IC Markets Europe Fundamental Forecast | 8 April 2024
What happened in the Asia session?
Trading activity was relatively muted this morning as the dollar index (DXY) hovered around 104.30 while prices for spot gold remained above $2,330/oz. Crude oil prices continue to face downwards pressures from easing tensions in the Middle East – WTI oil dipped under the level of $85 per barrel but retraced higher to climb above $85.50 by midday during the Asian trading hours.
What does it mean for the Europe & US sessions?
Industrial production in Germany has been dire over the past one year but industrial output grew 1% MoM in January to mark the first expansion in nine months. February’s estimate of 0.6% points to another month of higher output albeit at a slightly lower pace. Should production for Europe’s industrial powerhouse beat market estimates for the second consecutive month, it could provide a strong lift for the Euro during the Europe session.
Swiss National Bank (SNB) Chairman Thomas Jordan will be speaking at an event in Zurich later today. Following the surprise cut in its key policy rate three weeks ago, markets will be looking to Chairman Jordan for further insights on the direction for monetary policy in Switzerland. Should he communicate a dovish outlook during his speech, it is likely to increase selling pressures on the Swiss franc and potentially lift USD/CHF higher.
The Dollar Index (DXY)
Key news events today
NY Fed 1-Year Consumer Inflation Expectations (3:00 pm GMT)
What can we expect from DXY today?
The New York Federal Reserve’s 1-year consumer inflation expectations has moderated lower since mid-2022 to touch 3.3% in February as inflationary pressures dissipated over this period in the US. However, recent CPI and PPI data highlight a potential re-acceleration in inflation which could bump up the latest reading by the New York Fed. Although the dollar sold off quite strongly last week, it could see some demand return should inflation expectations surprise markets to the upside.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the fifth 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 are moving into better balance.
- The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks; inflation has eased over the past year but remains elevated.
- Recent indicators suggest that economic activity has been expanding at a solid pace while job gains have remained strong, and the unemployment rate has remained low.
- 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 and 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%.
- 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 April to 1 May 2024.
Next 24 Hours Bias
Weak Bearish
Gold (XAU)
Key news events today
NY Fed 1-Year Consumer Inflation Expectations (3:00 pm GMT)
What can we expect from Gold today?
The New York Federal Reserve’s 1-year consumer inflation expectations has moderated lower since mid-2022 to touch 3.3% in February as inflationary pressures dissipated over this period in the US. However, recent CPI and PPI data highlight a potential re-acceleration in inflation which could bump up the latest reading by the New York Fed. Although the dollar sold off quite strongly last week, it could see some demand return should inflation expectations surprise markets to the upside and potentially cap the recent astronomical gains in gold.
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?
After rebounding last Tuesday to hit a high 0.6619, the Aussie pulled back by the end of last week to close at 0.6579. This currency pair gapped lower this morning to slide lower but it found some support around the region of 0.6560 before climbing higher. Today’s key resistance and support levels for the Aussie lie at 0.6650 and 0.6477 respectively.
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
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Overhead pressures remain for the Kiwi as it hit a low of 0.5940 last Tuesday before retracing higher to close at 0.6016. This currency pair gapped slightly lower this morning and edged lower towards the threshold of 0.6000. Today’s key resistance and support levels for the Kiwi lie at 0.6050 and 0.5950 respectively.
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
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Significant weakness in the Japanese yen has caused UDS/JPY to hit the level of 152 in recent weeks. However, this level has acted as a major resistance area since October 2022 and it has yet to be breached. Should this currency pair finally break above this key threshold convincingly, the next major area of support lies at 153.50 – key support lies at 146.40.
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.
- Underlying CPI inflation is likely to increase gradually toward achieving the price stability target of 2%, 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 26 April 2024.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
Germany Industrial Production (6:00 am GMT)
What can we expect from EUR today?
Industrial production in Germany has been dire over the past one year but industrial output grew 1% MoM in January to mark the first expansion in nine months. February’s estimate of 0.6% points to another month of higher output albeit at a slightly lower pace. Should production for Europe’s industrial powerhouse beat market estimates for the second consecutive month, it could provide a strong lift for the Euro during the Europe session.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged for a fourth consecutive meeting, keeping the main refinancing rate on hold at 4.50%.
- Since the last Governing Council meeting in January, inflation has declined further while the latest ECB staff projections show inflation has been revised down, in particular for 2024, which mainly reflects a lower contribution from energy prices.
- The projections for inflation excluding energy and food have also been revised down and average 2.6% for 2024, 2.1% for 2025 and 2.0% for 2026. Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages.
- Financing conditions are restrictive and the past interest rate increases continue to weigh on demand, which is helping push down inflation. Staff have revised down their growth projection for 2024 to 0.6%, with economic activity expected to remain subdued in the near term.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.
- Next meeting is on 11 April 2024.
Next 24 Hours Bias
Weak Bullish
The Swiss Franc (CHF)
Key news events today
SNB Chairman Jordan Speaks (3:15 pm GMT)
What can we expect from CHF today?
Swiss National Bank (SNB) Chairman Thomas Jordan will be speaking at an event in Zurich later today. Following the surprise cut in its key policy rate three weeks ago, markets will be looking to Chairman Jordan for further insights on the direction for monetary policy in Switzerland. Should he communicate a dovish outlook during his speech, it is likely to increase selling pressures on the Swiss franc and potentially lift USD/CHF higher.
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
Medium Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The Pound has oscillated approximately between 1.2550 and 1.2800 since mid-December and it is likely to continue this sideways price action this week as well. This currency pair gapped lower to open at 1.2630 before sliding as low 1.2615 – should the key support level of 1.2550 hold steady, GBP/USD is likely to rebound and climb above 1.2600 once again.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Canada released its equivalent of the NFPs last Friday which showed the labour market softened for the month of March. Employment changed missed market expectations of a 25.9K-growth as the labour market shed 2.2k jobs instead while the unemployment rate increased from 5.8% to 6.1%, coming in higher than the forecast of 5.9%. Combined with robust NFP gains in the US, the Loonie sold off hard causing USD/CAD to spike as high as 1.3647 last Friday. However, this currency pair pulled back to close around 1.3590. Selling pressures remain for the Loonie which could cause USD/CAD to remain elevated today.
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
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Prices for crude oil experienced its largest weekly gain since February as WTI oil rose 4.5%, rising from $83.60 to close at $87.04 per barrel last Friday. However, easing tensions in the Middle East has capped the recent gains as crude prices gapped lower at the open. Israel’s withdrawal of more soldiers from southern Gaza and a commitment to fresh talks on a potential ceasefire in the six-month conflict has halted the uptrend for now. WTI oil gapped lower to open at $86.18 to slide as low as $84.95 per barrel – downward pressures are building as the new trading week kicks off.
Next 24 Hours Bias
Medium Bearish
