IC Markets Europe Fundamental Forecast | 7 March 2024
What happened in the Asia session?
It was a relatively quiet morning with the dollar index (DXY) trading around 103.30 for most of the session before sliding lower towards 103.20 while spot gold prices briefly climbed above $2,060/oz before pulling back towards $2,050/oz. Meanwhile, crude oil prices stabilized with WTI oil finding support around $78.50 per barrel and look set to rise during the European trading hours.
What does it mean for the Europe & US sessions?
The ECB will release its monetary policy statement where it is widely expected to maintain its main refinancing rate on hold at 4.50% for the fourth straight meeting followed by President Chrisine Lagarde’s press conference. Should the statement and President Lagarde’s press conference both communicate a neutral and dovish tone, it could cap the overnight gains in the Euro. This currency broke above 1.0900 overnight and could remain elevated until the ECB statement hits the news wires.
Meanwhile, Federal Reserve Chairman Jerome Powell will begin his second day of testifying before the House Financial Services Committee. Following yesterday’s testimony where his statements were construed by markets to be less hawkish than expected, it is quite certain that he will not deviate much from his current stance which is likely to cause the dollar to slide lower once more.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (1:30 pm GMT)
Fed Chair Powell Testifies (3:00 pm GMT)
What can we expect from DXY today?
Unemployment claims reversed a three-week downtrend last Thursday as it rose up 215K which was higher than the estimate of 209K – higher claims suggest a potential softening of the US labour market. Meanwhile, Federal Reserve Chairman Jerome Powell will begin his second day of testifying before the House Financial Services Committee. Following yesterday’s testimony where his statements were construed by markets to be less hawkish than expected, it is quite certain that he will not deviate much from his current stance which is likely to cause the dollar to slide lower once more.
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.
- Recent indicators suggest that economic activity has been expanding at a solid pace.
- Job gains have moderated since early last year but remain strong, and the unemployment rate has remained low.
- Inflation has eased over the past year but remains elevated.
- 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. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2.0%.
- 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 19 to 30 March 2024.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
Unemployment Claims (1:30 pm GMT)
Fed Chair Powell Testifies (3:00 pm GMT)
What can we expect from Gold today?
Unemployment claims reversed a three-week downtrend last Thursday as it rose up 215K which was higher than the estimate of 209K – higher claims suggest a potential softening of the US labour market. Meanwhile, Federal Reserve Chairman Jerome Powell will begin his second day of testifying before the House Financial Services Committee. Following yesterday’s testimony where his statements were construed by markets to be less hawkish than expected, it is quite certain that he will not deviate much from his current stance which is likely to cause the dollar to slide lower once more and keep gold prices elevated.
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?
Following the overnight release of the ADP and JOLTS data as well as Federal Reserve Chairman Jerome Powell’s testimony in the US, the Aussie rose strongly to climb past 0.6550 to hit an overnight high of 0.6580. This currency was pulling back slightly at the beginning of the Asia session but it is likely to remain buoyed today.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35%, marking the sixth pause out of the last seven board meetings.
- Inflation continues to ease in the December quarter but remains high at 4.1% YoY.
- The central forecasts are for inflation to return to the target range of 2 to 3% in 2025, and to the midpoint in 2026.
- The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.
- Next meeting is on 19 March 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 jumped strongly from 0.6100 following the overnight release of the ADP and JOLTS data as well as Federal Reserve Chairman Jerome Powell’s testimony in the US as it hit an overnight high of 0.6145. This currency was pulling back slightly as Asian markets came online but it is likely to remain elevated today.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the fifth meeting in a row.
- The Committee remains confident that the current level of the OCR is restricting demand. However, a sustained decline in capacity pressures in the New Zealand economy is required to ensure that headline inflation returns to the 1 to 3% target.
- Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced.
- However, headline inflation remains above the 1 to 3% target band, limiting the Committee’s ability to tolerate upside inflation surprises.
- The outlook for the China economy, New Zealand’s top trading partner, remains particularly weak relative to recent historical norms, with structural factors constraining long-term growth.
