Articles

IC Markets Asia Fundamental Forecast | 17 September 2024

What happened in the U.S. session?

In a surprise twist of events, the Empire State Manufacturing Index jumped from -4.7 to 11.5 to mark a return to expansion for business activity in the state of New York for the first time in nearly a year. September’s result exceeded market estimates of -4.1 by a massive margin as new orders rose and shipments increased significantly. However, labour market conditions remained weak along with capital spending plans. The upbeat result provided a lift for the dollar index (DXY) which was languishing around 100.60 prior to this news release – this index then proceeded to hit an overnight high of 100.82.

What does it mean for the Asia Session?

China’s financial markets remain closed for the second consecutive day due to the Mid-Autumn Festival but markets in Japan will reopen. After finding a floor during the U.S. session, the DXY could retrace higher towards the 101-level as the day progresses, a move that would result in spot gold prices retreating away from its new intraday high of $2,589.68/oz that was set on Monday.

The Dollar Index (DXY)

Key news events today

Retail Sales (12:30 pm GMT)

What can we expect from DXY today?

After jumping 1% MoM in July to beat the market forecast of 0.3% by a wide margin, retail sales are now expected to decline in August – a result that would mark the fourth down month of 2024. Should sales drop more than the estimate of a 0.2%-decline, overhead pressures on the dollar are likely to build even further.

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 Bearish

Gold (XAU)

Key news events today

Retail Sales (12:30 pm GMT)

What can we expect from Gold today?

After jumping 1% MoM in July to beat the market forecast of 0.3% by a wide margin, retail sales are now expected to decline in August – a result that would mark the fourth down month of 2024. Should sales drop more than the estimate of a 0.2%-decline, overhead pressures on the dollar are likely to build even further – resulting in a potential tailwind for 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?

Despite uplifting data from the U.S. overnight, the Aussie remained elevated above 0.6750 but it pulled back slightly as Asian markets came online. This currency pair was trading around 0.6745 this morning and these are the support and resistance levels for today.

Support: 0.6640

Resistance: 0.6800

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

Weak Bullish

The Kiwi Dollar (NZD)

Key news events today

No major news events.

What can we expect from NZD today?

The Kiwi briefly climbed above the threshold of 0.6200 overnight before dipping under this level at the beginning of the Asia session. This currency pair was trading around 0.6185 this morning and 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

Weak Bullish

The Japanese Yen (JPY)

Key news events today

No major news events.

What can we expect from JPY today?

Japan’s financial markets reopened today after being closed for a bank holiday on Monday. Demand for the yen is robust and combined with a weaker dollar, overhead pressures for USD/JPY remain in place. This currency pair was sliding towards 140 as Asian markets came online – these are the support and resistance levels for today.

Support: 138.00

Resistance: 143.00

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:
  1. 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.
  2. 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

Weak Bearish

The Euro (EUR)

Key news events today

ZEW Economic Sentiment (9:00 am GMT)

What can we expect from EUR today?

The ZEW Economic Sentiment in the Euro Area plunged from 43.7 in July down to 17.9 in August as it deteriorated for the second month in a row while marking a nine-month low. Sentiment has been plummeting due to uncertainty surrounding the economic outlook and the direction of monetary policies in this economic region. September’s forecast of 16.4 points to a third consecutive month of deterioration and a larger-than-anticipated drop could function as a potential bearish catalyst for the Euro during the European trading hours.

Central Bank Notes:

• The Governing Council today decided to reduce the three key ECB interest rates on 12th September, after holding rates steady in July.
• 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 3.65%, 3.90% and 3.50% respectively.
• Recent inflation data have come in broadly as expected, and the latest ECB staff projections see headline inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026.
• For core inflation, the projections for 2024 and 2025 have been revised up slightly, as services inflation has been higher than expected. At the same time, staff continue to expect a rapid decline in core inflation, from 2.9% this year to 2.3% in 2025 and 2.0% in 2026.
• ECB staff projections forecast that the economy will grow by 0.8% in 2024, rising to 1.3% in 2025 and 1.5% in 2026 which is a slight downward revision compared with the June projections, mainly owing to a weaker contribution from domestic demand over the next few quarters.
• 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 17 October 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?

With demand for the dollar waning, USD/CHF fell under 0.8450 yesterday. This currency pair retraced slightly higher during the U.S. session before reversing to slide under 0.8450 once more as Asian markets came online – these are the support and resistance levels for today.

Support: 0.8400

Resistance: 0.8560

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

Weak Bullish

The Pound (GBP)

Key news events today

No major news events.

What can we expect from GBP today?

Cable hit an overnight high of 1.3218 before pulling back towards 1.3200 at the beginning of the Asia session. This currency pair should remain elevated as the day progresses – these are the support and resistance levels for today.

Support: 1.3100

Resistance: 1.3260

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

Weak Bullish

The Canadian Dollar (CAD)

Key news events today

CPI (12:30 pm GMT)

What can we expect from CAD today?

Inflation in Canada has moderated lower since the middle of last year as observed in the various inflation metrics such as median-, trimmed- and common-CPI. The forecasts for August point to further easing, albeit at a slower rate. Should inflationary pressures continue to dissipate further, the Loonie is likely to face headwinds and could potentially provide USD/CAD with a much-needed lift later today.

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

API Crude Oil Stock (8:30 pm GMT)

What can we expect from Oil today?

