IC Trading Europe Fundamental Forecast | 10 September 2024
What happened in the Asia session?
The dollar index (DXY) pulled back slightly this morning to stabilize around 101.60 before resuming the uptrend. It was climbing towards 101.80 while spot prices for gold managed to climb above $2,500/oz. Stronger demand for the dollar has put some downward pressure on this precious metal but it gained traction to grind higher by Asia midday.
What does it mean for the Europe & US sessions?
Claimant count change spiked in July as claims surged by 135K, way above the readings for May (51.9K) and June (36.2K) while the unemployment rate edged lower from 4.4% down to 4.2%. The estimate of 95.5K claims for August points to another elevated figure – should claims print higher than this forecast while the unemployment rate ticks higher, the Pound could face significant headwinds before the start of the European session.
The final CPI print for the month of August for Germany is anticipated to show prices falling 0.1% MoM while the annualised reading is anticipated to slow from 2.3% YoY in July to 1.9% YoY. Inflationary pressures have dissipated steadily due to the depressed levels of manufacturing activity and it could cause the Euro to fall even further today.
Following last week’s interest rate cut, Bank of Canada Governor Tiff MAcklem will be speaking at the Canada-United Kingdom Chamber of Commerce in London where he could shed further insights into the outlook on future monetary policy actions by this central bank. Demand for the greenback has picked up significantly since last Friday causing USD/CAD to surge past 1.3550 – any further dovish comments by Governor Macklem will likely lift his currency pair even higher.
The Dollar Index (DXY)
Key news events today
FOMC Member Barr Speaks (2:00 pm GMT)
FOMC Member Bowman Speaks (4:15 pm GMT)
What can we expect from DXY today?
There are not one but two Federal Reserve Governors speaking today. Up first is Governor Michael Barr who will be speaking about Basel III at the Brookings Institution in Washington DC where audience are questions expected while Governor Michelle Bowman delivers her speech titled “The Future of Stress Testing and the Stress Capital Buffer Framework” at the Executive Council of the Banking Law Section of the Federal Bar Association in Arlington. Should either of them drop further dovish rhetoric, it could limit the recent gains seen in the dollar.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the eighth 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 continue to move into better balance.
- The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
- Recent indicators suggest that economic activity has continued to expand at a solid pace while job gains have moderated, and the unemployment rate has moved up but remains 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 assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee slowed the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
- The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.
- Next meeting runs from 17 to 18 September 2024.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
FOMC Member Barr Speaks (2:00 pm GMT)
FOMC Member Bowman Speaks (4:15 pm GMT)
What can we expect from Gold today?
There are not one but two Federal Reserve Governors speaking today. Up first is Governor Michael Barr who will be speaking about Basel III at the Brookings Institution in Washington DC where audience are questions expected while Governor Michelle Bowman delivers her speech titled “The Future of Stress Testing and the Stress Capital Buffer Framework” at the Executive Council of the Banking Law Section of the Federal Bar Association in Arlington. Should either of them drop further dovish rhetoric, it could limit the recent gains seen in the dollar and potentially lift gold prices.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie dropped to an overnight low of 0.6644 as demand for the U.S. dollar returned. This currency pair was trading around 0.6655 as Asian markets came online – these are the support and resistance levels for today.
Support: 0.6630
Resistance: 0.6700
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35% on 6th August, marking the sixth consecutive pause.
- Inflation has fallen substantially since its peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance but it still remains above the midpoint of the 2 to 3% target range.
- The CPI rose by 3.9% over the year to the June quarter, demonstrating that inflation is proving persistent. In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters while quarterly underlying CPI inflation has fallen very little over the past year.
- The central forecasts set out in the latest SMP are for inflation to return to the target range of 2 to 3% in late 2025 and approach the midpoint in 2026. This represents a slightly slower return to target than forecast in May, based on estimates that the gap between aggregate demand and supply in the economy is larger than previously thought.
- Momentum in economic activity has been weak, as evidenced by slow growth in GDP, a rise in the unemployment rate and reports that many businesses are under pressure. In addition, there is a risk that household consumption picks up more slowly than expected, resulting in continued subdued output growth and a noticeable deterioration in the labour market.
- Inflation in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range while recent data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out.
- Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range and will rely upon the incoming data and the evolving assessment of risks to guide its decisions.
