IC Markets Europe Fundamental Forecast | 7 February 2024
What happened in the Asia session?
The dollar index (DXY) traded within a relatively narrow range of 10 pips as it ranged between 104.05 and 104.15 while spot gold prices hovered around $2,035/oz. Meanwhile, crude oil remained buoyed with WTI oil edging higher towards $73.50 per barrel.
What does it mean for the Europe & US sessions?
There are not one but two officials from the Federal Reserve speaking during the US session. Kicking things off will be Federal Reserve Governor Adriana Kugler who will deliver her speech on the economic outlook and monetary policy of the US at the Brookings Institution in Washington DC where audience questions are expected. Following which, Federal Reserve Bank of Richmond President Thomas Barkin will be speaking about the regional economy at the Economic Club of Washington DC where audience questions are also expected. Should either of these officials follow in tune with Chairman Jerome Powell’s interview on CBS 60 Minutes and push back against interest rate cuts, it is likely to spur demand for the dollar.
The Dollar Index (DXY)
Key news events today
FOMC Member Kugler Speaks (4:00 pm GMT)
FOMC Member Barkin Speaks (5:30 pm GMT)
What can we expect from DXY today?
There are not one but two officials from the Federal Reserve speaking during the US session. Kicking things off will be Federal Reserve Governor Adriana Kugler who will deliver her speech on the economic outlook and monetary policy of the US at the Brookings Institution in Washington DC where audience questions are expected. Following which, Federal Reserve Bank of Richmond President Thomas Barkin will be speaking about the regional economy at the Economic Club of Washington DC where audience questions are also expected. Should either of these officials follow in tune with Chairman Jerome Powell’s interview on CBS 60 Minutes and push back against interest rate cuts, it is likely to spur demand for the dollar.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the third 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 30 March 2024.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
FOMC Member Kugler Speaks (4:00 pm GMT)
FOMC Member Barkin Speaks (5:30 pm GMT)
What can we expect from Gold today?
There are not one but two officials from the Federal Reserve speaking during the US session. Kicking things off will be Federal Reserve Governor Adriana Kugler who will deliver her speech on the economic outlook and monetary policy of the US at the Brookings Institution in Washington DC where audience questions are expected. Following which, Federal Reserve Bank of Richmond President Thomas Barkin will be speaking about the regional economy at the Economic Club of Washington DC where audience questions are also expected. Should either of these officials follow in tune with Chairman Jerome Powell’s interview on CBS 60 Minutes and push back against interest rate cuts, it is likely to spur demand for the dollar.
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?
The Aussie dropped to a low of 0.6490 at the beginning of the US session before rebounding quite strongly overnight. This currency rose above 0.6520 by the end of the US session and was climbing strongly towards 0.6550 as Asian markets came online.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the sixth pause out of the last seven board meetings.
- Inflation continues to ease in the December quarter but remains high at 4.1% YoY.
- The central forecasts are for inflation to return to the target range of 2 to 3% in 2025, and to the midpoint in 2026.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.
- Next meeting is on 19 March 2024.
Next 24 Hours Bias
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
New Zealand’s labour market grew quite strongly in the fourth quarter of 2023 with employment change rising by 0.4% QoQ versus the estimate of 0.3% while the unemployment rate increased to 4.0%, less than the consensus of 4.3%. This stronger-than-expected labour data provided a bullish catalyst for the Kiwi as it broke above the threshold of 0.6100 this morning and is expected to remain elevated today.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fourth meeting in a row.
- The Committee is confident that the current level of the OCR is restricting demand. However, ongoing excess demand and inflationary pressures are of concern, given the elevated level of core inflation.
- If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further.
- The Committee agreed that interest rates will need to remain at a restrictive level for a sustained period of time, so that consumer price inflation returns to target and to support maximum sustainable employment.
- Next meeting is on 28 February 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?
The Japanese yen saw relatively strong inflows overnight causing USD/JPY to drop under 148. This currency pair was sliding lower as Asian markets came online, drifting lower towards 147.50.
Central Bank Notes:
- The Bank will continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC), aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a sustainable and stable manner.
- The Bank of Japan decided on the following measures:
- YCC: Negative interest rate of -0.1% on policy-rate balances and purchase of Japanese government bonds to keep 10-year JGB yields at around 0% while regarding the upper bound of 1.0% for 10-year JGB yields as a reference in its market operations.
- Inflation expectations are expected to rise moderately toward the end of the projection period, with continued improvement in the output gap and changes in firms’ wage- and price-setting behaviour and in labour-management wage negotiations.
- 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 19 March 2024.
Next 24 Hours Bias
Weak Bearish
The Euro (EUR)
Key news events today
Germany Industrial Production (7:00 am GMT)
What can we expect from EUR today?
Germany – the manufacturing powerhouse of Europe – will release its industrial production figures for the month of December. Production has declined over the past six months in a row and the latest estimate of a 0.4%-drop points to a continuation of weaker output. Should production output disappoint once more, the Euro could come under pressure again.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a third consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- The incoming information has broadly confirmed its previous assessment of the medium-term inflation outlook.
- Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions.
- Tight financing conditions are dampening demand, and this is helping to push down inflation.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 7 March 2024.
Next 24 Hours Bias
Weak Bullish
The Swiss Franc (CHF)
Key news events today
Unemployment Rate (6:45 am GMT)
What can we expect from CHF today?
Switzerland’s unemployment rate ticked up from 2.1% in November to 2.3% in December which was higher than the estimate of 2.2%. January’s estimate points to the rate remaining unchanged – should the latest figure unexpectedly come in higher than the estimate once more, the Swiss franc could come under selling pressure and provide further lift to USD/CHF.
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
Weak Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound dropped to a low of 1.2535 yesterday’s European session before rebounding quite strongly overnight. This currency rose above 1.2600 by the end of the US session and is likely to climb higher as the day progresses.
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
BoC Summary of Deliberations (6:30 pm GMT)
What can we expect from CAD today?
The Bank of Canada’s (BoC) Governing Council will release its summary of deliberations for the monetary policy meeting that took place on the 24th of January. The summary will provide in-depth insights into the economic conditions that influenced policymakers’ decision to maintain its overnight rate at 5% for the fourth consecutive meeting – any new information could create some volatility for the Loonie.
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 has stalled since the middle of 2023 with real GDP forecasted to grow 0.8% in 2024 and 2.4% in 2025.
- The slowdown in demand is reducing price pressures in a broader number of CPI components, with CPI inflation expected to remain close to 3% in the first half of 2024 before gradually easing, returning to the target of 2% in 2025.
- 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 Bearish
Oil
Key news events today
EIA Crude Oil Inventories (3:30 pm GMT)
What can we expect from Oil today?
Crude oil received a lift on news released by the US Energy department overnight stating that oil production would grow less than the forecast in 2024. In its Short-Term Energy Outlook report, the output is now expected to grow by 170,000 barrels per day (bpd) instead of the original 290,000 bpd. Meanwhile, the API stockpiles gained 0.7M barrels of crude versus the estimate of 2.1M, registering a lower-than-expected inventory build which typically functions as a short-term bullish catalyst for oil prices. Should the EIA inventories also experience a smaller build-up of stock, it could provide another boost for oil during the US session.
Next 24 Hours Bias
Weak Bullish
