IC Markets Europe Fundamental Forecast | 5 January 2024
What happened in the Asia session?
The China Caixin PMi index rise to 52.9 in December from November’s 51.5, above the 50-mark and posting the highest reading since July. The data, providing a glimpse into business sentiment, presented a contrast to an official survey conducted on Sunday. The survey indicated a contradiction in the subindex of services activity towards the conclusion of 2023, prompting suggestions of additional stimulus measures in the year ahead.
What does it mean for the Europe & US sessions?
ADP Non-Farm Employment Change actual result was greater than forecasted, with 164K jobs added in December 2023. Job gains rose for the fourth consecutive month, led by a healthy bump in leisure and hospitality hiring, but manufacturing continued to struggle, notching another month of losses.
Unemployment Claims actual figure was 202K, a decrease of 18K from the previous week’s revised level. The initial claim figures was also lower than forecaseted, which is bullish for the US dollar.
The dollar index (DXY) opened lower than previous day at 102.180, despite the bullish result for the currency.
The Dollar Index (DXY)
Key news events today
NFPs (1:30 pm GMT)
Unemployment Rate (1:30 pm GMT)
What can we expect from DXY today?
Non-farm Payrolls (NFPs) growth has slowed in the second half of 2023. Despite November’s payrolls exceeding market expectations, it marked the second consecutive month of job gains that was below the average monthly gain of 240k over the past year – this trend highlights the slowdown in the US labour market. December’s forecast points to a growth of just 168k while the unemployment rate is expected to edge higher from 3.7% to 3.8%. Should NFPs miss the market estimate, it is bound to trigger a strong dollar sell-off.
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 Bearish
Gold (XAU)
Key news events today
NFPs (1:30 pm GMT)
Unemployment Rate (1:30 pm GMT)
What can we expect from Gold today?
Non-farm Payrolls (NFPs) growth has slowed in the second half of 2023. Despite November’s payrolls exceeding market expectations, it marked the second consecutive month of job gains that was below the average monthly gain of 240k over the past year – this trend highlights the slowdown in the US labour market. December’s forecast points to a growth of just 168k while the unemployment rate is expected to edge higher from 3.7% to 3.8%. Should NFPs miss the market estimate, it is bound to trigger a strong dollar sell-off and potentially provide a boost to 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?
In the Asian session the Aussie bounced off the support at 0.67036 and is showing signs of recovery.
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?
Along with the Aussie, the Kiwi is also showing signs of recovery, price has also bounced off the support at 0.62207.
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 Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The USDJPY continue to climb higher in US session. Japan’s economy is likely to continue recovering moderately for the time being, but the USDJPY currency pair could be affected by the hawkish result released yesterday.
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
Medium Bearish
The Euro (EUR)
Key news events today
CPI (10:00 am GMT)
What can we expect from EUR today?
On an annualized basis, inflation in the Eurozone has moderated quite significantly over the last few months with both the headline and core readings slowing considerably. However, the flash estimate for December shows headline CPI increasing from 2.4% YoY to 3.0% YoY while the core is expected to slow from 3.6% YoY to 3.4% YoY. Should inflationary pressures return in the Eurozone, it could function as a bullish catalyst for the Euro.
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?
In the Asian session, the USDCHF currency pair is consolidating, market is showing signs of uncertainty, but could recovery, due to the hawkish data for the dollar, USDCHF closed at 0.85268 yesterday.
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
Medium Bullish
The Pound (GBP)
Key news events today
Construction PMI (9:30 am GMT)
What can we expect from GBP today?
Construction activity in the UK has contracted over the past three months as home-building remained the weakest segment, influenced by cutbacks in residential development projects and a general slowdown due to unfavorable market conditions. December’s forecast of 46.1 points to further deterioration in the construction sector and another weak PMI print could weigh on the Pound.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
Employment Change (1:30 pm GMT)
Unemployment Rate (1:30 pm GMT)
What can we expect from CAD today?
Monthly job gains have moderated in Canada over the past couple of months and December’s estimate of 12.2k jobs points to a further slowdown in job growth. Meanwhile, the unemployment rate is expected to edge up from 5.8% to 5.9%. A weak jobs report could weigh on the Loonie and thus lift USD/CAD during the US session.
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?
EIA crude oil inventories
On Thursday, oil prices concluded the day lower in a volatile session marked by significant fluctuations. The market was influenced by substantial weekly increases in gasoline and distillate stocks, which overshadowed a crude oil stock that exceeded expectations.
Low fuel demand and large inventory increases in data weighed on prices. Gasoline stocks rose by 10.9 million barrels to 237 million barrels, marking the most substantial week-on-week increase in over three decades.
Next 24 Hours Bias
Medium Bearish
