IC Markets Europe Fundamental Forecast | 22 January 2024
What happened in the Asia session?
The dollar index (DXY) found support around 103.10 before reversing to climb higher, pushing gold prices lower. This precious metal was sliding lower towards $2,020/oz and it could re-test last week’s key support level of $2,000/oz by the end of the day.
What does it mean for the Europe & US sessions?
The Conference Board will release its Leading Economic Index (LEI) for the month of December, which has contracted by 3.5% between May and November 2023. Housing and labour market indicators weakened in November to reflect warning areas for these segments. December’s estimate points to another month of decline in the LEI, resulting in the Board to forecast a short and shallow recession in the first half of 2024. A stronger-than-expected decline could put some downward pressure on the dollar.
The Dollar Index (DXY)
Key news events today
CB Leading Index (3:00 pm GMT)
What can we expect from DXY today?
The Conference Board will release its Leading Economic Index (LEI) for the month of December, which has contracted by 3.5% between May and November 2023. Housing and labour market indicators weakened in November to reflect warning areas for these segments. December’s estimate points to another month of decline in the LEI, resulting in the Board to forecast a short and shallow recession in the first half of 2024. A stronger-than-expected decline could put some downward pressure on the dollar.
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
CB Leading Index (3:00 pm GMT)
What can we expect from Gold today?
The Conference Board will release its Leading Economic Index (LEI) for the month of December, which has contracted by 3.5% between May and November 2023. Housing and labour market indicators weakened in November to reflect warning areas for these segments. December’s estimate points to another month of decline in the LEI, resulting in the Board to forecast a short and shallow recession in the first half of 2024. A stronger-than-expected decline could put some downward pressure on the dollar and potentially boost gold prices.
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 has declined sharply over the past three weeks to drop as low as 0.6525 last week. This currency has lost 3.1% over this period but opened strongly today to rise above the threshold of 0.6600 at the beginning of the Asia session.
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
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
In similar fashion to its Pacific neighbour, the Kiwi has tumbled over 3.3% in 2024 to fall as low as 0.6088 last week. However, this currency opened strongly today and was racing towards 0.6150 as Asian markets came online.
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 Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Japanese yen has weakened considerably at the beginning of 2024 causing USD/JPY to surge as high as 148.80. This currency pair has gained nearly 5% in three weeks, highlighting the strong bullish momentum. However, it was pulling back as markets re-opened today and looks set to dip under the 148-threshold during the Asia 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
Weak Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro has weakened at the beginning of 2024, causing it to dive as low as 1.0844 last week. This currency pair has shed 1.3% in three weeks, highlighting the strong bearish momentum. However, it opened strongly today and was rising towards 1.0890 at the beginning of the Asia session.
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
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The Swiss franc weakened considerably at the beginning of 2024 causing USD/CHF to surge as high as 0.8705 last week. This currency pair has gained nearly 3.2% in three weeks, highlighting the strong bullish momentum. However, USD/CHF could face resistance at the threshold of 0.8700 and possibly retreat from the level for the initial part of the day.
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
No major news events.
What can we expect from GBP today?
The Pound has shown resilience against a strong dollar in 2024 but suffered its largest decline in six weeks on Friday. This currency dropped as low as 1.2595 last week but rebounded strongly to close at 1.2704. It is likely to remain elevated today.
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
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Stronger demand for the US dollar drove USD/CAD past 1.3500 last week but the move was not sustained as this currency pair pulled back sharply on Friday to close at 1.3423. The Loonie was experiencing significant demand as markets re-opened today causing USD/CAD to tumble under 1.3450.
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?
Despite OPEC and the International Energy Agency (IEA) both raising their projection for global crude demand for 2024, crude oil prices remain under pressure as concerns rise around sluggish economic growth in China as well as other global economies. However, the ongoing geopolitical tensions on the Middle East and the Red Sea could continue to keep oil markets on edge.
Next 24 Hours Bias
Medium Bearish
