IC Trading Europe Fundamental Forecast | 19 December 2024 | IC Trading

IC Trading Asia Fundamental Forecast | 19 December 2024

What happened in the Asia session?

New Zealand’s economy contracted for the second consecutive quarter as GDP output fell 1.5% in the third quarter of this year, significantly lower than the estimate of a 0.4%-decline. This marked the fourth period of contraction over the past five quarters as goods-producing and service industries led the downturn. The Kiwi tumbled hard towards 0.5600 before stabilizing around 0.5630 by midday Asia. However, overhead pressures remain for this currency pair.

Meanwhile, the Bank of Japan (BoJ) maintained its key policy rate at 0.25%, in line with market consensus, during its final meeting of the year keeping it at the highest level since 2008. However, the vote was split 8 to 1 with board member Naoki Tamura advocating for a 25-basis point (bps) hike. The central bank needed more time to assess certain risks, particularly U.S. economic policies under incoming President Donald Trump and next year’s wage outlook while adhering to its assessment that Japan’s economy is on track for a moderate recovery, despite some areas of weakness. The press conference by Governor Kazuo Ueda will be equally if not more pivotal than the statement – his remarks will no doubt have a significant impact on the direction of the yen.

What does it mean for the Europe & US sessions?

The Bank of England (BoE) is expected to keep its official bank rate on hold at 4.75% as both headline and core CPI have picked up in recent months and are moving away from the target of 2%. This would mark the second pause since their rate cutting cycle began in August. The Pound has strengthened meaningfully since the end of November and could appreciate even further should the BoE maintain rates at current levels while the statement points to a hawkish outlook on future monetary policy action.

The Dollar Index (DXY)

Key news events today

GDP (1:30 pm GMT)

Unemployment Claims (1:30 pm GMT)

What can we expect from DXY today?

The final GDP reading for the third quarter of this year is expected to show the American economy growing at an annual rate of 2.8%, highlighting a strong economy. Meanwhile, unemployment claims have risen notably higher over the last couple of weeks which is typically a sign of potential labour market weakness. For the latest result, claims are forecasted to moderate marginally lower from 242K to 229K. Demand for the dollar could surge once more should markets receive a strong GDP result while unemployment claims fall more than anticipated.

Central Bank Notes:

The Board of Governors of the Federal Reserve System voted by a majority to lower the Federal Funds Rate target range by 25 basis points to 4.25 to 4.50% on 18 December. Voting against the action was Beth M. Hammack, who preferred to maintain the target range at 4.5 to 4.75%.
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 roughly in 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 labour market conditions have generally eased, and the unemployment rate has moved up but remains low.
Inflation has made further progress toward the Committee’s 2% objective but remains somewhat elevated.
The Summary of Economic Projections (SEP) now indicates just two rate cuts in 2025 totalling 50 bps, compared to the full percentage point of reductions projected in the previous quarter.
GDP growth forecasts were revised upward for 2024 (2.5% vs to 2% in the September projection) and 2025 (2.1% vs 2%), while remaining steady at 2% for 2026. Similarly, PCE inflation projections have been adjusted higher for 2024 (2.4% vs 2.3%), 2025 (2.5% vs 2.1%), and 2026 (2.1% vs 2%).
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.
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.
The next meeting runs from 28 to 29 January 2025.

Next 24 Hours Bias

Strong Bullish

Gold (XAU)

Key news events today

GDP (1:30 pm GMT)

Unemployment Claims (1:30 pm GMT)

What can we expect from Gold today?

Next 24 Hours Bias

Strong Bearish

The Australian Dollar (AUD)

Key news events today

No major news events.

What can we expect from AUD today?

The Aussie plunged more than 2% on Wednesday following a hawkish outlook by the Federal Reserve. Intense headwinds have built up for this currency pair and it could fall further as the day progresses – these are the support and resistance levels for today.

