IC Markets Europe Fundamental Forecast | 29 April 2024
What happened in the Asia session?
Demand for the dollar waned significantly this morning as the dollar index (DXY) dropped under 105.50 while gold also fell in tandem to highlight the current positive correlation between these two asset classes. Spot prices dipped as low as $2,319.97/oz but they retraced higher to move back above $2,330/oz. Meanwhile, crude oil prices also came under pressure with WTI oil dropping under $83.50 per barrel.
What does it mean for the Europe & US sessions?
Headline and core inflation has eased significantly in Germany over the past seven months as economic growth remained sluggish over this period, dragged down by the manufacturing sector that has been in contraction since July 2022. Should the results for the month of April come in soft, it could potentially add downward pressure on the Euro.
The Dollar Index (DXY)
Key news events today
No major news events.
What can we expect from DXY today?
With no major news on the US calendar, the DXY could pull back today after the ‘hot’ PCE result provided the bullish catalyst for a strong rebound last Friday. The DXY was trading around 106 as Asian markets came online – the near-term support and resistance for today lie at 105.50 and 106.50, respectively.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the fifth meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and judges that the risks to achieving its employment and inflation goals are moving into better balance.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks; inflation has eased over the past year but remains elevated.
- Recent indicators suggest that economic activity has been expanding at a solid pace while job gains have remained strong, and the unemployment rate has remained low.
- 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 and 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%.
- 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 30 April to 1 May 2024.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
The dollar and gold continue to exhibit a positive correlation and if this relationship continues to build, prices for spot gold should drift lower along with the dollar today – the near-term support and resistance for this precious metal lie at $2,315/oz and $2,390/oz, respectively.
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?
Despite the stronger-than-anticipated PCE Price Index data last Friday, the Aussie showed resilience as it managed to stay above the threshold of 0.6500. After hitting a high of 0.6555 prior to the release of the PCE data, AUD/USD dipped under 0.6520 before closing at 0.6532 last Friday. This currency pair gapped lower to open at 0.6519 before reversing to rise towards 0.6550 – a zone that has functioned as a strong resistance in mid-April.
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
Strong Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi hit a high of 0.5964 during the US session before stronger-than-anticipated PCE Price Index data caused it to briefly dip under 0.5930. This currency pair opened around 0.5940 to climb higher – the near-term support and resistance for today lie at 0.5900 and 0.5975, respectively.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the sixth meeting in a row.
- The Committee remains confident that the current level of the OCR is contributing to an easing in capacity pressures to ensure inflation returns to target.
- However, current consumer price inflation remains above the Committee’s 1 to 3% target range. A restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation.
- The Committee discussed upside risks to the inflation outlook: persistent services inflation remains a risk and goods price inflation remains elevated while anticipated near-term increases to local government rates, insurance, and utility costs, could also further slow the decline in headline inflation.
- The Committee discussed downside risks to the inflation outlook: ongoing restrictive monetary policy in an environment of weak global growth could lead to a more rapid decline in inflation than expected. Business and consumer confidence remain particularly weak which could lead to more unemployment and financial stress than expected while structural challenges facing the economy in China remain a concern given its importance for the global economy and for New Zealand’s trade.
- Next meeting is on 10 July 2024.
Next 24 Hours Bias
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
After raising its key policy rate by 10 basis points at the previous meeting, the Bank of Japan (BoJ) left rates on hold at 0 to 0.1% last Friday. The BoJ forecasted softer economic growth and higher inflation in the coming years as import costs increase while fewer government relief measures will be made available. This hold on rates initially weakened the yen significantly as USD/JPY surged from 155.55 to as high as 158.43 during the US session. This currency pair jumped 2.4% last week to gain almost 370 pips in the process – the near-term support and resistance for today lie at 157.50 and 159.10, respectively.
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.
- In a quarterly outlook, the committee revised higher CPI prints for FY 2024 to 2.8% from January’s projections of 2.4%, due to the waning effects of higher import prices and fewer government support measures.
- For 2025, the board expects core inflation to hit 1.9%, slightly higher than its earlier estimates of 1.8%, reflecting a recent rise in oil prices.
- Policymakers cut their 2023 GDP growth forecast to 1.3% from 1.8% and for FY 2024, the bank also slashed its GDP outlook to 0.8% from 1.2%, mainly reflecting lower private consumption.
- Next meeting is on 14 June 2024.
Next 24 Hours Bias
Strong Bearish
The Euro (EUR)
Key news events today
Germany CPI (12:00 pm GMT)
What can we expect from EUR today?
