IC Markets Europe Fundamental Forecast | 18 June 2024
What happened in the Asia session?
The Reserve Bank of Australia’s decision to keep the cash rate unchanged likely had a stabilizing effect on the Asia session this morning. Stability in Australian monetary policy often translates into less volatility for the AUD in the forex market, which can influence sentiment across Asian markets.
What does it mean for the Europe & US sessions?
The Reserve Bank of Australia’s decision to keep the cash rate steady is likely to be perceived positively in European and U.S. trading sessions, signaling economic stability in Australia. This could support investor confidence and potentially influence global market sentiment. Stability in Australia’s monetary policy might lead to less volatility and encourage a risk-on environment.
The Dollar Index (DXY)
Key news events today
Core Retail Sales m/m (12:30 pm GMT)
Retail Sales m/m
What can we expect from DXY today?
Today’s Core Retail Sales m/m and Retail Sales m/m data could significantly influence the U.S. Dollar Index (DXY). If retail sales are higher than expected, indicating robust consumer spending, the DXY might strengthen as this suggests economic health and the potential for less aggressive monetary easing. Conversely, weaker sales figures could imply economic softness, possibly leading to a drop in the DXY as they might signal a need for continued monetary support. This data will be closely watched, as it could cause notable fluctuations in the DXY, affecting forex market dynamics
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the seventh 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 have moved toward better balance over the past year.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks. Inflation has eased over the past year but remains elevated and in recent months, there has been modest further progress toward the Committee’s 2% inflation objective.
- Recent indicators suggest that economic activity has continued to expand 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 assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
- The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.
- Next meeting runs from 30 to 31 July 2024.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
Core Retail Sales m/m (12:30 pm GMT)
Retail Sales m/m
What can we expect from Gold today?
Today’s release of Core Retail Sales m/m and Retail Sales m/m data could influence gold prices significantly. If the data shows stronger-than-expected retail sales, it could boost the U.S. dollar, potentially decreasing gold’s attractiveness as the dollar strengthens. On the other hand, if the data is weaker than expected, indicating an economic slowdown, gold may gain appeal as a safe-haven asset, possibly increasing its price due to a weakened dollar.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
Cash Rate (4:30 am GMT)
RBA Rate Statement (4:30 GMT )
What can we expect from AUD today?
Today, the Reserve Bank of Australia (RBA) decided to keep the cash rate target unchanged at 4.35% and the interest rate paid on Exchange Settlement balances also remained stable at 4.25%. This decision reflects the RBA’s ongoing efforts to balance inflation control with economic growth, amid various domestic and global economic uncertainties. The RBA is closely monitoring economic conditions, particularly inflation and labor market dynamics, to ensure that inflation targets are met sustainably.
Central Bank Notes:
- The RBA held the cash rate steady at 4.35%, marking another instance of maintaining the status quo as it continues to navigate complex economic conditions. The decision reflects the Bank’s ongoing efforts to balance economic growth with inflation control amidst varying domestic and global pressures.
- Inflation continues to show signs of moderation yet remains elevated. Recent data indicated a steady headline CPI of 3.4% over the year to January, with a slight easing driven by a moderation in goods inflation. However, services inflation is still high and is only gradually subsiding. This ongoing pressure is linked to persistent domestic cost pressures across both labor and non-labor inputs.
- The RBA’s central forecasts, which assume the cash rate aligns with market expectations, anticipate that inflation will return to the 2-3% target range by 2025 and reach the midpoint in 2026. The economic outlook remains uncertain, influenced by the impact of high inflation on real incomes and consumption, alongside high unit labor costs that are only slowly starting to align with increased productivity.
- Inflation is projected to decline over the next few years, yet the exact trajectory of interest rates needed to ensure inflation targets are met remains uncertain. The RBA remains committed to its mandate of price stability and full employment, ensuring that monetary policy continues to adapt responsively to both domestic and international economic developments.
- 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 5 August 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?
This currency pair was trading around 0.6119 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.6085
Resistance: 0.6140
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the seventh meeting in a row and agreed that interest rates need to remain at a restrictive level for a sustained period to ensure annual headline CPI inflation returns to the 1 to 3% target range.
- Restrictive monetary policy is contributing to an easing in capacity pressures while headline inflation, core inflation, and most measures of inflation expectations are continuing to decline. However, domestic inflation has fallen more slowly than expected and headline CPI inflation remains above the Committee’s target band.
- Higher dwelling rents, insurance costs, council rates, and other domestic services price inflation have resulted in a slow decline in domestic inflation, posing a risk to inflation expectations.
- GDP declined by 0.1% in the December 2023 quarter with economic growth having now been negative for four of the past five quarters. High interest rates have reduced household spending, as well as residential and business investment, despite very strong population growth. Recent indicators of economic activity have been weak, as expected.
- Next meeting is on 10 July 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?
This currency pair was trading around 157.57 as Asian markets came online – these are the support and resistance levels for today.
Support: 156.43
Resistance: 158.31
Central Bank Notes:
- After the Bank of Japan’s recent monetary policy updates, the central bank has decided to end its long-standing negative interest rate policy and slightly raised the short-term interest rates to between 0% and 0.1%. This marks a significant shift from the previous rate of -0.1% and is the first rate increase in Japan in 17 years. This move reflects improvements in the Japanese economy, including a moderate recovery and a likely steady increase in wages.