Support: 0.6170

Resistance: 0.6290

Central Bank Notes:

The RBA kept the cash rate target unchanged at 4.35% on 10th December, marking the ninth consecutive pause.
Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance. However, measures of underlying inflation are around 3.5%, which is still some way from the 2.5% midpoint of the inflation target.
The most recent forecasts published in the November Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026 but the Board is gaining some confidence that inflationary pressures are declining in line with these recent forecasts with risks remaining in place.
Growth in output has been weak as the economy grew by only 0.8% in the September quarter over the past year. Outside of the COVID-19 pandemic, this was the slowest pace of growth since the early 1990s.
A range of indicators suggest that labour market conditions remain tight; while those conditions have been easing gradually, some indicators have recently stabilised. The unemployment rate was 4.1 per cent in October, up from 3.5 per cent in late 2022.
Wage pressures have eased more than expected in the November SMP. The rate of wages growth as measured by the Wage Price Index was 3.5% over the year to the September quarter, a step down from the previous quarter, but labour productivity growth remains weak.
Sustainably returning inflation to target within a reasonable timeframe remains the Board’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment. To date, longer term inflation expectations have been consistent with the inflation target and it is important that this remains the case.
The Board will continue to rely upon the data and the evolving assessment of risks to guide its decisions, paying close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.
The next meeting is on 18 February 2025.

Next 24 Hours Bias

Strong Bearish

The Kiwi Dollar (NZD)

Key news events today

GDP (9:45 pm GMT 18th December)

What can we expect from NZD today?

Central Bank Notes:

The Monetary Policy Committee (MPC) agreed to reduce the Official Cash Rate (OCR) by 50 basis points bringing it down to 4.25% on 27 November, marking the third consecutive rate cut.
The Committee assessed that annual consumer price inflation has declined and is now close to the midpoint of the MPC’s 1 to 3% target band; inflation expectations are also close to target and core inflation is converging to the midpoint.
Economic activity remains subdued and output continues to be below its potential. With excess productive capacity in the economy, inflation pressures have eased. If economic conditions continue to evolve as projected, the Committee expects to be able to lower the OCR further early next year.
Domestic economic activity remains below trend, as a result of weakness in demand for durable goods consumption and investment. This has been reflected in falling activity in interest rate sensitive sectors such as construction, manufacturing, and retail trade. In contrast, some services sectors have continued to grow.
Consistent with feedback from business visits, high frequency indicators suggest that the economy has stabilised in recent months. Economic growth is expected to recover from the December quarter, in part due to lower interest rates, but there is uncertainty around the exact timing and speed of the recovery.
Wage growth is slowing, consistent with inflation returning to the target midpoint while employment levels and job vacancies have declined, reflecting subdued economic activity; unemployment is expected to continue rising in the near term.
Expectations of future inflation, the pricing intentions of firms, and spare productive capacity are consistent with the inflation target being sustainably achieved, providing the context and the confidence for the Committee to further ease monetary policy restraint.
The next meeting is on 19 February 2025.

Next 24 Hours Bias

Strong Bearish

The Japanese Yen (JPY)

Key news events today

BoJ Monetary Policy Statement (2:52 am GMT)

BoJ Press Conference (Tentative)

What can we expect from JPY today?

The Bank of Japan (BoJ) maintained its key policy rate at 0.25%, in line with market consensus, during its final meeting of the year keeping it at the highest level since 2008. However, the vote was split 8 to 1 with board member Naoki Tamura advocating for a 25-basis point (bps) hike. The central bank needed more time to assess certain risks, particularly U.S. economic policies under incoming President Donald Trump and next year’s wage outlook while adhering to its assessment that Japan’s economy is on track for a moderate recovery, despite some areas of weakness. The press conference by Governor Kazuo Ueda will be equally if not more pivotal than the statement – his remarks will no doubt have a significant impact on the direction of the yen.

Central Bank Notes:

The Policy Board of the Bank of Japan decided on 19 December, by a 8-1 majority vote, to set the following guideline for money market operations for the intermeeting period:
1. The Bank will encourage the uncollateralized overnight call rate to remain at around 0.25%.
2. The Bank will embark 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.
Japan’s economy has recovered moderately, although some weakness has been seen in part. Exports and industrial production have been more or less flat while corporate profits have been on an improving trend and business sentiment has stayed at a favourable level.
The employment and income situation has improved moderately while private consumption has been on a moderate increasing trend despite the impact of price rises and other factors.
On the price front, the year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) has been in the range of 2.0-2.5% recently, as services prices have continued to rise moderately, reflecting factors such as wage increases, although the effects of a passthrough to consumer prices of cost increases led by the past rise in import prices have waned; inflation expectations have risen moderately.
With regard to the CPI (all items less fresh food), while the effects of the pass-through to consumer prices of cost increases led by the past rise in import prices are expected to wane, 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.
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.
The next meeting is on 24 January 2025.

