IC Markets Europe Fundamental Forecast | 31 January 2024
What happened in the Asia session?
Inflationary pressures continue to dissipate in Australia as the monthly CPI indicator eased from 4.3% YoY in November to 3.4% YoY in December while the quarterly inflation rate also slowed from 1.2% in Q3 to 0.6% in Q4 of 2023. The Aussie dived from 0.6600 to as low as 0.6559 following this news release and is likely to remain under pressure for the rest of the day.
What does it mean for the Europe & US sessions?
ADP non-farm employment surprised to the upside for the month of December as 164k jobs were gained versus the estimate of 120k. Should January’s print come in higher than the estimate once more, it is likely to boost the dollar.
After which, the Federal Reserve will release its first FOMC statement of 2024 where they are widely expected to keep the Fed funds rate on hold at 5.25% to 5.50% for the fourth meeting in a row. Should the statement and Fed Chairman Jerome Powell’s subsequent press conference communicate a hawkish tone, demand for the dollar is most certainly set to spike.
The Dollar Index (DXY)
Key news events today
ADP Non-Farm Employment (1:15 pm GMT)
FOMC Statement (7:00 pm GMT)
FOMC Press Conference (7:30 pm GMT)
What can we expect from DXY today?
ADP non-farm employment surprised to the upside for the month of December as 164k jobs were gained versus the estimate of 120k. Should January’s print come in higher than the estimate once more, it is likely to boost the dollar.
After which, the Federal Reserve will release its first FOMC statement of 2024 where they are widely expected to keep the Fed funds rate on hold at 5.25% to 5.50% for the fourth meeting in a row. Should the statement and Fed Chairman Jerome Powell’s subsequent press conference communicate a hawkish tone, demand for the dollar is most certainly set to spike.
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
Weak Bullish
Gold (XAU)
Key news events today
ADP Non-Farm Employment (1:15 pm GMT)
FOMC Statement (7:00 pm GMT)
FOMC Press Conference (7:30 pm GMT)
What can we expect from Gold today?
ADP non-farm employment surprised to the upside for the month of December as 164k jobs were gained versus the estimate of 120k. Should January’s print come in higher than the estimate once more, it is likely to boost the dollar and dampen gold prices.
After which, the Federal Reserve will release its first FOMC statement of 2024 where they are widely expected to keep the Fed funds rate on hold at 5.25% to 5.50% for the fourth meeting in a row. Should the statement and Fed Chairman Jerome Powell’s subsequent press conference communicate a hawkish tone, demand for the dollar is most certainly set to spike and cause this precious metal to tumble.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
CPI (12:30 am GMT)
What can we expect from AUD today?
Inflationary pressures continue to dissipate in Australia as the monthly CPI indicator eased from 4.3% YoY in November to 3.4% YoY in December while the quarterly inflation rate also slowed from 1.2% in Q3 to 0.6% in Q4 of 2023. The Aussie dived from 0.6600 to as low as 0.6559 following this news release and is likely to remain under pressure for the rest of the day.
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 Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Higher-than-anticipated JOLTS job openings in the US spurred strong demand for the dollar and drove the Kiwi as low as 0.6105 overnight. However, the Kiwi retraced higher towards the end of the US session before it started to slide lower 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
Weak Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Japanese yen saw significant inflows yesterday causing many of the yen crosses to tumble hard, with USD/JPY dropping as low as 147.10 overnight. Despite better-than-expected JOLTS job openings, this currency pair failed to climb higher and it fell under 147.50 once more at the beginning of the Asia session today.
Central Bank Notes:
- The Bank will continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control (YCC), aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a sustainable and stable manner.
- The Bank of Japan decided on the following measures:
- YCC: 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 are expected to rise moderately toward the end of the projection period, with continued improvement in the output gap and changes in firms’ wage- and price-setting behaviour and in labour-management wage negotiations.
- 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 19 March 2024.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
Germany CPI (Tentative)
What can we expect from EUR today?
Inflation in Germany, the manufacturing powerhouse of Europe, has cooled quite considerably since mid-2023 but the headline and core CPI readings of 3.7% YoY and 3.5% YoY respectively are still above the target of 2.0%. Should inflation continue to ease further, it could likely function as a bearish catalyst for the Euro.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a third consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- The incoming information has broadly confirmed its previous assessment of the medium-term inflation outlook.
- Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions.
- Tight 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 7 March 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?
Despite strong demand for the dollar due to the better-than-expected JOLTS job openings overnight, the Swiss franc showed resilience as USD/CHF continues to remain under pressure. This currency pair could retrace higher as the day progresses but overhead pressures remain.
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 Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Higher-than-anticipated JOLTS job openings in the US spurred strong demand for the dollar and drove the Pound as low as 1.2640 overnight. However, the Pound rebounded strongly off this level to briefly climb above 1.2700 as Asian markets came online. Despite the strong rebound, overhead pressures remain for this currency.
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 Bearish
The Canadian Dollar (CAD)
Key news events today
GDP (1:30 pm GMT)
What can we expect from CAD today?
On a monthly basis, economic growth in Canada has stalled over the past three months. December’s estimate of a gain of 0.1% highlights the continuation of anaemic growth and another weak GDP print is likely to put pressure on the Loonie and thus provide a potential boost for USD/CAD.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0% for the fourth meeting in a row while continuing its policy of quantitative tightening.
- Canada’s economy has stalled since the middle of 2023 with real GDP forecasted to grow 0.8% in 2024 and 2.4% in 2025.
- The slowdown in demand is reducing price pressures in a broader number of CPI components, with CPI inflation expected to remain close to 3% in the first half of 2024 before gradually easing, returning to the target of 2% in 2025.
- The Governing Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation, and wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.
- Next meeting is on 10 April 2024.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
EIA Crude Oil Inventories (3:30 pm GMT)
What can we expect from Oil today?
Crude oil prices rose overnight as the combination of a higher global economic growth forecast by the IMF and escalating geopolitical tensions in the Middle East offset demand concerns from China. WTI oil hit the mark of $78 per barrel overnight before sliding lower at the beginning of today’s Asia session.
Moving over to US inventory levels, the API stockpiles experienced a larger-than-expected draw with 2.5M barrels of crude being removed versus the estimate of a 0.9M-decline. Should the EIA inventories also follow suit and fall more than anticipated, it could provide a boost for oil prices during the US session.
Next 24 Hours Bias
Weak Bullish
