IC Markets Asia Fundamental Forecast | 2 February 2024 – IC Markets


IC Markets Asia Fundamental Forecast | 2 February 2024

What happened in the US session?

As widely expected, the Bank of England (BoE) held its official bank rate on hold at 5.25% for the fourth meeting in a row as policymakers acknowledged that the risks to inflation are more balanced but maintained that monetary policy will need to remain restrictive for sufficiently long to return inflation to the target of 2% sustainably in the medium term. It was also important to note that two policymakers preferred to increase the bank rate by 25 basis points (bps) while one member preferred to reduce it by 25bps. 

BoE Governor Andrew Bailey communicated a similar tone and outlook during his press conference, highlighting that inflation has fallen a long way from 10% YoY to 4% YoY now but policymakers are not at a point where they can lower interest rates just yet. The Pound rebounded strongly off 1.2630 to rise as high as 1.2750 by the end of the US session.

Unemployment claims increased for the second consecutive week as the latest claims of 224k printed higher than the estimate of 213k as well as last week’s figures of 215k, singalling a potential weakening of the US labour market. This data release caused the dollar index (DXY) to tumble from 103.60 to as low as 103.00.

What does it mean for the Asia Session?

The DXY looks to be under pressure but could remain subdued for most parts of the day until the highly anticipated non-farm payrolls (NFPs) are released later during the US session. This data point is bound to inject extreme volatility into currency markets and we can expect a highly charged trading session during the US trading hours.

The Dollar Index (DXY)

Key news events today

Non-farm Payrolls (1:30 pm GMT)

Unemployment Rate (1:30 pm GMT)

What can we expect from DXY today?

Non-farm payrolls (NFPs) beat market expectations in December by reporting job gains of 216k but figures for November were revised lower from 199k to 173k. As seen in this week’s ADP employment report, hiring in the US is starting to slow and we could see this trend reflected in today’s NFPs as well.

In addition, the unemployment rate is also expected to edge higher from 3.7% to 3.8%. Should January’s reading print lower than the estimate of 187k, the dollar could come under heavy selling pressure during the US session.

Central Bank Notes:

  • The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the fourth 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 20 March 2024.

Next 24 Hours Bias

Medium Bearish


Gold (XAU)

Key news events today

Non-farm Payrolls (1:30 pm GMT)

Unemployment Rate (1:30 pm GMT)

What can we expect from Gold today?

Non-farm payrolls (NFPs) beat market expectations in December by reporting job gains of 216k but figures for November were revised lower from 199k to 173k. As seen in this week’s ADP employment report, hiring in the US is starting to slow and we could see this trend reflected in today’s NFPs as well.

In addition, the unemployment rate is also expected to edge higher from 3.7% to 3.8%. Should January’s reading print lower than the estimate of 187k, the dollar could come under heavy selling pressure and boost gold prices during the US session.

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?

Following higher-than-expected unemployment claims in the US, the Aussie bounced strongly off 0.6510 overnight. This currency was rising towards 0.6600 as Asian markets came online and is expected to remain elevated today. 

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

Medium Bullish


The Kiwi Dollar (NZD)

Key news events today

No major news events.

What can we expect from NZD today?

The Kiwi surged past the threshold of 0.6100 overnight, triggered by higher-than-expected unemployment claims in the US. This currency raced past 0.6150 at the beginning of the Asia session and is likely 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

Medium Bullish


The Japanese Yen (JPY)

Key news events today

No major news events.

What can we expect from JPY today?

The Japanese yen has seen significant inflows since last week causing USD/JPY to drop under 147 this week. Higher-than-expected unemployment claims in the US overnight drove this currency pair under 146 briefly before retracing higher. USD/JPY retraced higher towards 146.50 at the beginning of the Asia session but overhead pressures remain and it could once again resume the downturn.

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

Medium Bearish


The Euro (EUR)

Key news events today

No major news events.

What can we expect from EUR today?

The Euro has been in a strong downtrend in 2024 but received a boost following yesterday’s flash CPI data which showed inflation in the Eurozone rising at a faster-than-anticipated rate. Combined with higher-than-expected unemployment claims in the US, the Euro rose strongly and could rise past the threshold of 1.0900 today.

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

Medium Bullish


The Swiss Franc (CHF)

Key news events today

No major news events.

What can we expect from CHF today?

Higher-than-expected unemployment claims in the US overnight drove USD/CHF under the threshold of 0.8600, falling as low as 0.8565 overnight. Overhead pressures remain for this currency pair and it is likely to slide lower as the day progresses.

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

Medium Bearish


The Pound (GBP)

Key news events today

No major news events.

What can we expect from GBP today?

Following the Bank of England’s (BoE) decision to maintain its official bank rate at 5.25% for the fourth consecutive meeting yesterday, the Pound bounced strongly to hit 1.2760 overnight. A relatively hawkish statement by the BoE and press conference by Governor Andrew Bailey has fuelled this recent bounce for the Pound and it is expected to remain elevated today.

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

Medium Bullish


The Canadian Dollar (CAD)

Key news events today

No major news events.

What can we expect from CAD today?

Higher-than-expected unemployment claims in the US overnight drove USD/CHF under the threshold of 1.3400, falling as low as 1.3370 overnight. Overhead pressures remain for this currency pair and it is likely to slide lower as the day progresses.

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

No major news events.

What can we expect from Oil today?

Crude oil prices fell for the second consecutive day with WTI oil shedding 4.6% over this period to trade around $74.20 per barrel as Asian markets came online. A reason for this sharp decline in oil prices was due to unsubstantiated reports of a ceasefire in Gaza was in the works.

Crude oil faced high volatility this week as markets weighed between geopolitical tensions in the Middle East and continued economic weakness in China. This commodity is set to face its first decline in three weeks to mark the largest drop since October 2023.

Next 24 Hours Bias

Medium Bearish




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