IC Markets Europe Fundamental Forecast | 16 January 2024
What happened in the Asia session?
The US dollar was the strongest performing currency as the dollar index (DXY) rose strongly towards the key threshold of 103, putting pressure on the majority of its peers as well as commodities such as gold.
What does it mean for the Europe & US sessions?
The labour market has somewhat cooled in the UK with job vacancies and the average earnings index trending lower over the past few months. Should both the claimant count change and the unemployment rate print higher than their respective estimates, the Pound could come under strong selling pressures.
Meanwhile, Federal Reserve Governor Christopher Waller will be speaking about the economic outlook and monetary policy at the Brookings Institution in Washington DC where audience questions are expected. Any hawkish rhetoric as seen by fellow FOMC members in recent weeks could prop up the dollar.
The Dollar Index (DXY)
Key news events today
Empire State Manufacturing Index (1:30 pm GMT)
FOMC Member Waller Speaks (4:00 pm GMT)
What can we expect from DXY today?
Manufacturing activity in the state of New York slumped in December as general business conditions and new orders declined while overall optimism remained subdued. January’s estimate points to another month of decline for this sector but at a slower rate. A weaker-than-expected reading could weigh on the dollar.
Meanwhile, Federal Reserve Governor Christopher Waller will be speaking about the economic outlook and monetary policy at the Brookings Institution in Washington DC where audience questions are expected. Any hawkish rhetoric as seen by fellow FOMC members in recent weeks could prop up 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.
- 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
Medium Bullish
Gold (XAU)
Key news events today
Empire State Manufacturing Index (1:30 pm GMT)
FOMC Member Waller Speaks (4:00 pm GMT)
What can we expect from Gold today?
Manufacturing activity in the state of New York slumped in December as general business conditions and new orders declined while overall optimism remained subdued. January’s estimate points to another month of decline for this sector but at a slower rate. A weaker-than-expected reading could weigh on the dollar and boost gold prices.
Meanwhile, Federal Reserve Governor Christopher Waller will be speaking about the economic outlook and monetary policy at the Brookings Institution in Washington DC where audience questions are expected. Any hawkish rhetoric as seen by fellow FOMC members in recent weeks could prop up the dollar and thus add downward pressure on this precious metal.
Next 24 Hours Bias
Weak 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 worst performing currencies at the beginning of the Asia session as it tumbled below 0.6650 and looks set to hit the threshold of 0.6600. This currency is likely to remain under pressure 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
Strong Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi was one of the worst performing currencies as Asian markets came online, plummeting below 0.6200. Overhead pressures for this currency are building and it looks set to drop towards 0.6150 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
Strong Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Japanese yen has weakened quite steadily in 2024 thus far, causing USD/JPY to briefly rise above the threshold of 146. With demand for the dollar picking up strongly at the beginning of the Asia session, this currency pair is likely to make another attempt to surpass this threshold.
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 Bullish
The Euro (EUR)
Key news events today
ZEW Economic Sentiment (10:00am GMT)
What can we expect from EUR today?
The ZEW Economic Sentiment has improved considerably over the last couple of months as business sentiment stabilized and expected economic conditions improved. Further improvement in overall sentiment for the Eurozone could function as a potential 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
Medium 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 quite steadily in 2024 thus far, causing USD/CHF to rise above the threshold of 0.8500. With demand for the dollar picking up strongly at the beginning of the Asia session, this currency pair was rising strongly towards 0.8600.
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 Bullish
The Pound (GBP)
Key news events today
Labour Market Report (7:00 am GMT)
BoE Gov Bailey Speaks (3:00 pm GMT)
What can we expect from GBP today?
The labour market has somewhat cooled in the UK with job vacancies and the average earnings index trending lower over the past few months. Should both the claimant count change and the unemployment rate print higher than their respective estimates, the Pound could come under strong selling pressures.
Meanwhile, Bank of England (BoE) Governor Andrew Bailey is due to testify on the UK economy before the Lords Economic Affairs Committee in London. Any statements with regards to the outlook on monetary policy could also have an impact on the direction of 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%.
- 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
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
CPI (1:30 pm GMT)
What can we expect from CAD today?
Inflation in Canada has eased considerably since mid-2022 but December’s forecast shows this downward trend stalling. Should inflation come in hotter than expected, it could function as a short-term bearish catalyst for USD/CAD.
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
Medium Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil prices ticked up slightly higher at the beginning of the Asia session as geopolitical tensions remain elevated in the Middle East. Meanwhile, ship-tracking data showed more tankers were being diverted away from the Red Sea as a result of the ongoing attacks in this key sea passage. WTI oil momentarily climbed above $73 per barrel but reversed to trade around $72.30.
Next 24 Hours Bias
Weak Bearish
