IC Markets Europe Fundamental Forecast | 2 May 2024
What happened in the Asia session?
Weakness in the dollar gained further traction as the dollar index (DXY) continued to slide lower this morning. This index hit a low of 105.56 and should remain under pressure until the US markets come online.
What does it mean for the Europe & US sessions?
Inflation in Switzerland has remained well-anchored under the Swiss National Bank’s (SNB) target of 2% over the past one year which prompted policymakers to announce a surprise interest rate cut in March. The monthly estimate for April points to headline CPI rising just 0.1% and should there be no upwards surprises, the franc is likely to remain under pressure and potentially keep USD/CHF elevated.
Not only have unemployment claims edged lower over the past three weeks, but they have also printed lower than their respective estimates which is a sign of a robust labour market. The estimate for this week is 212K while claims have averaged around 213K over the past eight weeks. Should claims once again come in lower than anticipated, it could provide a boost for the dollar.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
Not only have unemployment claims edged lower over the past three weeks, but they have also printed lower than their respective estimates which is a sign of a robust labour market. The estimate for this week is 212K while claims have averaged around 213K over the past eight weeks. Should claims once again come in lower than anticipated, it could provide a boost for the dollar.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the sixth 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 a lack of 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 assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee 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.
- The Committee’s assessments will take into account a wide range of information, including readings on labour market conditions, inflation pressures and inflation expectations, and financial and international developments.
- 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 11 to 12 June 2024.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
Not only have unemployment claims edged lower over the past three weeks, but they have also printed lower than their respective estimates which is a sign of a robust labour market. The estimate for this week is 212K while claims have averaged around 213K over the past eight weeks. Should claims once again come in lower than anticipated, it could provide a boost for the dollar and hold back any gains for gold.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie swung wildly during the period when the FOMC statement and press conference were released as it reversed sharply from 0.6540 to drop as low as 0.6500 before rebounding once again. This currency pair was trading around 0.6530 as Asian markets came online and was one of the stronger performing currencies this morning.
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
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi faced high volatility during the period when the FOMC statement and press conference were released – it reversed sharply from 0.5940 to drop as low as 0.5907 before rebounding to stabilize around 0.5925. This currency pair was trading around 0.5930 at the beginning of the Asia session and it could remain elevated today.
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
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The yen surged 3% against the dollar overnight, fuelling speculation that the Bank of Japan and Ministry of Finance (MOF) authorities could be intervening to support the currency. The sudden strength of the yen caused USD/JPY to nosedive from 157.60 to around 153 in under 40 minutes. There is growing speculation that Japanese authorities intervened on 29th April when USD/JPY briefly climbed above 160 for the first time in 34 years. It is believed that authorities spent close to ¥5.5 trillion ($34.8 billion) to support the currency, based on Bloomberg analysis of commercial banks’ deposits held at the BOJ. This currency pair retraced higher to climb above 156 as Asian markets came online and it could edge higher before the next suspected intervention takes place.
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.
- In a quarterly outlook, the committee revised higher CPI prints for FY 2024 to 2.8% from January’s projections of 2.4%, due to the waning effects of higher import prices and fewer government support measures.
- For 2025, the board expects core inflation to hit 1.9%, slightly higher than its earlier estimates of 1.8%, reflecting a recent rise in oil prices.
- Policymakers cut their 2023 GDP growth forecast to 1.3% from 1.8% and for FY 2024, the bank also slashed its GDP outlook to 0.8% from 1.2%, mainly reflecting lower private consumption.
- Next meeting is on 14 June 2024.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
Manufacturing PMI (9:00 am GMT)
What can we expect from EUR today?
The final reading for manufacturing PMI in the Euro area is expected to show manufacturing remaining in contraction with an unchanged figure of 45.6 which is a 4-month low. Activity for this sector remains sluggish and the final result is likely to add some downward pressure on the Euro at the beginning of the Europe 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
CPI (6:30 am GMT)
What can we expect from CHF today?
Inflation in Switzerland has remained well-anchored under the Swiss National Bank’s (SNB) target of 2% over the past one year which prompted policymakers to announce a surprise interest rate cut in March. The monthly estimate for April points to headline CPI rising just 0.1% and should there be no upwards surprises, the franc is likely to remain under pressure and potentially keep USD/CHF elevated.
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
No major news events.
What can we expect from GBP today?
The Pound swung wildly during the period when the FOMC statement and press conference were released as it reversed sharply from 1.2550 to drop as low as 1.2490 before rebounding once again. GBP/USD was trading around 1.2530 as Asian markets came online and looks set to edge higher during the Asia and Europe sessions.
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
BoC Governor Macklem Speaks (12:45 pm GMT)
What can we expect from CAD today?
Bank of Canada (BoC) Governor Tiff Macklem will be testifying before the House of Commons Standing Committee on Finance in Ottawa along with Senior Deputy Governor Carolyn Rogers. Traders will be paying close attention to this testimony and looking out for any clues on future monetary policy action. The Loonie strengthened quite significantly versus the dollar overnight as USD/CAD dipped under 1.3710 before rebounding as high as 1.3760 but then proceeded to fall once again. This currency pair was trading around 1.3730 at the beginning of the Asia session and it could break under the threshold of 1.3700 today.
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 Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
After a surprise fall of 3.2M barrels in API stocks, the EIA inventories bucked the trend by reporting an unexpected build of 7.3M barrels of crude oil. This was the largest increase since mid-February and sends out mixed signals with regards to the level of demand in the US. Prices for crude have been falling since Monday as WTI oil broke under $80 per barrel overnight. It was trading around $79.80 as Asian markets came online and should continue to face overhead pressures today.
Next 24 Hours Bias
Medium Bearish