- Next meeting is on 5 November 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 demand for the greenback drove the Kiwi under 0.6150 overnight. This currency pair was trading around 0.6135 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.6120
Resistance: 0.6235
Central Bank Notes:
- The Monetary Policy Committee agreed to reduce the OCR by 25 basis points, bringing it down to 5.25% in August as inflation converges on target.
- The Committee is confident that inflation is returning to within its 1-3% target band as surveyed inflation expectations, firms’ pricing behaviour, headline inflation, and a variety of core inflation measures are moving consistent with low and stable inflation.
- Economic growth remains below trend and inflation is declining across advanced economies – imported inflation into New Zealand has declined to be more consistent with pre-pandemic levels.
- Services inflation remains elevated but is also expected to continue to decline, both at home and abroad, in line with increased spare economic capacity.
- Consumer price inflation in New Zealand is expected to remain near the target mid-point over the foreseeable future.
- A broad range of high-frequency indicators point to a material weakening in domestic economic activity in recent months – these include various survey measures of business activity, electronic card transactions, vehicle traffic, house sales, filled jobs, and job vacancies; these indicators collectively provide a consistent signal that the economy contracted in recent months.
- The pace of further easing will depend on the Committee’s confidence that pricing behaviour remains consistent with a low inflation environment, and that inflation expectations are anchored around the 2% target.
- Next meeting is on 9 October 2024.
Next 24 Hours Bias
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Demand for the yen waned yesterday as USD/JPY rose as high as 143.79. This currency pair dipped under 143 during the U.S. session but it resumed the uptrend to trade around 143.50 as Asian markets came online – these are the support and resistance levels for today.
Support: 142.00
Resistance: 145.00
Central Bank Notes:
- The Policy Board of the Bank of Japan decided, by a 7-2 majority vote, to set the following guideline for money market operations for the intermeeting period and decided on the following measures:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0.25% while reducing its purchase amount of Japanese government bonds (JGB) by a unanimous vote.
- The Bank decided, by a unanimous vote, on a plan to reduce the amount of its monthly outright purchases of JGBs so that it will be about 3 trillion yen in January-March 2026; the amount will be cut down by about 400 billion yen each calendar quarter in principle.
- The year-on-year rate of increase in the CPI (all items less fresh food) is likely to be at around 2.5% for fiscal 2024 and then be at around 2% for fiscal 2025 and 2026.
- Meanwhile, underlying CPI inflation is expected to increase gradually, since it is projected that the output gap will improve and that medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify.
- In the second half of the projection period, it is likely to be at a level that is generally consistent with the price stability target of 2%.
- Japan’s economy is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions.
- Next meeting is on 20 September 2024.
Next 24 Hours Bias
Medium Bullish
The Euro (EUR)
Key news events today
Germany CPI (6:00 am GMT)
What can we expect from EUR today?
The final CPI print for the month of August for Germany is anticipated to show prices falling 0.1% MoM while the annualised reading is anticipated to slow from 2.3% YoY in July to 1.9% YoY. Inflationary pressures have dissipated steadily due to the depressed levels of manufacturing activity and it could cause the Euro to fall even further today.
Central Bank Notes:
- The Governing Council today decided to keep the three key ECB interest rates unchanged in July, following a 25 basis points cut in June.
- Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 4.25%, 4.50% and 3.75% respectively.
- Monetary policy is keeping financing conditions restrictive but at the same time, domestic price pressures are still high, services inflation is elevated and headline inflation is likely to remain above the target well into next year.
- While some measures of underlying inflation ticked up in May owing to one-off factors, most measures were either stable or edged down in June.
- The incoming information indicates that the euro area economy grew in the second quarter, but likely at a slower pace than in the first quarter.
- Services continue to lead the recovery, while industrial production and goods exports have been weak – investment indicators point to muted growth in 2024, amid heightened uncertainty.
- The Eurosystem no longer reinvests all of the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP), reducing the PEPP portfolio by €7.5 billion per month on average and the Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024.
- The Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim and is not pre-committing to a particular rate path.
- Next meeting is on 12 September 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?
Demand for the dollar increased significantly causing USD/CHF to rise towards the 0.8500-level overnight. This currency pair was trading around 0.8495 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.8390
Resistance: 0.8550
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points for the second consecutive meeting, going from 1.50% to 1.25% in June.
- The underlying inflationary pressure has decreased again compared to the previous quarter but inflation had risen slightly since the last monetary policy assessment, and stood at 1.4% in May.
- The inflation forecast puts average annual inflation at 1.3% for 2024, 1.1% for 2025 and 1.0% for 2026, based on the assumption that the SNB policy rate is 1.25% over the entire forecast horizon.
