IC Markets Europe Fundamental Forecast | 12 April 2024
What happened in the Asia session?
With no major news during the Asian trading hours, the dollar index (DXY) was hovering around 105.25 before climbing towards 105.50 while spot prices for gold pulled back slightly after making a new all-time high at $2,395.49/oz. This precious metal was trading around $2,385/oz and the downward slide could gain traction should the dollar bulls end the week on a strong note.
What does it mean for the Europe & US sessions?
The UK will release its monthly GDP figures for February where the growth rate is expected to slow to 0.1% from 0.2% in the previous month. Composite PMI activity in the UK, led by the services sector, has been quite steady in recent months. Should the latest GDP result print higher than its estimate of 0.1%, the Pound could receive a much-needed lift before European markets come online.
The University of Michigan (UoM) will release its preliminary findings on consumer sentiment for the month of April where overall sentiment has remained relatively unchanged throughout the first quarter of this year. However, as inflation looks to be re-accelerating in the US as evident in the CPI and PPI data over the past three months, consumer sentiment could deteriorate moving forward. Year-ahead inflation expectations edged lower from 3% in February to 2.9% in March but this data point could reverse course given the latest inflation trajectory. The dollar could end the week on a high note after pulling back sharply in the previous week.
The Dollar Index (DXY)
Key news events today
UoM Consumer Sentiment (2:00 pm GMT)
What can we expect from DXY today?
The University of Michigan (UoM) will release its preliminary findings on consumer sentiment for the month of April where overall sentiment has remained relatively unchanged throughout the first quarter of this year. However, as inflation looks to be re-accelerating in the US as evident in the CPI and PPI data over the past three months, consumer sentiment could deteriorate moving forward. Year-ahead inflation expectations edged lower from 3% in February to 2.9% in March but this data point could reverse course given the latest inflation trajectory. The dollar could end the week on a high note after pulling back sharply in the previous week.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the fifth meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and judges that the risks to achieving its employment and inflation goals are moving into better balance.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks; inflation has eased over the past year but remains elevated.
- Recent indicators suggest that economic activity has been expanding at a solid pace while job gains have remained strong, and the unemployment rate has remained low.
- 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 and 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%.
- 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 April to 1 May 2024.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
UoM Consumer Sentiment (2:00 pm GMT)
What can we expect from Gold today?
The University of Michigan (UoM) will release its preliminary findings on consumer sentiment for the month of April where overall sentiment has remained relatively unchanged throughout the first quarter of this year. However, as inflation looks to be re-accelerating in the US as evident in the CPI and PPI data over the past three months, consumer sentiment could deteriorate moving forward. Year-ahead inflation expectations edged lower from 3% in February to 2.9% in March but this data point could reverse course given the latest inflation trajectory. The dollar could end the week on a high note to potentially put some downward pressure on gold prices.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
Hotter-than-anticipated PPI figures out of the US initially kept the Aussie below 0.6250 but it retraced higher towards 0.6550 by the end of the US session. This currency pair was trading around 0.6540 as Asian markets came online and could retrace higher in the initial part of the day.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the seventh pause out of the last eight board meetings.
- The headline monthly CPI indicator was steady at 3.4% over the year to January, with momentum easing over recent months, driven by moderating goods inflation. Services inflation remains elevated, and is moderating at a more gradual pace.
- The central forecasts are for inflation to return to the target range of 2–3% in 2025, and to the midpoint in 2026.
- While recent data indicate that inflation is easing, it remains high. The Board expects that it will be some time yet before inflation is sustainably in the target range.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.
- Next meeting is on 7 May 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 briefly dipped under 0.5970 following the stronger-than-expected PPI figures out of the US before retracing higher towards 0.6000 by the end of the US session. This currency pair broke above the 0.6000-threshold at the beginning of the Asian session and could continue climbing for the first half of the day.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the sixth meeting in a row.
- The Committee remains confident that the current level of the OCR is contributing to an easing in capacity pressures to ensure inflation returns to target.
- However, current consumer price inflation remains above the Committee’s 1 to 3% target range. A restrictive monetary policy stance remains necessary to further reduce capacity pressures and inflation.
- The Committee discussed upside risks to the inflation outlook: persistent services inflation remains a risk and goods price inflation remains elevated while anticipated near-term increases to local government rates, insurance, and utility costs, could also further slow the decline in headline inflation.
- The Committee discussed downside risks to the inflation outlook: ongoing restrictive monetary policy in an environment of weak global growth could lead to a more rapid decline in inflation than expected. Business and consumer confidence remain particularly weak which could lead to more unemployment and financial stress than expected while structural challenges facing the economy in China remain a concern given its importance for the global economy and for New Zealand’s trade.
- Next meeting is on 10 July 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?
Following the hotter-than-anticipated PPI figures out of the US, the Japanese yen weakened to drive USD/JPY above 153.20 but the move was not sustained. This currency pair pulled back slightly by the end of the US session before briefly dipping under 153 as Asian markets came online. However, USD/JPY continues to remain elevated and could edge higher as the day progresses.
Central Bank Notes:
- The Bank considers that the policy framework of Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control and the negative interest rate policy to date have fulfilled their roles. With the price stability target of 2%, it will conduct monetary policy as appropriate, guiding the short-term interest rate as a primary policy tool.
- The Bank of Japan decided on the following measures:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1% while continuing its JGB purchases with broadly the same amount as before.