- Next meeting is on 22 May 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?
Following the overnight release of the ADP and JOLTS data as well as Federal Reserve Chairman Jerome Powell’s testimony in the US, the Japanese yen saw significant inflows causing USD/JPY to dive as low as 149.10 during the US session. This currency pair continued to fall lower and broke under 148.60 at the beginning of the Asia session and is expected to face overhead pressures as the day progresses.
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
Strong Bearish
The Euro (EUR)
Key news events today
ECB Monetary Policy Statement (1:15 pm GMT)
ECB Press Conference (1:45 pm GMT)
What can we expect from EUR today?
The ECB will release its monetary policy statement where it is widely expected to maintain its main refinancing rate on hold at 4.50% for the fourth straight meeting followed by President Chrisine Lagarde’s press conference. Should the statement and President Lagarde’s press conference both communicate a neutral and dovish tone, it could cap the overnight gains in the Euro. This currency broke above 1.0900 overnight and could remain elevated until the ECB statement hits the news wires.
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
Weak Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The Swiss franc experienced relatively strong inflows following the overnight release of the ADP and JOLTS data as well as Federal Reserve Chairman Jerome Powell’s testimony in the US, causing USD/CHF to tumble towards 0.8800. This currency pair retraced a little higher as Asian markets came online but reversed around 0.8830 to slide lower once more.
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?
Following the release of the ADP and JOLTS data as well as Federal Reserve Chairman Jerome Powell’s testimony in the US, the Pound surged to past 1.2750 to hit an overnight high of 1.2760. However, this currency pulled back and dipped under 1.2750 towards the end of the US session but it could once again climb above this level as the day progresses.
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% for the fourth consecutive meeting.
- Two members preferred to increase the Bank Rate by 0.25% to 5.50% while one member preferred to reduce Bank Rate by 0.25% to 5.00%.
- CPI inflation remains well above the 2% target, with twelve-month CPI inflation increasing from 3.9% in November to 4.0% in December 2023 while wage growth has eased across a number of measures and is projected to decline further in coming quarters, although still elevated.
- This downside news has been broad-based, reflecting lower fuel, core goods and services price inflation.
- CPI inflation is projected to be 2.3% in two years’ time and 1.9% in three years.
- Next meeting is on 21 March 2024.
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
As widely expected, the Bank of Canada (BoC) maintained their overnight rate at 5.00% for the fifth consecutive meeting and pledged to continue normalizing their balance sheet. Policymakers still remain concerned about the risks to the outlook on inflation and they will persist with quantitative tightening until the core inflation reading eases further from January’s reading of 2.4% YoY and is well-anchored around the target of 2%.
The hawkish statement injected huge demand for the Loonie and caused USD/CAD to dive and drop as low as 1.3500, shedding nearly 90 pips in the process. This currency pair found support around the 1.3500-threshold and was retracing higher at the beginning of the Asia session but it could eventually reverse to resume the downtrend as the day progresses.
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 grew in the fourth quarter by more than expected, although the pace remained weak and below potential.
- CPI inflation eased to 2.9% in January as goods price inflation moderated further but shelter price inflation remains elevated and is the biggest contributor to inflation.
- Underlying inflationary pressures persist: year-over-year and three-month measures of core inflation are in the 3.0% to 3.5% range, and the share of CPI components growing above 3.0% declined but is still above the historical average. The Bank continues to expect inflation to remain close to 3.0% during the first half of this year before gradually easing.
- 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
No major news events.
What can we expect from Oil today?
Following the smaller-than-expected increase in API stockpiles, the EIA crude oil inventories continued this trend as it added only 1.4M barrels of crude versus the estimate of a 2.4M-build. In addition, Federal Reserve Chairman Jerome Powell’s testimony was also less hawkish than anticipated which helped to push up demand hopes for crude oil consumption in 2024. Prices for crude oil jumped with WTI oil gaining nearly 1.2% to briefly climb above $80.50 per barrel before reversing lower. This commodity continues to face high volatility and wild swings should come as no surprise.
Next 24 Hours Bias
Weak Bullish
