IC Markets Asia Fundamental Forecast | 15 January 2024
What happened in the US session?
The Producer Price Index (PPI) – which measures wholesale inflation – continues to show inflationary pressures wane for this sector. Both the headline and core PPI readings have eased significantly over the past 18 months, highlighting the weak demand for manufacturing activity as evident in the PMI readings. Overall weaker inflation data will likely cause the Federal Reserve to adopt a more neutral approach with regards to their monetary policy stance – a move that could put downward pressure on the dollar.
What does it mean for the Asia Session?
The Dollar Index is continuing to consolidate in the US session last Friday, with prices sitting above the support level at 102.14. The Dollar Index opened at 102.54 today.
The Dollar Index (DXY)
Key news events today
Martin Luther King Day (US Holiday)
What can we expect from DXY today?
Stock and bond markets in the US will be closed today in observance of Martin Luther King, Jr. Day. In addition, the US index futures as well as commodity futures will close early today. Thus, trading volume could be lower than usual during the US session later today.
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 Bearish
Gold (XAU)
Key news events today
Martin Luther King Day (US Holiday)
What can we expect from Gold today?
Stock and bond markets in the US will be closed today in observance of Martin Luther King, Jr. Day. In addition, the US index futures as well as commodity futures will close early today. Thus, trading volume could be lower than usual during the US session later today.
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 opened high at 0.6729 but could not continue its momentum and closed at 0.6679, before bouncing off the overlap support level at 0.6669 last Friday. In the Asian session we could expect the Aussie to continue to test the support level of 0.6669.
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
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi is testing the support level of 0.6222 last Friday and could continue the downtrend in the Asian session today. The Kiwi could potentially break the support level.
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 Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Japanese yen strengthened last week causing USD/JPY to close lower at 144.35 on Friday’s trading session and this currency pair could continue the downward trend in today’s Asian session.
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 Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro has bounced off the support at 1.08852 and is on an upward trend with the price closed higher at 1.09359 on last Friday’s session. In the Asian session, the Euro opened higher at 1.09585 and could continue rising to resistance at 1.11066.
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 Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The Swiss franc is showing signs of recovery from the downtrend. The price of the currency pair USD/CHF has bounced back and is testing the overlap resistance level at 0.85538. USD/CHF could recover if it breaks this strong resistance level.
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?
The Pound is on an ascending trend, price has closed higher on last Friday trading. The price could continue the upward trend in today’s 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%.
- 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
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
BoC Business Outlook Survey (3:30 pm GMT)
What can we expect from CAD today?
The Bank of Canada (BoC) will release its findings on the outlook for general business conditions, such as sales growth, investment in machinery, employment, inflation expectations, and credit conditions. Should the survey indicate a strong economic growth, it could function as a short-term bullish 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 Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Oil prices declined as traders remained vigilant for potential disruptions in the Middle East’s oil supply. This concern arose after U.S and British forces carried out strikes to prevent Houthi militia in Yemen from targeting ships in the Red Sea. Crude oil fell 0.1% to $72.73 a barrel and Brent oil also fell 0.1% to $78.23 per barrel.
Next 24 Hours Bias
Weak Bearish