- In addition, the Bank will discontinue purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) and will also gradually reduce the amount of purchases of CP and corporate bonds and will discontinue the purchases in about one year.
- Underlying CPI inflation is likely to increase gradually toward achieving the price stability target of 2%, 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 26 April 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?
As widely expected, the ECB maintained its main refinancing rate at 4.5% for the fifth consecutive meeting. The statement noted that “inflation has continued to fall, led by lower food and goods price inflation. Most measures of underlying inflation are easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits. Financing conditions remain restrictive and the past interest rate increases continue to weigh on demand, which is helping to push down inflation. But domestic price pressures are strong and are keeping services price inflation high”.
During her press conference, ECB President Christine Lagarde stated that price pressures continue to diminish but inflation is expected to fluctuate around current levels in the near-term before declining to the ECB’s target of 2% in 2025. She also highlighted the downside risks to economic growth and pointed out a weak first quarter where services activity is resilient but manufacturing firms face weak demand.
The Euro initially fell briefly from 1.0730 1.0715 before reversing to move higher during President Lagarde’s press conference. This currency pair then dropped once again to hit 1.0700 before retracing up towards 1.0730 by the end of the US session.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a fifth consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- Inflation has continued to fall, led by lower food and goods price inflation with most measures of underlying inflation easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits.
- Financing conditions remain restrictive and the past interest rate increases continue to weigh on demand, which is helping to push down inflation but domestic price pressures are strong and are keeping services price inflation high.
- The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and if the Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.
- Next meeting is on 6 June 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?
In a surprise move, the Swiss franc strengthened overnight to drive USD/CHF lower following the ECB interest rate announcement. This currency pair reversed from a high of 0.9150 to tumble under 0.9080 before stabilizing around 0.9090. The franc still faces relatively strong headwinds and USD/CHF could resume the uptrend as the final trading day of the week comes to a close.
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points, going from 1.75% to 1.50% in March.
- For some months now, inflation has been back below 2% and thus in the range the SNB equates with price stability.
- According to the new forecast, inflation is also likely to remain in this range over the next few years.
- The forecast puts average annual inflation at 1.4% for 2024, 1.2% for 2025 and 1.1% for 2026, based on the assumption that the SNB policy rate is 1.5% over the entire forecast horizon.
- Swiss GDP growth was moderate in the fourth quarter of last year and it is likely to remain modest in the coming quarters.
- Overall, Switzerland’s GDP is likely to grow by around 1% this year.
- Next meeting is on 20 June 2024.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
GDP (6:00 am GMT)
What can we expect from GBP today?
The UK will release its monthly GDP figures for February where the growth rate is expected to slow to 0.1% from 0.2% in the previous month. Composite PMI activity in the UK, led by the services sector, has been quite steady in recent months. Should the latest GDP result print higher than its estimate of 0.1%, the Pound could receive a much-needed lift before European markets come online.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8-to-1 to maintain its Official Bank Rate at 5.25% for the fifth consecutive meeting.
- One member preferred to reduce the Bank Rate by 25 basis points to 5.0%.
- Twelve-month CPI inflation fell to 3.4% in February from 4.0% in January and December while Services consumer price inflation has declined but remains elevated, at 6.1% in February.
- CPI inflation is projected to fall to slightly below the 2% target in 2024 Q2, marginally weaker than previously expected owing to the freeze in fuel duty announced in the Budget.
- In the February Report projection, CPI inflation had been expected to fall temporarily to the 2% target in 2024 Q2 before increasing again in Q3 and Q4, to around 2.75%.
- Having declined through the second half of last year, UK GDP and market sector output are expected to start growing again during the first half of this year while the fiscal measures in Spring Budget 2024 are likely to increase the level of GDP by around 0.25% over coming years.
- Next meeting is on 9 May 2024.
Next 24 Hours Bias
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Hotter-than-anticipated PPI figures out of the US added downward pressure on the Loonie and boosted USD/CAD beyond 1.3700. This currency pair pulled back towards the end of the US session but it hovered around 1.3690 as Asian markets came online and could remain elevated on the final trading day of the week.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the fifth meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy stalled in the second half of last year and the economy moved into excess supply but economic growth is forecasted to pick up in 2024. Overall, the Bank forecasts GDP growth of 1.5% in 2024, 2.2% in 2025, and 1.9% in 2026.
- CPI inflation slowed to 2.8% in February, with easing in price pressures becoming more broad-based across goods and services. However, shelter price inflation is still very elevated, driven by growth in rent and mortgage interest costs.
- Core measures of inflation, which had been running around 3.5%, slowed to just over 3% in February, and 3-month annualized rates are suggesting downward momentum. The Bank expects CPI inflation to be close to 3% during the first half of this year, move below 2.5% in the second half, and reach the 2% inflation target in 2025.
- The Governing Council is particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- While inflation is still too high and risks remain, CPI and core inflation have eased further in recent months and the Council will be looking for evidence that this downward momentum is sustained.
- Next meeting is on 5 June 2024.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil prices have mostly traded sideways since the beginning of this week with WTI oil ranging approximately between $85.50 and $87 per barrel. This commodity dropped towards $85.40 overnight before rebounding off this lower bound once more and rose above $86 as Asian markets came online. However, prices for crude oil look set to register its first loss in five weeks.
Next 24 Hours Bias
Weak Bullish