- The decision to move away from negative interest rates was influenced by positive outcomes from recent wage negotiations, which showed wage
- growth exceeding inflation, signaling a strengthening economic environment. This adjustment in policy aims to support a virtuous cycle between wages and prices, moving towards a 2% inflation target sustainably.
- This policy shift by the BOJ is expected to impact the financial markets and could lead to adjustments in investment strategies, particularly in interest-sensitive sectors. Investors and market analysts will be watching closely how these changes will affect economic growth, consumer spending, and inflation in the coming months.
- Next meeting is on 30-31 July 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?
With no major news impacting the Forex market today, the Euro (EUR) might experience limited volatility, primarily influenced by broader market sentiments or minor economic releases from the Eurozone. In such scenarios, the EUR could react more to external factors such as movements in other major currencies, global economic indicators, or geopolitical developments. As the Asian trading session opened, the Euro was observed stabilizing near 1.0728, setting the stage for today’s trading dynamics.
Support: 1.0668
Resistance: 1.0742
Central Bank Notes:
- The Governing Council today decided to lower the three key ECB interest rates by 25 basis points after nine months of holding rates steady.
- Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 4.25%, 4.50% and 3.75% respectively, with effect from 12 June 2024.
- Since September 2023, inflation has fallen by more than 2.5% and the inflation outlook has improved markedly while underlying inflation has also eased, reinforcing the signs that price pressures have weakened, and inflation expectations have declined at all horizons.
- At the same time, despite the progress over recent quarters, domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year – the latest Eurosystem staff projections for both headline and core inflation have been revised up for 2024 and 2025 compared with the March projections.
- Projections now show headline inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026 while economic growth is expected to pick up to 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026.
- The Council also confirmed that it will reduce the Eurosystem’s holdings of securities under the pandemic emergency purchase programme (PEPP) by €7.5 billion per month on average over the second half of the year.
- The Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim and is not pre-committing to a particular rate path.
- Next meeting is on 18 July 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?
With no major news impacting the Forex market today, the Swiss Franc (CHF) might see subdued volatility. The opening price for USD/CHF in the Asian session was 0.88925.
Support: 0.8882
Resistance: 0.8989
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 Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
With no major news impacting the Forex market today, the British Pound (GBP) may see subdued movements. The opening price for GBP/USD was 1.27007 in the Asian session. these are the support and resistance levels for today.
Support: 1.2631
Resistance: 1.744
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 7-to-2 to maintain its Official Bank Rate at 5.25% for the sixth consecutive meeting.
- Two members preferred to reduce the Bank Rate by 25 basis points to 5%, an increase of one from the previous meeting.
- Twelve-month CPI inflation fell to 3.2% in March from 3.4% in February and is expected to return to close to the 2% target in the near term, but increase slightly in the second half of this year to around 2.5% owing to the unwinding of energy-related base effects.
- CPI inflation is projected to be 1.9% in two years’ time and 1.6% in three years in the May Report. With respect to indicators of inflation persistence, services consumer price inflation has declined but remains elevated at 6% in March.
- Following modest weakness last year, UK GDP is expected to have risen by 0.4% in 2024 Q1 and to grow by 0.2% in Q2, stronger than expected in the February Report. Despite picking up during the forecast period, demand growth is expected to remain weaker than potential supply growth throughout most of that period.
- The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably and will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation.
- Next meeting is on 20 June 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?
With no major news impacting the Forex market today, the Canadian Dollar (CAD) might see modest movements. The opening price for CAD/USD today was 0.72812. As the Asian markets opened, USD/CAD was trading around a pivotal level.
Support: 1.3693
Resistance: 1.381
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 25 basis points to 4.75% while continuing its policy of balance sheet normalization.
- Canada’s economic growth resumed in the first quarter of 2024 after stalling in the second half of last year. At 1.7%, first-quarter GDP growth was slower than forecast in the MPR but consumption growth was solid at about 3%, and business investment and housing activity also increased.
- Inflation remains above the 2% target and shelter price inflation is high but total CPI inflation has declined consistently over the course of this year, and indicators of underlying inflation increasingly point to a sustained easing.
- CPI inflation has eased from 3.4% in December to 2.7% in April while the preferred measures of core inflation have come down from about 3.5% last December to about 2.75% in April and the 3-month rate of core inflation slowed from about 3.5% in December to under 2% in March and April.
- In the labour market, businesses are continuing to hire workers as employment has been growing, but at a slower pace than the working-age population while elevated wage pressures look to be moderating gradually.
- The Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- Recent data has increased the council’s confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain.
- Next meeting is on 24 July 2024.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Even without significant news impacting the forex market today, movements in oil prices can still influence currency pairs linked to oil-exporting nations, such as the Canadian Dollar (CAD) and the Norwegian Krone (NOK). If oil prices rise, these currencies could strengthen due to increased revenue expectations from oil exports. Conversely, a decline in oil prices might weaken these currencies
Next 24 Hours Bias
Weak Bullish
