IC Markets Europe Fundamental Forecast | 6 February 2024 – IC Markets


IC Markets Europe Fundamental Forecast | 6 February 2024

What happened in the Asia session?

As widely expected, the Reserve Bank of Australia (RBA) kept the cash rate on hold at 4.35% for the second meeting in a row. Policymakers noted that although inflation continues to moderate lower, it remains high at 4.1% YoY – well above the target of 2 to 3%. The labour market continues to ease gradually but remains tight while wage growth has picked up but it is not expected to increase further.

Meanwhile, the economic outlook is uncertain and the RBA remains highly attentive to inflation risks. Overall, the statement communicated a relatively hawkish tone causing the Aussie to rise from 0.6490 to as high as 0.6510 in the immediate aftermath. With demand for the dollar easing today, the Aussie could climb higher.

What does it mean for the Europe & US sessions?

Factory orders in Germany – the manufacturing powerhouse of Europe – have been relatively weak over the past five months. After growing 0.3% MoM in November, December’s estimate points to a modest decline of 0.1% for the month of December. Should December’s retail sales in the Eurozone also disappoint, the Euro could come under pressure once more.

The Dollar Index (DXY)

Key news events today

FOMC Member Mester Speaks (5:00 pm GMT)

What can we expect from DXY today?

Federal Reserve Bank of Cleveland President Loretta Mester is due to speak at the Ohio Bankers League Economic Summit where audience questions are expected. Should she also follow in Fed Chair Jerome Powell’s footsteps and hit back against premature interest rate cuts, demand for the dollar is likely to remain strong.

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 Bullish


Gold (XAU)

Key news events today

FOMC Member Mester Speaks (5:00 pm GMT)

What can we expect from Gold today?

Federal Reserve Bank of Cleveland President Loretta Mester is due to speak at the Ohio Bankers League Economic Summit where audience questions are expected. Should she also follow in Fed Chair Jerome Powell’s footsteps and hit back against premature interest rate cuts, demand for the dollar is likely to remain strong and thus put downward pressure on gold.

Next 24 Hours Bias

Weak Bearish


The Australian Dollar (AUD)

Key news events today

RBA Monetary Policy Statement (3:30 am GMT)

RBA Press Conference (4:30 am GMT)

What can we expect from AUD today?

As widely expected, the Reserve Bank of Australia (RBA) kept the cash rate on hold at 4.35% for the second meeting in a row. Policymakers noted that although inflation continues to moderate lower, it still remains high at 4.1% YoY – well above the target of 2 to 3%. The labour market continues to ease gradually but remains tight while wage growth has picked up but it is not expected to increase further.

Meanwhile, the economic outlook is uncertain and the RBA remains highly attentive to inflation risks. Overall, the statement communicated a relatively hawkish tone causing the Aussie to rise from 0.6490 to as high as 0.6510 in the immediate aftermath. With demand for the dollar easing today, the Aussie could climb higher.

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

Medium Bullish


The Kiwi Dollar (NZD)

Key news events today

Labour Force Report (9:45 pm GMT)

What can we expect from NZD today?

New Zealand’s labour market weakened as employment dropped by 0.2% while the unemployment rate increased from 3.6% to 3.9% in the third quarter of 2023. In addition, job vacancies have also dwindled throughout 2023 indicating a slowdown in hiring practices by corporations and business owners. The fourth quarter estimates point to employment growing 0.3% but accompanied with unemployment rising to 4.3%. Continued softness in the labour market is likely to put the Kiwi under pressure later 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?

Recent demand for the dollar has driven USD/JPY above 148 with this currency pair hitting a high of 148.90 overnight. Combined with the Bank of Japan’s ultra-dovish monetary policy stance, USD/JPY has made significant gains in 2024. This currency pair was pulling back slightly as Asian markets came online but it is expected to remain elevated today.

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 Bullish


The Euro (EUR)

Key news events today

Germany Factory Orders (7:00 am GMT)

Retail Sales (10:00 am GMT)

What can we expect from EUR today?

Factory orders in Germany – the manufacturing powerhouse of Europe – have been relatively weak over the past five months. After growing 0.3% MoM in November, December’s estimate points to a modest decline of 0.1% for the month of December. Should December’s retail sales in the Eurozone also disappoint, the Euro could come under pressure once more.

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 Bearish


The Swiss Franc (CHF)

Key news events today

No major news events.

What can we expect from CHF today?

The Swiss franc has weakened considerably versus the dollar since last Friday causing USD/CHF to rise towards the threshold of 0.8700. This currency pair is expected to climb higher 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

Weak Bullish


The Pound (GBP)

Key news events today

Construction PMI (9:30 am GMT)

What can we expect from GBP today?

Construction activity in the UK has contracted over the past four months as total new work decreased at the slowest pace since August due to subdued customer demand. January’s estimate of 47.2 points to another month of contraction and a weaker-than-expected PMI reading could increase the overhead pressures for the Pound.

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

Ivey PMI (3:00 pm GMT)

What can we expect from CAD today?

The Ivey PMI has expanded over the last five consecutive months highlighting the optimistic sentiment surrounding business confidence in Canada. January’s estimate of 55.0 points to continued confidence and a stronger-than-expected print could cause USD/CAD to pull back in the short-term.

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

Weak Bearish


Oil

Key news events today

API Crude Oil Stock (9:30 pm GMT)

What can we expect from Oil today?

Ongoing tensions in the Middle East and in Russia stoked concerns on global crude oil supply as Ukrainian drones struck Russia’s largest oil refinery. WTI oil fell to a low of $71.45 per barrel at the beginning of the US session before rebounding higher on news of the drone attack, jumping as high as $73.20 overnight. Crude prices are expected to climb higher as the day progresses.

Next 24 Hours Bias

Medium Bullish




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