IC Markets Europe Fundamental Forecast | 23 May 2023
What happened in the Asia session?
Australia saw its Manufacturing PMI come in at 48.0, matching the forecasted value. The Services PMI, however, fell short of expectations at 51.8 compared to the previous 53.7. For the JPY, the Manufacturing PMI exceeded forecasts, reaching 50.8. Additionally, the Bank of Japan’s Core CPI y/y rose to 3.0%, surpassing the forecasted value of 2.8% and the previous figure of 2.9%. These results suggest weakness for the Australian dollar and strength for the Japanese yen.
What does it mean for the Europe & US Sessions?
Largely weaker-than-expected PMIs from Europe, the UK and the US could see the Euro and the Cable rangebound before the respective manufacturing and services data releases. Any data-induced drop in the EUR or GBP will likely be limited by the uncertainty surrounding the US debt ceiling talks.
The Dollar Index (DXY)
Key news events today
Flash Manufacturing PMI
Flash Services PMI
What can we expect from DXY today?
The US Flash Manufacturing PMI is expected to increase from 50.0 to 50.2, and the Flash Services PMI is predicted to rise from 52.6 to 53.6. These improvements suggest a potentially positive impact on the USD, increasing investor confidence and a modest currency strengthening.
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
Weak bullish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Fed Chair Powell’s recent statement, indicating that the need for a significant rise in the policy rate might be lessened due to tighter bank credit conditions, could enhance the attractiveness of gold as a safe-haven asset. This, in turn, may boost the demand for gold and result in a potential increase in its price.
Next 24 Hours Bias
Weak bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
A lower Australian Flash Manufacturing PMI (previous 48.0) would suggest a slowdown in manufacturing and could weaken the AUD. A higher Flash Services PMI (last 53.7) indicates service growth and may strengthen the AUD.
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
Mixed
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Today, no major news events are affecting the New Zealand dollar. The NZD’s price direction is expected to be influenced by the upcoming anticipated increase in the Official Cash Rate, a 25bps increase from 5.25% to 5.50%.
Central Bank Notes:
- OCR increased by 50bps from 4.75% to 5.25%.
- Recent severe weather events in the North Island have led to higher prices, increasing the risk of inflation expectations exceeding the target range.
- New Zealand’s economic growth is expected to slow through 2023 due to the slowing global economy, reduced residential building activity, and the ongoing effects of monetary policy tightening.
- Next meeting is on 25 May 2023
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?
Japan’s BOJ Core CPI y/y figure is expected to be 2.8% (previous 2.9%), reflecting inflationary trends. A higher-than-expected CPI reading could strengthen the JPY, while a lower-than-expected figure may weaken it.
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
Weak bullish
The Euro (EUR)
Key news events today
French Flash Manufacturing PMI
French Flash Services PMI
German Flash Manufacturing PMI
German Flash Services PMI
What can we expect from EUR today?
The upcoming data releases for the Eurozone include the French Flash Manufacturing PMI (46.1 forecasts, 45.6 previous), French Flash Services PMI (54.0 forecasts, 54.6 previous), German Flash Manufacturing PMI (44.9 forecasts, 44.5 previous), and German Flash Services PMI (55.0 forecasts, 56.0 previous). Positive outcomes in the PMI readings could strengthen the Euro, while negative surprises might lead to increased volatility or a slight weakening of the Euro.
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?
The previous trade surplus was 4.53 billion CHF, while the forecasted data suggests a decrease to 3.73 billion CHF. If the actual data matches the forecast, it could hurt the CHF, signalling weaker economic activity. However, if the actual data exceeds expectations and reveals a higher trade surplus, it could positively impact the CHF, indicating a robust export performance.
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
Flash Manufacturing PMI
Flash Services PMI
What can we expect from GBP today?
The previous UK Flash Manufacturing PMI showed a contraction in the manufacturing sector with a PMI of 47.9, while the services sector experienced expansion with a PMI of 55.5. If the forecasted data for manufacturing shows improvement above 47.9, it could positively affect GBP. Similarly, if the predicted data for services exceeds 55.5, it could positively impact 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 forecasted data suggests a 0.2% increase in the Industrial Product Price Index (IPPI) m/m and a 0.7% increase in the Raw Materials Price Index (RMPI) m/m. The previous data showed a 0.1% rise in IPPI and a -1.7% decrease in RMPI. A higher-than-expected IPPI figure may strengthen the CAD, reflecting a robust industrial sector. Conversely, a higher RMPI could negatively impact the CAD as it suggests increased costs for raw materials, potentially affecting manufacturing industries.
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
Mixed
Oil
Key news events today
No major news events.
What can we expect from Oil today?
The IEA warned of an upcoming oil shortage in the year’s second half. This announcement has led to a surge in U.S. gasoline futures, reaching a one-month high. Adding to the concern, oil production in Iraq’s Kurdistan region has declined.
Next 24 Hours Bias
Weak bullish
