IC Markets Europe Fundamental Forecast | 8 January 2024
What happened in the Asia session?
It was a relatively quiet session with the dollar index (DXY) trading around 102.50 while commodities such as gold and crude oil tumbled quite sharply. Spot gold prices fell under $2,040/oz while WTI oil dipped under $73 per barrel – these commodities are likely to remain under pressure today.
What does it mean for the Europe & US sessions?
Germany’s trade surplus widened to €17.8B in October beating market expectations of €17.1B. This was driven by a sharper decline in imports while exports fell by 0.2% to €126.4B, marking the lowest value since March 2022. A higher surplus could function as a bullish catalyst for the Euro.
The Dollar Index (DXY)
Key news events today
FOMC Member Bostic Speaks (5:00 pm GMT)
What can we expect from DXY today?
Federal Reserve Bank of Atlanta President Raphael Bostic will be speaking about the 2024 economic outlook at the Atlanta Rotary Club where audience questions are expected. Several FOMC members have pushed back against the rhetoric on interest rate cut expectations in recent days and President Bostic could follow in the same vein as his fellow members. Any ‘hawkish’ comments could function as a bullish catalyst for the dollar later today.
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.
- The Committee will continue to assess additional information and its implications for monetary policy.
- In determining the extent of any additional policy firming that may be appropriate to return inflation to 2.0% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
- 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 to 31 January 2024.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
FOMC Member Bostic Speaks (5:00 pm GMT)
What can we expect from Gold today?
Federal Reserve Bank of Atlanta President Raphael Bostic will be speaking about the 2024 economic outlook at the Atlanta Rotary Club where audience questions are expected. Several FOMC members have pushed back against the rhetoric on interest rate cut expectations in recent days and President Bostic could follow in the same vein as his fellow members. Any ‘hawkish’ comments could function as a bullish catalyst for the dollar and potentially drive gold prices lower later today.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie was one of the strongest performing currencies at today’s open as it raced towards 0.6750 before reversing swiftly towards the end of the Asia session.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the fifth pause out of the last six board meetings.
- Inflation in Australia has passed its peak but is still too high and the progress in bringing inflation back to the target range of 2% to 3% was looking slower than earlier forecast.
- Any further tightening of monetary policy to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.
- Next meeting is on 6 February 2024.
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?
The Kiwi was another strong performing currency at today’s open as it rose above 0.6250 before reversing swiftly towards the end of the Asia session.
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 Bearish
The Japanese Yen (JPY)
Key news events today
Respect for the Aged Day (National holiday)
Tokyo Core CPI (11:30 pm GMT)
What can we expect from JPY today?
Japan’s markets are closed during the Asia session with the country observing their national holiday. The Tokyo core CPI has moderated lower over the past year with November’s reading slowing to 2.3% YoY, marking the lowest print in almost 18 months. December’s estimate of 2.1% YoY points to further easing of inflationary pressures – a weaker-than-expected figure could provide a tailwind for USD/JPY.
Central Bank Notes:
- The Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a stable manner.
- The Bank of Japan decided on the following measures:
- Yield curve control: 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 have risen moderately with underlying CPI inflation likely to increase gradually towards achieving the price stability target, 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 23 January 2024.
Next 24 Hours Bias
Medium Bearish
The Euro (EUR)
Key news events today
German Trade Balance (7:00 am GMT)
What can we expect from EUR today?
Germany’s trade surplus widened to €17.8B in October beating market expectations of €17.1B. This was driven by a sharper decline in imports while exports fell by 0.2% to €126.4B, marking the lowest value since March 2022. A higher surplus could function as a bullish catalyst for the Euro.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a second consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- While inflation has dropped in recent months, it is likely to pick up again temporarily in the near term.
- Underlying inflation has eased further but domestic price pressures remain elevated, primarily owing to strong growth in unit labour costs.
- The past interest rate increases continue to be transmitted forcefully to the economy as tighter 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 25 January 2024.
Next 24 Hours Bias
Weak Bullish
The Swiss Franc (CHF)
Key news events today
CPI (7:30 am GMT)
What can we expect from CHF today?
Switzerland’s monthly inflation rate has been mixed since the middle of 2023. Consumer prices dropped 0.2% MoM in November while December’s forecast of a 0.1% fall points to a second consecutive month of decline, albeit at a slower pace. Should inflation continue to show further signs of easing, the Swiss franc could come under selling pressure and thus lift 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 Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound rose as high as 1.2730 at the start of the Asia session before pulling back slightly. It could continue to slide lower but should find support around the 1.2700-threshold.
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%.
- Three members preferred to increase the Bank Rate by 0.25 percentage points to 5.5%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation falling sharply from 6.7% in September to 4.6% in October while services price inflation declined to 6.6%.
- The decline in CPI inflation over recent months could largely be attributed to falls in energy, food, and core goods price inflation, as external cost pressures had continued to abate. Services price inflation had remained elevated, however.
- The mean projection for CPI inflation is 2.2% and 1.9% at the two- and three-year horizons, respectively.
- Next meeting is on 1 February 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 Loonie experienced wild swings last Friday as the Canadian employment report was also released at the same time as the US NFPs. Canada’s labour market was virtually unchanged as it added a paltry 100 jobs in December while the unemployment rate remained steady at 5.8%. USD/CAD opened around 1.3360 before sliding lower at the start of the Asia session.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the third meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled through the middle quarters of 2023 with real GDP contracting at a rate of 1.1% in the third quarter, following a growth of 1.4% in the second quarter.
- The slowdown in the economy is reducing inflationary pressures in a broadening range of goods and services prices, leading to the easing of CPI inflation to 3.1% YoY in October.
- The Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed and would also like to see further and sustained easing in core inflation.
- Next meeting is on 24 January 2024.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil prices experienced their best weekly gains in 12 weeks as WTI oil climbed briefly above the $74 per barrel to gain over 3%. Middle East tensions kept prices elevated last week while shipping giant Maersk said it will divert all of its vessels away from the Red Sea for the foreseeable future, warning customers of disruptions.
However, WTI oil tumbled lower at the open as Saudi Arabia – the top exporter – announced sharp price cuts along with a rise in output levels by OPEC. WTI was trading around $73.20 per barrel and is likely to remain under pressure today.
Next 24 Hours Bias
Medium Bearish