- Swiss GDP growth was moderate in the first quarter of 2024 with the services sector continuing to expand, while manufacturing stagnated.
- Growth is likely to remain moderate in Switzerland in the coming quarters as the SNB anticipates GDP growth of around 1% this year while currently expecting growth of around 1.5% for 2025.
- Next meeting is on 26 September 2024.
Next 24 Hours Bias
Medium Bullish
The Pound (GBP)
Key news events today
Labour Force Report (6:00 am GMT)
What can we expect from GBP today?
Claimant count change spiked in July as claims surged by 135K, way above the readings for May (51.9K) and June (36.2K) while the unemployment rate edged lower from 4.4% down to 4.2%. The estimate of 95.5K claims for August points to another elevated figure – should claims print higher than this forecast while the unemployment rate ticks higher, the Pound could face significant headwinds before the start of the European session.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 5-to-4 to reduce its Official Bank Rate by 25 basis points to 5.00% on 1st August 2024.
- Five members preferred to reduce the Bank Rate by 25 basis points to 5%, an increase of two from the previous meeting while four members preferred to maintain the Bank Rate at 5.25%.
- Twelve-month CPI inflation was at the MPC’s 2% target in both May and June but it is expected to increase to around 2.75% in the second half of this year as declines in energy prices last year fall out of the annual comparison, revealing more clearly the prevailing persistence of domestic inflationary pressures. Private sector regular average weekly earnings growth has fallen to 5.6% in the three months to May, and services consumer price inflation has declined to 5.7% in June.
- GDP has picked up quite sharply so far this year, but underlying momentum appears weaker. GDP had grown by 0.7% in 2024 Q1, with that strength appearing to have continued into Q2. Growth in the first half of the year had been stronger than expected at the time of the May Report.
- Business surveys had continued to point to underlying growth of around 0.3% per quarter, somewhat weaker than headline GDP growth. A margin of slack should emerge in the economy as GDP falls below potential and the labour market eases further.
- The Committee noted that it is now appropriate to reduce slightly the degree of policy restrictiveness but monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.
- The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting.
- Next meeting is on 19 September 2024.
Next 24 Hours Bias
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
BoC Gov Macklem Speaks (12:10 pm GMT)
What can we expect from CAD today?
Following last week’s interest rate cut, Bank of Canada Governor Tiff MAcklem will be speaking at the Canada-United Kingdom Chamber of Commerce in London where he could shed further insights into the outlook on future monetary policy actions by this central bank. Demand for the greenback has picked up significantly since last Friday causing USD/CAD to surge past 1.3550 – any further dovish comments by Governor Macklem will likely lift his currency pair even higher.
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 25 basis points for the third consecutive meeting to 4.25% while continuing its policy of balance sheet normalization on 4th September.
- Canada’s economy grew 2.1% in the second quarter of 2024, led by government spending and business investment.
- This second quarter GDP growth was slightly stronger than forecast in July, but preliminary indicators suggest that economic activity was soft through June and July.
- As expected, inflation slowed further to 2.5% in July. The Bank’s preferred measures of core inflation averaged around 2.5% and the share of components of the consumer price index growing above 3% is roughly at its historical norm.
- High shelter price inflation is still the biggest contributor to total inflation but is starting to slow while inflation also remains elevated in some other services.
- The labour market continues to slow, with little change in employment in recent months. Wage growth, however, remains elevated relative to productivity.
- The Governing Council is carefully assessing these opposing forces on inflation and monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook.
- The Bank remains resolute in its commitment to restoring price stability for Canadians.
- Next meeting is on 23 October 2024.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
OPEC Report (11:00 am GMT)
API Crude Oil Stock (2:30 pm GMT)
What can we expect from Oil today?
OPEC will release its monthly report for September where oil traders will receive the latest insights such as the current state of production and demand levels, and refinery operations for crude oil. There could even be clues on the proposed increase in production supply by OPEC+ and when it could come into effect. Later on, the API will release its update on the latest inventory levels in the U.S. which have drawn down quite strongly over the last couple of weeks – a third consecutive week of a higher-than-anticipated draw could function as a tailwind for crude oil.
Meanwhile, oil prices stabilized yesterday before climbing higher with WTI oil finding support around $68 per barrel. This benchmark gained 0.6% overnight and continued its ascend to rise above the $69-level as Asian markets came online this morning.
Next 24 Hours Bias
Weak Bullish
