IC Markets Europe Fundamental Forecast | 20 March 2024
What happened in the Asia session?
It was a relatively subdued session as the dollar index (DXY) remained under 104 while gold prices were capped under $2,160/oz. Prices for crude oil were elevated with WTI oil trading above $83 per barrel – trading volume is bound to increase together with higher volatility as markets await the highly anticipated FOMC statement as well as the press conference by Federal Reserve Chairman Jerome Powell.
What does it mean for the Europe & US sessions?
The Federal Reserve is widely expected to hold the Fed Funds rate steady at 5.25% to 5.50% for the fifth consecutive meeting but all eyes will be focused on the tone of the statement as well as the press conference by Chairman Jerome Powell. Traders will also be paying close attention to the Fed’s projections i.e. the dot-plot which is their primary tool for monetary policy forecast. Despite the recent robust NFP growth and hotter-than-anticipated inflation data, the dot-plot could still point to a total of 75 basis points rate cuts for this year. Chairman Powell’s communication will be key and should he switch to a hawkish stance during the press conference, this will no doubt trigger a return of the dollar bulls in full force.
The Dollar Index (DXY)
Key news events today
FOMC Statement (6:00 pm GMT)
FOMC Press Conference (6:30 pm GMT)
What can we expect from DXY today?
The Federal Reserve is widely expected to hold the Fed Funds rate steady at 5.25% to 5.50% for the fifth consecutive meeting but all eyes will be focused on the tone of the statement as well as the press conference by Chairman Jerome Powell. Traders will also be paying close attention to the Fed’s projections i.e. the dot-plot which is their primary tool for monetary policy forecast. Despite the recent robust NFP growth and hotter-than-anticipated inflation data, the dot-plot could still point to a total of 75 basis points rate cuts for this year. Chairman Powell’s communication will be key and should he switch to a hawkish stance during the press conference, this will no doubt trigger a return of the dollar bulls in full force.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the fourth 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 20 March 2024.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
FOMC Statement (6:00 pm GMT)
FOMC Press Conference (6:30 pm GMT)
What can we expect from Gold today?
The Federal Reserve is widely expected to hold the Fed Funds rate steady at 5.25% to 5.50% for the fifth consecutive meeting but all eyes will be focused on the tone of the statement as well as the press conference by Chairman Jerome Powell. Traders will also be paying close attention to the Fed’s projections i.e. the dot-plot which is their primary tool for monetary policy forecast. Despite the recent robust NFP growth and hotter-than-anticipated inflation data, the dot-plot could still point to a total of 75 basis points rate cuts for this year. Chairman Powell’s communication will be key and should he switch to a hawkish stance during the press conference, this will no doubt trigger a return of the dollar bulls in full force and potentially cause gold prices to dive.
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?
Following yesterday’s monetary policy announcement and press conference by the Reserve Bank of Australia (RBA), the Aussie dived nearly 0.8% shedding almost 50 pips yesterday. However, this currency pair found strong support around the region of 0.6500 to retrace higher overnight – it is currently trading around 0.6540 and could edge higher during the Asian and European trading hours.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the seventh pause out of the last eight board meetings.
- The headline monthly CPI indicator was steady at 3.4% over the year to January, with momentum easing over recent months, driven by moderating goods inflation. Services inflation remains elevated, and is moderating at a more gradual pace.
- The central forecasts are for inflation to return to the target range of 2–3% in 2025, and to the midpoint in 2026.
- While recent data indicate that inflation is easing, it remains high. The Board expects that it will be some time yet before inflation is sustainably in the target range.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.
- Next meeting is on 7 May 2024.
Next 24 Hours Bias
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
GDP (9:45 pm GMT)
What can we expect from NZD today?
Along with its Pacific neighbour, the Kiwi was one of the worst-performing currency pairs yesterday as it dived to as low as 0.6035, losing almost 60 pips in the process. Overhead pressures remain for the Kiwi but it could retrace higher in the initial part of the day before resuming the downturn. Meanwhile, New Zealand will release its fourth-quarter GDP data in the early hours of tomorrow’s Asia session. Economic growth has been tepid throughout 2023 and the latest reading is likely to show no different.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fifth meeting in a row.
- The Committee remains confident that the current level of the OCR is restricting demand. However, a sustained decline in capacity pressures in the New Zealand economy is required to ensure that headline inflation returns to the 1 to 3% target.
- Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced.
- However, headline inflation remains above the 1 to 3% target band, limiting the Committee’s ability to tolerate upside inflation surprises.