Next 24 Hours Bias

Strong Bullish

The Euro (EUR)

Key news events today

No major news events.

What can we expect from EUR today?

Following the outcome of the FOMC meeting, the Euro plunged almost 1.4% on Wednesday as it dived under 1.0400. This currency pair stabilized around 1.0350 at the beginning of the Asia session but overhead pressures remain firmly in place – these are the support and resistance levels for today.

Support: 1.0315

Resistance: 1.0460

Central Bank Notes:

The Governing Council reduced the three key ECB interest rates by 25 basis points on 12 December to mark the third successive rate cut.
Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 3.15%, 3.40% and 3.00% respectively.
The disinflation process is well on track and most measures of underlying inflation suggest that inflation will settle at around the Governing Council’s 2% medium-term target on a sustained basis.
Staff see headline inflation averaging 2.4% in 2024, 2.1% in 2025, 1.9% in 2026 and 2.1% in 2027 when the expanded EU Emissions Trading System becomes operational. For inflation excluding energy and food, staff project an average of 2.9% in 2024, 2.3% in 2025 and 1.9% in both 2026 and 2027.
Staff now expect a slower economic recovery than in the September projections. Although growth picked up in the third quarter of this year, survey indicators suggest it has slowed in the current quarter – the economy is expected to grow by 0.7% in 2024, 1.1% in 2025, 1.4% in 2026 and 1.3% in 2027
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 Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises sustainably at its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission.
The next meeting is on 30 January 2025.

Next 24 Hours Bias

Strong Bearish

The Swiss Franc (CHF)

Key news events today

No major news events.

What can we expect from CHF today?

As demand for the dollar surged overnight, USD/CHF soared past 0.9000 with ease. This currency pair is likely to remain elevated and was trading around 0.9010 at the beginning of the Asia session but it should remain elevated as the day progresses – these are the support and resistance levels for today.

Support: 0.8920

Resistance: 0.9050

Central Bank Notes:

The SNB eased monetary policy by lowering its key policy rate by 50 basis points, going from 1.00% to 0.50% on 12 December, marking for the fourth consecutive reduction.
Underlying inflationary pressure has decreased again this quarter.
Inflation in the period since the last monetary policy assessment has again been lower than expected as it decreased from 1.1% in August to 0.7% in November; both goods and services contributed to this decline.
In the shorter term, the new conditional inflation forecast is below that of September: 1.1% for 2024, 0.3% for 2025 and 0.8% for 2026, based on the assumption that the SNB policy rate is 0.5% over the entire forecast horizon.
GDP growth in Switzerland was only modest in the third quarter of 2024 with growth in the services sector was again somewhat stronger, while value added in manufacturing declined.
There was a further slight increase in unemployment, and employment growth was subdued while the utilisation of overall production capacity was
normal.
The SNB anticipates GDP growth of around 1% this year while currently expecting growth of between 1.0% and 1.5% for 2025.
The SNB will continue to monitor the situation closely, and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.
The next meeting is on 20 March 2025.

Next 24 Hours Bias

Strong Bullish

The Pound (GBP)

Key news events today

BoE Monetary Policy Statement (12:00 pm GMT)

What can we expect from GBP today?

