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IC Markets Europe Fundamental Forecast | 4 August 2023
What happened in the Asia session?
The possibility of additional tightening in monetary policy was discussed during the August meeting of the Board. However, it was ultimately decided that holding rates steady was a more appropriate course of action due to the consideration of the significant tightening of policy that has already taken place. Hence, we could see interest rates being increased towards the end of the year, and pairs like AUD/USD would gain bullish momentum in time to come.
What does it mean for the Europe & US sessions?
For today, the most impactful news events will be the Non-Farm Employment Change for the US, and it will be an extremely volatile session as usual, for both currencies and Gold prices.
The Dollar Index (DXY)
Key news events today
Non-Farm Employment Change (12:30 pm GMT)
Unemployment Rate (12:30 pm GMT)
What can we expect from DXY today?
The forecast for the Non-Farm Employment Change is 205K. If the data released is higher than the forecasted data, we can expect strong demand for DXY, since it would mean that there is an increased number of people being employed. Following the news of the Bank of England’s Monetary Policy Committee increasing interest rates, causing DXY to increase, we could potentially see an increase in DXY yet again if the data being released is higher than the forecasted data of 205K. DXY is approaching a pullback support level, and we can see an increase in price in the next 24 hours.
Central Bank Notes:
- The federal funds rate target range will be 5.25% to 5.50%.
- The Committee is strongly committed to returning inflation to its 2.0% target.
- The Committee will adjust monetary policy if risks emerge that could hinder achieving its goals.
- Various factors will be considered, including labour market conditions, inflation pressures, inflation expectations, and international and financial developments.
- Next meeting runs from 19 to 20 September 2023.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
Non-Farm Employment Change (12:30 pm GMT)
Unemployment Rate (12:30 pm GMT)
What can we expect from Gold today?
If the data for the Non-Farm Employment Change data is set to be higher than 205k, this means that DXY would increase and Gold would fall. Gold is in its consolidation phase, and would most likely fall due to the previous strong bearish movement before its consolidation phase.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
RBA Monetary Policy Statement (1:30 am GMT)
What can we expect from AUD today?
The possibility of additional tightening in monetary policy was discussed during the August meeting of the Board. However, it was ultimately decided that holding rates steady was a more appropriate course of action due to the consideration of the significant tightening of policy that has already taken place. Hence, we could see interest rates being increased towards the end of the year, and pairs like AUD/USD would gain bullish momentum in time to come.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the second consecutive meeting.
- Inflation in Australia has passed its peak and is trending lower but needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 5 September 2023.
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?
FX pairs such as NZD/USD, is currently at a major key support level, and is likely to gain bullish momentum. Since there are no news events, we should not be expecting much volatile movements for NZD pairs.
Central Bank Notes:
- The Monetary Policy Committee has raised the OCR from 5.25% to 5.50%.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the target range while supporting maximum sustainable employment.
- The Committee voted by a majority of five to two to increase the OCR by 25 basis points to 5.50%.
- Interest rates must remain restrictive to ensure inflation returns to the target range while supporting maximum sustainable employment.
- Next meeting is on 16 August 2023.
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?
FX pairs such as USD/JPY and EUR/JPY are showing slower movements since there are no news events today. These pairs are looking bearish, and are both slightly below a resistance level, which explains its current momentum. Hence, we can expect bearish movement in the next 24 hours.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2.0%.
- 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 around +0.5%.
- Inflation is expected to decelerate temporarily but is projected to accelerate moderately later, supported by improvements in the output gap and inflation expectations.
- Japan’s economy is expected to recover gradually.
- Next meeting is on 22 September 2023.
Next 24 Hours Bias
Medium bearish
The Euro (EUR)
Key news events today
Retail Sales (9:00 am GMT)
What can we expect from EUR today?
The data for the retail sales has shown slight weakness over the last 2 months, and the latest forecast has shown a slight gain of 0.3% MoM. If the actual reading is higher than the forecast, EUR could rise, and if the actual reading is lower than the forecast, EUR would fall.
Central Bank Notes:
- The ECB raised the three key interest rates by 25 basis points.
- Economic growth projections have been slightly lowered.
- The Governing Council will ensure interest rates are sufficiently restrictive to achieve the inflation target and keep them at those levels as long as needed.
- Rate decisions will be data-dependent, considering inflation outlook, economic data, underlying inflation dynamics, and monetary policy transmission strength.
- Next meeting on 14 September 2023.
Next 24 Hours Bias
Medium Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
FX pairs such as USD/CHF will generally move slower, and since the DXY is positive, we can expect USD/CHF to gain bullish momentum. However, since there is no news for CHF, we have to monitor the different pairs such as USD/CHF, as there is news for the US today. Taking USD/CHF as an example, it is consolidating before the Europe & US Sessions, waiting for the buyers or sellers to come in during those sessions and increase volume in the market.
Central Bank Notes:
- SNB has tightened its monetary policy further, raising the SNB policy rate by 0.25 percentage points to 1.75%.
- The new forecast predicts average annual inflation at 2.2% for 2023 and 2024 and 2.1% for 2025. Without the rate increase, the estimates would be even higher.
- SNB predicts modest growth for the rest of the year due to subdued foreign demand, loss of purchasing power from inflation, and stricter financial conditions. The GDP is projected to grow around 1.0% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Medium Bearish
The Pound (GBP)
Key news events today
Construction PMI (8:30 am GMT)
What can we expect from GBP today?
Construction PMI is forecasted to contract for the 2nd month in a row, since the forecast is 48.1. Any reading under 50 is contraction, conversely, reading above 50 is expansion. Since the BoE did increase interest rates yesterday, on the 3rd of August 2023, we can expect GBP to rise.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.25 percentage points to 5.25%.
- One member preferred to maintain the Bank Rate at 5.0%.
- CPI inflation is expected to fall significantly due to developments in energy prices.
- The updated projections show that CPI inflation is expected to decline slightly above 1.0% at the two and three-year horizons, below the 2.0% target.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
Non-Farm Employment Change (12:30 pm GMT)
Unemployment Rate (12:30 pm GMT)
What can we expect from CAD today?
With Canada also releasing their Employment Change at the same time as the US, we can expect a lot of volatility for this pair during this period. We should also look closely at the key levels, to see how it is reacting earlier, before the news release. CAD pairs should be monitored closely during this period, especially for USD/CAD.
Central Bank Notes:
- The Bank of Canada increased its target for the overnight rate to 4.75%.
- Canada’s economy was more substantial than expected in the first quarter of 2023, with GDP growth of 3.1%.
- The Bank expects CPI inflation to ease to around 3.0% in the summer, but concerns have increased about inflation staying above the 2.0% target.
- Next meeting on 6 September 2023.
Next 24 Hours Bias
Medium Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Oil prices are poised for their sixth consecutive week of increases as the availability of supplies diminishes. Brent oil futures climbed by 0.3% to reach $85.45 per barrel, and West Texas Intermediate crude futures saw a 0.4% rise, reaching $81.91 per barrel at 21:39 ET (01:39 GMT). Over the week, Brent oil is expected to rise by 0.5%, and West Texas Intermediate crude is set to increase by 1.6%. However, we should keep in mind that the price for WTI is reaching a resistance at $82.13 per barrel, which could mean that the price for WTI might fall from that resistance level.
Next 24 Hours Bias
Medium Bullish
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