IC Markets Europe Fundamental Forecast | 4 April 2024
What happened in the Asia session?
The dollar index (DXY) was relatively unchanged as it hovered around 104.20 while spot prices for gold remained elevated, inching closer to a major threshold at $2,300/oz.
What does it mean for the Europe & US sessions?
Unemployment claims have printed lower than their estimates over the past three weeks which is a sign of a robust labour market. Should claims once again come in ‘soft’, it could potentially function as a bullish catalyst for the dollar.
Federal Reserve Bank of Richmond President Thomas Barkin and Federal Reserve Bank of Cleveland President Loretta Mester will be speaking at events where audience questions are expected. Following the robust ADP employment data, they both could project a hawkish stance at their respective events which is likely to provide some lift for the dollar after yesterday’s heavy sell-off.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (12:30 pm GMT)
FOMC Member Barkin Speaks (4:15 pm GMT)
FOMC Member Mester Speaks (6:00 pm GMT)
What can we expect from DXY today?
Unemployment claims have printed lower than their estimates over the past three weeks which is a sign of a robust labour market. Should claims once again come in ‘soft’, it could potentially function as a bullish catalyst for the dollar.
Federal Reserve Bank of Richmond President Thomas Barkin and Federal Reserve Bank of Cleveland President Loretta Mester will be speaking at events where audience questions are expected. Following the robust ADP employment data, they both could project a hawkish stance at their respective events which is likely to provide some lift for the dollar after yesterday’s heavy sell-off.
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
Unemployment Claims (12:30 pm GMT)
FOMC Member Barkin Speaks (4:15 pm GMT)
FOMC Member Mester Speaks (6:00 pm GMT)
What can we expect from Gold today?
Unemployment claims have printed lower than their estimates over the past three weeks which is a sign of a robust labour market. Should claims once again come in ‘soft’, it could potentially function as a bullish catalyst for the dollar.
Federal Reserve Bank of Richmond President Thomas Barkin and Federal Reserve Bank of Cleveland President Loretta Mester will be speaking at events where audience questions are expected. Following the robust ADP employment data, they both could project a hawkish stance at their respective events which is likely to provide some lift for the dollar after yesterday’s heavy sell-off and potentially cap the recent surge in gold prices.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie rebounded strongly on Tuesday and continued its bullish momentum overnight. This currency pair hit a high of 0.6570 overnight and it continued its strong ascend as Asian markets came online.
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?
Just like its Pacific neighbour, the Kiwi rebounded strongly on Tuesday bouncing from 0.5945 and continued its bullish momentum overnight. This currency pair hit a high of 0.6010 during the US session and it continued rising at the beginning of the Asia session.
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
Strong Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Weakness in the Japanese yen continues to keep USD/JPY buoyed in recent weeks. This currency pair has been hovering around the 151.50-zone over the last couple of weeks with the 152-level functioning as a major barrier for further upside gains – it hit an overnight high of 151.96 before retreating away from this level to trade around 151.60 as Asian markets came online.
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
Weak Bullish
The Euro (EUR)
Key news events today
Composite PMI (8:00 am GMT)
What can we expect from EUR today?
The final reading for Composite PMI for the month of March in the Eurozone is expected to contract for the tenth consecutive month. Although this index continues to inch higher towards the 50-mark threshold, overall economic activity is still depressed in this region and could cause the Euro to fall under pressure once again.
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
Medium Bullish
The Swiss Franc (CHF)
Key news events today
CPI (6:30 am GMT)
What can we expect from CHF today?
Inflation in Switzerland has eased significantly with both headline and core CPI trending under the Swiss National Bank’s (SNB) target of 2% over the past nine months. Should inflationary pressures continue to dissipate further for the month of March, the Swiss franc could once again face strong selling pressures and potentially drive USD/CHF higher during the Europe session.
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 Bullish
The Pound (GBP)
Key news events today
Composite PMI (8:30 am GMT)
What can we expect from GBP today?
Overall economic growth has rebounded relatively strongly in the UK over the last two quarters despite an elevated bank rate of 5.25%. Should the final reading for the Composite PMI surprise to the upside, it could potentially provide a boost for the Pound as European markets get under way.
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
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The combination of elevated crude oil prices and weak demand for the dollar caused USD/CAD to reverse sharply from 1.3580 to drop as low as 1.3512 overnight. This currency pair could retrace higher in the initial part of the day before resuming the downtrend.
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
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
EIA crude oil inventories missed market expectations of a 0.3M drawdown by adding 3.2M barrels of crude instead. Despite this unexpected inventory build, prices for crude oil remain elevated as concerns surrounding supply disruptions in the Middle East continue to prop up prices.
In addition, yesterday’s OPEC+ meeting saw top ministers keeping their oil supply policy unchanged but pressed some member countries to boost compliance with output cuts. This action could potentially cause OPEC+ production to trend lower in the second quarter, which combined with higher seasonal demand over this period, would likely keep prices edging higher. WTI oil touched $86.55 per barrel during the US session before dipping under $86 – this commodity continues to experience strong tailwinds.
Next 24 Hours Bias
Weak Bullish