Central Bank Notes:

The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8 to 1 to reduce the Bank Rate by 25 basis points, to 4.75% on 7 November 2024 – one member preferred to maintain the Bank rate at 5.0%.
The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100B over the next 12 months to a total of £558B, starting in October 2024.
Twelve-month CPI inflation fell to 1.7% in September but is expected to increase to around 2.5% by the end of the year as weakness in energy prices falls out of the annual comparison; services consumer price inflation has declined to 4.9%.
CPI inflation is expected to increase to around 2.75% by the second half of 2025 as weakness in energy prices falls out of the annual comparison, revealing more clearly the continuing persistence of domestic inflationary pressures.
The MPC’s latest projections for activity and inflation are also set out in the accompanying November Report; this forecast is based on the second case where CPI inflation is projected to fall back to around the 2% target in the medium term as a margin of slack emerges later in the forecast period that acts against second-round effects in domestic prices and wages.
GDP had grown by 0.5% in 2024 Q2, 0.2% weaker than had been expected in the August Report, and 0.1% weaker than the earlier outturn had indicated at the time of the MPC’s previous meeting. Through the second half of 2024, GDP was projected to grow at a somewhat slower rate than in Q2 – headline GDP growth is expected to fall back to its recent underlying pace of around 0.25% per quarter over the second half of this year.
The combined effects of the measures announced in Autumn Budget 2024 are provisionally expected to boost the level of GDP by around 0.75% at their peak in a year’s time, relative to the August projections, while the Budget is provisionally expected to boost CPI inflation by just under 0.5% at the peak.
Annual private sector regular average weekly earnings growth has continued to fall but remained elevated at 4.8% in the three months to August; the MPC judges that the labour market continues to loosen, although it appears relatively tight by historical standards.
Based on the evolving evidence, a gradual approach to removing policy restraint remains appropriate 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.
The next meeting is on 19 December 2024.

Next 24 Hours Bias

Strong Bearish

The Canadian Dollar (CAD)

Key news events today

No major news events.

What can we expect from CAD today?

A hawkish outlook for 2025 by the Federal Reserve triggered a surge in demand for the greenback propelling USD/CAD beyond 1.4450. This currency pair will likely remain elevated as the day progresses – these are the support and resistance levels for today.

Support: 1.4350

Resistance: 1.4560

Central Bank Notes:

The Bank of Canada reduced its target for the overnight rate by 50 basis points bringing it down to 3.25% while continuing its policy of balance sheet normalization on 11 December; this marked the fifth consecutive meeting where rates were reduced.
Canada’s economy grew by 1% in the third quarter, somewhat below the Bank’s October projection, and the fourth quarter also looks weaker than projected. Third-quarter GDP growth was pulled down by business investment, inventories and exports.
The unemployment rate rose to 6.8% in November as employment continued to grow more slowly than the labour force while wage growth showed some signs of easing, but remains elevated relative to productivity.
Headline CPI has declined significantly from 2.7% in June to 1.6% in September while shelter costs inflation remains elevated but has begun to ease; the preferred measures of core inflation are now below 2.5%.
CPI inflation has been about 2% since the summer, and is expected to average close to the 2% target over the next couple of years. Since October, the upward pressure on inflation from shelter and the downward pressure from goods prices have both moderated as expected.
Looking ahead, the GST holiday will temporarily lower inflation but that will be unwound once the GST break ends. In addition, the possibility the incoming US administration will impose new tariffs on Canadian exports to the United States has increased uncertainty and clouded the economic outlook
With inflation around 2%, the economy in excess supply, and recent indicators tilted towards softer growth than projected, the Governing Council decided to reduce the policy rate by a further 50 basis points to support growth and keep inflation close to the middle of the 1-3% target range.
The Governing Council has reduced the policy rate substantially since June and going forward, they will be evaluating the need for further reductions in the policy rate one decision at a time.
The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.
The next meeting is on 29 January 2025.

Next 24 Hours Bias

Strong Bullish

Oil

Key news events today

No major news events.

What can we expect from Oil today?

Oil prices tumbled for the third consecutive day this week as the EIA crude oil inventories fell less than originally anticipated and a hawkish outlook from the Federal Reserve for 2025 created headwinds for this commodity. The EIA inventories declined by just 0.9M barrels of crude, lower than the estimate of a 1.6M-drawdown. WTI oil fell under the $70-mark once again and was drifting lower towards $69 per barrel as Asian markets came online on Thursday – this benchmark has shed almost 2.6% so far.

Next 24 Hours Bias

Medium Bearish

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IC Trading Europe Fundamental Forecast | 19 December 2024

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