IC Markets Europe Fundamental Forecast | 8 February 2024
What happened in the Asia session?
Both the CPI and PPI readings for the month of January continue to highlight China’s deflationary spiral suggesting that the economic slowdown could extend further. CPI fell 0.8% YoY – the largest drop since 2009 – while PPI declined 2.5% YoY. Crude oil prices had a muted reaction to this data release with WTI oil remaining above $74 per barrel on news that Israel rejected a ceasefire offer from Hamas as ongoing negotiations attempt to end the current Middle East conflict.
What does it mean for the Europe & US sessions?
Not only have unemployment claims trended higher over the last couple of weeks, they have also printed higher than their respective forecast – stronger-than-expected figures indicate a potential softening of the US labour market. Should claims come in higher than this week’s estimate of 221k, the dollar is likely to experience another strong sell-off.
Federal Reserve Bank of Richmond President Thomas Barkin will be participating in an interview conducted by Bloomberg Television followed by a speech at the Economic Club of New York where audience questions are expected. Any hawkish remarks or outlook on monetary policy during these events is likely to function as a bullish catalyst for the greenback.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (1:30 pm GMT)
FOMC Member Barkin Speaks (1:30 pm GMT)
FOMC Member Barkin Speaks (5:05 pm GMT)
What can we expect from DXY today?
Not only have unemployment claims trended higher over the last couple of weeks, they have also printed higher than their respective forecast – stronger-than-expected figures indicate a potential softening of the US labour market. Should claims come in higher than this week’s estimate of 221k, the dollar is likely to experience another strong sell-off.
Federal Reserve Bank of Richmond President Thomas Barkin will be participating in an interview conducted by Bloomberg Television followed by a speech at the Economic Club of New York where audience questions are expected. Any hawkish remarks or outlook on monetary policy during these events is likely to function as a bullish catalyst for the greenback.
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 Bearish
Gold (XAU)
Key news events today
Unemployment Claims (1:30 pm GMT)
FOMC Member Barkin Speaks (1:30 pm GMT)
FOMC Member Barkin Speaks (5:05 pm GMT)
What can we expect from Gold today?
Not only have unemployment claims trended higher over the last couple of weeks, they have also printed higher than their respective forecast – stronger-than-expected figures indicate a potential softening of the US labour market. Should claims come in higher than this week’s estimate of 221k, the dollar is likely to experience another strong sell-off.
Federal Reserve Bank of Richmond President Thomas Barkin will be participating in an interview conducted by Bloomberg Television followed by a speech at the Economic Club of New York where audience questions are expected. Any hawkish remarks or outlook on monetary policy during these events is likely to function as a bullish catalyst for the greenback. Whatever the outcome during the respective events, gold is all but certain to face high volatility during the US session.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
RBA Gov Bullock Speaks (10:30 pm GMT)
What can we expect from AUD today?
RBA Governor Michele Bullock is due to testify before the House of Representatives Standing Committee on Economics in Canberra where she could potentially provide more insights on the outlook of monetary policy. Her statements and remarks are likely to create volatility for the Aussie in the latter part of the day.
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
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi climbed above the threshold of 0.6100 overnight but pulled back slightly at the beginning of the Asia session. This currency then resumed its uptrend as it rose above 0.6120 once more.
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?
The Japanese yen continues to remain relatively weak as USD/JPY climbed above 148 overnight. Combined with the Bank of Japan’s loose monetary policy stance, this currency pair is holding up well despite demand waning for the greenback.
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
No major news events.
What can we expect from EUR today?
The Euro continues to drift higher after finding support around 1.0725 earlier in the week. With demand for the dollar waning, this currency is likely to edge higher as the day progresses.
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 Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The Swiss franc was one of the worst performing currencies yesterday causing USD/CHF to rebound off 0.8700 quite strongly. This currency pair rose as high as 0.8753 overnight but retreated away from this level as Asian markets came online. It could slide lower in the initial part of the day before reversing to resume the recent uptrend.
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
MPC Member Mann Speaks (3:00 pm GMT)
What can we expect from GBP today?
Monetary Policy Committee (MPC) Member Catherine Mann is due to speak on inflation at the Official Monetary and Financial Institution in London where audience questions are expected. Her statements and remarks could create volatility for the Pound during the US session.
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
No major news events.
What can we expect from CAD today?
The Loonie has gained quite significantly versus the dollar since Tuesday causing USD/CAD to fall towards 1.3450 at the beginning of the Asia session. Overhead pressures remain for this currency pair and it is likely to lower today.
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
China CPI & PPI (1:30 am GMT)
What can we expect from Oil today?
Both the CPI and PPI readings for the month of January continue to highlight China’s deflationary spiral suggesting that the economic slowdown could extend further. CPI fell 0.8% YoY – the largest drop since 2009 – while PPI declined 2.5% YoY. Crude oil prices had a muted reaction to this data release with WTI oil remaining above $74 per barrel on news that Israel rejected a ceasefire offer from Hamas as ongoing negotiations attempt to end the current Middle East conflict.
Next 24 Hours Bias
Weak Bullish