- The outlook for the China economy, New Zealand’s top trading partner, remains particularly weak relative to recent historical norms, with structural factors constraining long-term growth.
- Next meeting is on 22 May 2024.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Despite the Bank of Japan (BoJ) raising its key policy rate by 20 basis points from -0.1% to 0.1%, the Japanese yen failed to strengthen but instead the rate hike triggered a huge wave of selling. This was primarily due to interest rate difference between the US and Japan as well as BoJ Governor Kazuo Ueda stating that it is important to keep conditions accommodative to support the economy during his press conference, causing USD/JPY to soar towards 151 by the end of the US session. This currency pair rose strongly to climb as high as 151.35 as Asian markets came online and is expected to remain elevated today.
Central Bank Notes:
- The Bank considers that the policy framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control and the negative interest rate policy to date have fulfilled their roles. With the price stability target of 2%, it will conduct monetary policy as appropriate, guiding the short-term interest rate as a primary policy tool.
- The Bank of Japan decided on the following measures:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1% while continuing its JGB purchases with broadly the same amount as before.
- In addition, the Bank will discontinue purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) and will also gradually reduce the amount of purchases of CP and corporate bonds and will discontinue the purchases in about one year.
- Underlying CPI inflation is likely to increase gradually toward achieving the price stability target of 2%, as the output gap turns positive and as medium- to long-term inflation expectations and wage growth rise.
- 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 26 April 2024.
Next 24 Hours Bias
Strong Bullish
The Euro (EUR)
Key news events today
ECB President Lagarde Speaks (8:45 am GMT)
What can we expect from EUR today?
ECB President Christine Lagarde will be speaking at the ECB’s Watchers Conference in Frankfurt where her comments could provide some much-needed support for the Euro. This currency pair has come under heavy selling pressure since last week as it hit a low of 1.0835 yesterday. Overhead pressures remain especially with the upcoming FOMC statement and press conference during the US session.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a fourth consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- Since the last Governing Council meeting in January, inflation has declined further while the latest ECB staff projections show inflation has been revised down, in particular for 2024, which mainly reflects a lower contribution from energy prices.
- The projections for inflation excluding energy and food have also been revised down and average 2.6% for 2024, 2.1% for 2025 and 2.0% for 2026. Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages.
- Financing conditions are restrictive and the past interest rate increases continue to weigh on demand, which is helping push down inflation. Staff have revised down their growth projection for 2024 to 0.6%, with economic activity expected to remain subdued in the near term.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.
- Next meeting is on 11 April 2024.
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?
The return of the dollar bulls has driven USD/CHF above 0.8850 this week and this currency pair could finally break above the 0.8900-level should the FOMC statement and press conference by Federal Reserve Chairman Jerome Powell communicate a hawkish tone during the US session later today.
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
Medium Bullish
The Pound (GBP)
Key news events today
CPI (7:00 am GMT)
What can we expect from GBP today?
After moderating lower for most parts of 2023, inflation in the UK has stabilized over the last three months. Headline CPI remained unchanged at 4% YoY while core CPI remained steady at 5.1% YoY – both well above the Bank of England’s target of 2%. The estimates for February point to the rate of inflation finally slowing further – a sign that could potentially weaken the Pound at the beginning of the European trading hours.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Following weaker-than-expected inflation readings out of Canada, USD/CAD surged from 1.3570 to an overnight high of 1.3614. Although this currency pair pulled back quite sharply towards 1.3560 by the end of the US session, the uptrend is likely to resume 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 grew in the fourth quarter by more than expected, although the pace remained weak and below potential.
- CPI inflation eased to 2.9% in January as goods price inflation moderated further but shelter price inflation remains elevated and is the biggest contributor to inflation.
- Underlying inflationary pressures persist: year-over-year and three-month measures of core inflation are in the 3.0% to 3.5% range, and the share of CPI components growing above 3.0% declined but is still above the historical average. The Bank continues to expect inflation to remain close to 3.0% during the first half of this year before gradually easing.
- 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
Medium Bullish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
Following a larger-than-expected drawdown in API stockpiles, crude oil prices rose at the beginning of yesterday’s US session with WTI oil climbing above $83.50 per barrel. Prices for this commodity pulled back to briefly dip under $83 as Asian markets came online but should the EIA inventories also experience a big drawdown, it could provide another bullish catalyst for oil.
Next 24 Hours Bias
Weak Bullish