Headline and core inflation has eased significantly in Germany over the past seven months as economic growth remained sluggish over this period, dragged down by the manufacturing sector that has been in contraction since July 2022. Should the results for the month of April come in soft, it could potentially add downward pressure on the Euro. This currency pair gapped lower at the open to trade at 1.0680 before reversing strongly to climb above 1.0700 and could continue its ascend as the day progresses.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a fifth consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- Inflation has continued to fall, led by lower food and goods price inflation with most measures of underlying inflation easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits.
- Financing conditions remain restrictive and the past interest rate increases continue to weigh on demand, which is helping to push down inflation but domestic price pressures are strong and are keeping services price inflation high.
- The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and if the Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.
- Next meeting is on 6 June 2024.
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Significant weakness in the franc has propelled USD/CHF above the threshold of 0.9100 but it has ranged approximately between 0.9085 and 0.9150 since mid-April. With the Swiss National Bank (SNB) becoming the first major central bank to cut its interest rates in March and looks set to move ahead with further rate cuts, strong tailwinds for this currency pair remain intact.
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points, going from 1.75% to 1.50% in March.
- For some months now, inflation has been back below 2% and thus in the range the SNB equates with price stability.
- According to the new forecast, inflation is also likely to remain in this range over the next few years.
- The forecast puts average annual inflation at 1.4% for 2024, 1.2% for 2025 and 1.1% for 2026, based on the assumption that the SNB policy rate is 1.5% over the entire forecast horizon.
- Swiss GDP growth was moderate in the fourth quarter of last year and it is likely to remain modest in the coming quarters.
- Overall, Switzerland’s GDP is likely to grow by around 1% this year.
- Next meeting is on 20 June 2024.
Next 24 Hours Bias
Weak Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound fell under 1.2500 following the release of stronger-than-anticipated PCE Price Index data last Friday before retracing higher to end the week at 1.2491. GBP/USD gapped lower at the open to reach 1.2473 before reversing to climb above 1.2500 – this currency pair is likely to edge higher today with 1.2550 potentially functioning as a strong resistance zone.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8-to-1 to maintain its Official Bank Rate at 5.25% for the fifth consecutive meeting.
- One member preferred to reduce the Bank Rate by 25 basis points to 5.0%.
- Twelve-month CPI inflation fell to 3.4% in February from 4.0% in January and December while Services consumer price inflation has declined but remains elevated, at 6.1% in February.
- CPI inflation is projected to fall to slightly below the 2% target in 2024 Q2, marginally weaker than previously expected owing to the freeze in fuel duty announced in the Budget.
- In the February Report projection, CPI inflation had been expected to fall temporarily to the 2% target in 2024 Q2 before increasing again in Q3 and Q4, to around 2.75%.
- Having declined through the second half of last year, UK GDP and market sector output are expected to start growing again during the first half of this year while the fiscal measures in Spring Budget 2024 are likely to increase the level of GDP by around 0.25% over coming years.
- Next meeting is on 9 May 2024.
Next 24 Hours Bias
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Despite the stronger-than-anticipated PCE Price Index data last Friday, the Loonie showed resilience as USD/CAD failed to break above 1.3700 and closed at 1.3669 last Friday. This currency pair opened around 1.3665 today and could continue to drift lower as the day progresses.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the fifth meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled in the second half of last year and the economy moved into excess supply but economic growth is forecasted to pick up in 2024. Overall, the Bank forecasts GDP growth of 1.5% in 2024, 2.2% in 2025, and 1.9% in 2026.
- CPI inflation slowed to 2.8% in February, with easing in price pressures becoming more broad-based across goods and services. However, shelter price inflation is still very elevated, driven by growth in rent and mortgage interest costs.
- Core measures of inflation, which had been running around 3.5%, slowed to just over 3% in February, and 3-month annualized rates are suggesting downward momentum. The Bank expects CPI inflation to be close to 3% during the first half of this year, move below 2.5% in the second half, and reach the 2% inflation target in 2025.
- The Governing Council is particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months and the Council will be looking for evidence that this downward momentum is sustained.
- Next meeting is on 5 June 2024.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Prices for crude oil rebounded strongly last week with WTI oil gaining 0.85% on the week to close at $84.22 per barrel. After declining almost 4.5% over the last couple of weeks, stronger demand for crude in the US drove WTI oil to climb back above the $83-level after hitting a low of $81.34 last week. The ongoing conflicts in the Middle East continue to keep geopolitical risks heightened and any further escalation could potentially keep oil prices elevated in the near future.
Next 24 Hours Bias
Weak Bearish
