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IC Markets Europe Fundamental Forecast | 24 March 2023

IC Markets Europe Fundamental Forecast | 24 March 2023

What happened in the Asian session?

The Japanese National Core CPI y/y shows a decrease from the previous figure of 4.2% to 3.1%, in line with market expectations. The Flash Manufacturing PMI shows a slight increase from the previous 47.7 to 48.6, slightly better than the forecasted figure of 48.2. The mixed economic data releases may have a neutral to slightly negative impact on the JPY.

The latest UK GfK Consumer Confidence data release shows a slight improvement, with the index rising to -35 (forecast -38) from the previous -36. This marks a positive shift in the consumer outlook, which can positively influence the GBP.

What does it mean for the Europe & US Sessions?

The slew of PMI releases from France, Germany, the UK and the US will provide volatility for the sessions to the end of the week. Daylight saving time shift is in place for Switzerland, Europe and the UK from Sunday.

The Dollar Index (DXY)

Key news events today

Flash Manufacturing PMI

Flash Services PMI

What can we expect from DXY today?

Forecasted US Flash Manufacturing PMI of 47.0 (previous 47.3) suggests a contraction, while the Services variant is seen at 50.3 (previous 50.6), indicating a minor slowdown. The USD will likely be pressured if the PMIs meet expectations.

Central Bank Notes:

  • The US banking system is sound and resilient, but recent developments may result in tighter credit conditions for households and businesses.
  • The Federal Reserve has raised the target range for the federal funds rate to 4-3/4 to 5 per cent, committed to returning inflation to its 2 per cent objective.
  • In determining the extent of future increases in the target range, the Committee will consider various factors, including the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and economic and financial developments.
  • Next meeting is on 3 May 2023

Next 24 Hours Bias

Mixed


Gold (XAU)

Key news events today

No major news events.

What can we expect from Gold today?

The recent interest rate increases by the SNB and the BoE reflect their efforts to address inflationary pressures. However, these decisions may negatively affect gold, as higher interest rates may make the yellow metal less attractive as an investment option. 

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?

Australia’s Flash Manufacturing PMI fell to 48.7 from the previous 50.5, and the Flash Services PMI dropped from 50.7 to 48.2. These decreases may signal a weaker economy, impacting investor confidence and potentially leading to a weaker AUD.

Central Bank Notes:

  • Cash rate raised by 25 basis points to 3.60%.
  • Board prioritises returning inflation to target, with a likely need for further monetary policy tightening.
  • Board to closely monitor the global economy, household spending trends, inflation and labour market outlook when assessing interest rate increases.
  • Next meeting on 4 April 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?

As there is no significant news concerning NZD today, the currency’s price movement will probably depend on the recently released data, which was mixed – GDT Price Index (-2.6%, previously -0.7%) and Westpac Consumer Sentiment (77.7, previously 75.6).

Central Bank Notes:

  • Monetary Policy Committee increased the OCR from 4.25% to 4.75%
  • Higher interest rates are needed to reduce inflation and support employment sustainably
  • Severe storms in North Island will increase inflation and disrupt production.
  • Next meeting is on 5 April 2023

Next 24 Hours Bias

Mixed


The Japanese Yen (JPY)

Key news events today

National Core CPI y/y

What can we expect from JPY today?

If the National Core CPI y/y (forecast 3.1%, previous 4.2%) comes in lower than expected, it could weaken the yen. In contrast, a better-than-expected Flash Manufacturing PMI (forecast 48.2, previous 47.7) could slightly strengthen the yen since any reading below 50 indicates a contraction in the sector. 

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 27 April 2023 

Next 24 Hours Bias

Mixed


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?

Mixed expectations of the French and German PMIs could lead to a day of consolidation for the Euro amid the Euro Summit, where heads of state from the European Union countries discuss economic and financial situation and policy coordination in Brussels.

Central Bank Notes:

  • ECB raised interest rates by 50 basis points to ensure the 2% inflation target is met
  • Inflation is projected to average 5.3% in 2023, with growth at 1%, and underlying price pressures remain strong
  • The bank will continue to monitor market tensions closely and will be data-dependent in its policy rate decisions
  • Next meeting on 4 May 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?

While there is no major news event for the CHF today, the currency’s value is still likely influenced by the recent SNB decision to raise its policy rate in response to rising inflation. 

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 11 April 2023

Next 24 Hours Bias

Weak Bullish


The Pound (GBP)

Key news events today

No major news events.

What can we expect from GBP today?

UK Flash Manufacturing PMI is forecasted to increase to 49.8 (from 49.3), indicating a slight improvement. However, Flash Services PMI is predicted to decrease to 53.1 (from 53.5), suggesting a slight decline. The mixed data is likely to see a muted impact on the GBP.

Central Bank Notes:

  • The BoE’s MPC increased the Bank Rate by 25bps to 4.25%, with a majority of 7-2 in favour of the hike
  • The UK banking system is judged to be robust and resilient.
  • CPI inflation increased unexpectedly but is expected to fall sharply over the rest of the year due to lower energy prices.
  • The MPC will continue to monitor inflationary pressures and adjust Bank Rate as necessary.
  • Next meeting on 11 May 2023 

Next 24 Hours Bias

Mixed


The Canadian Dollar (CAD)

Key news events today

No major news events.

Core Retail Sales m/m

Retail Sales m/m

What can we expect from CAD today?

Canadian Core Retail Sales and Retail Sales are expected to increase. The forecasted increase for Core Retail Sales m/m is 0.6%, a significant improvement from the previous decrease of -0.6%. Similarly, the forecasted growth for Retail Sales m/m is 0.7%, slightly higher than the previous increase of 0.5%. If the actual data aligned with the forecasted data, it could positively impact the CAD, indicating a more robust retail sector and potential economic growth. 

Central Bank Notes:

  • Bank of Canada maintains its target for the overnight rate at 4.5%
  • Inflation eased in January, but price increases for food and shelter remain high
  • BOC is prepared to increase the policy rate further to return inflation to the 2% target.
  • Next meeting on 12 April 2023

Next 24 Hours Bias

Bullish


Oil

Key news events today

No major news events.

What can we expect from Oil today?

Wood Mackenzie’s report highlights that the return to normal mobility in China is the biggest demand driver for oil, accounting for 1m bpd of the 2.6m bpd increase this year. They project China’s economy to grow by 7% in 2023 and 5.5% in 2024, indicating a potential rise in oil demand.

Next 24 Hours Bias

Weak Bullish


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