market, contraction in manufacturing, and cautious lending, which could influence market sentiment for GBP.

Central Bank Notes:

  • The MPC of the BoE voted 7-2 to increase Bank Rate by 0.25 percentage points to 4.5%.
  • The updated projections show that CPI inflation is expected to decline slightly above 1% at the two and three-year horizons, below the 2% target.
  • CPI increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
  • Next meeting on 22 June 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 upcoming release of the Canadian Manufacturing PMI data is expected to show a contraction, with a forecasted figure of 49.0 compared to the previous reading of 50.2. This could hurt the CAD as it suggests a decline in manufacturing activity.

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 bearish


Oil

Key news events today

No major news events.

What can we expect from Oil today?

The approval of the Debt Ceiling Bill by the US House of Representatives, along with an expected lack of deeper supply cuts at the June 4 OPEC+ meeting, an unexpected rise in U.S. crude oil stocks, and mixed demand indications from China, could continue to impose downward pressure on oil prices.

Next 24 Hours Bias

Weak bearish


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