Despite high short interest by money managers such as hedge funds and other institutional investors as observed in data from the Intercontinental Exchange, crude prices remained supported. WTI oil rose above $70 to hit a high of $70.70 per barrel overnight to defy the current negative sentiment in oil markets. Moving over to U.S. inventories, the API stockpiles have declined over the past three weeks to signal slightly higher demand for crude oil and should we see another week of a stronger-than-anticipated drawdown, it could function as a much sought-after bullish catalyst for this commodity. 

Next 24 Hours Bias

Weak Bullish

The post IC Markets Asia Fundamental Forecast | 17 September 2024 first appeared on IC Markets | Official Blog.

That is one of the key charts to watch in markets at the moment. 2-year yields remain heavy close to the 3.55% mark but bond players will have to wait for vindication from the Fed tomorrow still. Besides that, 10-year yields are seen around 3.62% at roughly its lowest levels this year currently.

In FX, USD/JPY also flirted with a firm break of 140.00 on the daily chart yesterday but that held at the close. The pair is now back to around 140.55 but sellers remain in control and the pressure is keeping up. That especially with yields staying heavy.

So, what is all this saying about market expectations going into the Fed tomorrow?

There is a leaning or at least a sense that traders are trying to bully the Fed into a decision again. It wouldn’t be the first time and considering the Fed’s lack of cojones, it won’t be the last either. The question now is, will the Fed fold and go with 50 bps? Or will they stick to their guns with a 25 bps move?

I was quite sure of the latter last week but now, I’m quite sympathetic to the idea of the former as well. Market pricing for that has jumped even higher in the past day to ~69% now. There is scope for disappointment and it’s now a question of whether the Fed is willing to upset traders as such.

On the flip side, going with 50 bps means that they’ve just walked back on everything they tried to sell since Jackson Hole. It would be a bit of a credibility hit as it might suggest some “panic”. Even if it won’t be the case, traders might still take it as policymakers being afraid that things are actually worse than what the data might be saying. Cue even more “panic” then.

So, therein lies a potential risk if they do give in and go with 50 bps tomorrow. If the Fed didn’t have a history of being bullied into decisions, it would be quite assuring to know that they will move by 25 bps. Unfortunately, we all know that their record has been blemished in the past. Fool me once, shame on you. Fool me twice, shame on me.

This article was written by Justin Low at www.forexlive.com.

New Zealand Treasury report, in summary:

• Indicators for June quarter GDP point to a drop in economic activity. We anticipate the
  economy contracted by 0.4% in the quarter, down from
  a forecast of 0.2% growth at our Budget Update.
• Economic
  data has been weak despite a period of record migrationled population growth. However, with migration levels
  normalising, weakness is emerging across more services
  industries.
• House sales continue to drop and, while interest
  rates are falling, average mortgage rates are still elevated
  limiting retail spending and house price growth.
• There may
  be some light at the end of the economic tunnel with two
  weeks left in the September quarter, more timely indicators
  signal flat rather than falling activity for that quarter.

–

Q2 GDP is due on Thursday from New Zealand:

• Wednesday 2245 GMT
• Wednesday 1845 US Eastern time

This article was written by Eamonn Sheridan at www.forexlive.com.

• More from Japan Finance Minister Suzuki – analysing the impact of the strengthening yen
• BlackRock is wary on Chinese equities – measured policy support is not enough
• UBS says a Fed rate cut is ‘long overdue’, but a 50bp cut might be taken as panic
• Is the bond market going to strong arm the Fed into a 50bp cut?
• Waiting for the PBOC CNY reference rate setting? None today, China is on holidays.
• Japan finance minister Suzuki says rapid FX moves are undesirable
• Will the US retail sales report tip the scale to a 50bp Fed rate cut? The ranges to watch.
• Goldman Sachs once again on 3 reasons for their US$2700 gold forecast
• Australian weekly Consumer Confidence survey to an 8 week high @ 84.1
• More info on that Microsoft 10% dividend hike and new US$60bn buy back
• If the Fed does cut by 50bp it risks triggering growth worries, further yen carry unwind
• Scenarios for trading USD around the FOMC meeting
• Microsoft (MSFT) has announced a new US$60bn share repurchase program
• Blackrock says market pricing for deep Fed rate cuts “overdone”
• Bank of Japan meeting this week – preview (no rate change expected)
• Three US senators call for a 75bp Federal Reserve rate cut on Wedndesday
• Goldman Sachs forecasts S&P 500 to 6000, Fed rate cuts supporting
• Trade ideas thread – Tuesday, 17 September, insightful charts, technical analysis, ideas
• Dow closes at a new record. S&P closes less than 1% from record high
• Forexlive Americas FX news wrap: Empire Fed rises to the best since 2022

Yen
crosses were active again today. USD/JPY traded up to highs above
141.20, briefly, before dropping back to under 140.40. There was no
fresh news nor data to act as catalysts. We did get comments from
Japan’s finance minister Suzuki. The usual:

• Rapid
  fx moves undesirable
• Important
  for currencies to move a stable manner, reflecting fundamentals

and
such. Suzuki did add, however, that while the yen has strengthened
beyond 145 (ie. USD/JPY under 145) that Japanese firms maintained
healthy earnings and financial conditions.

Major
FX was otherwise subdued, traders seemingly on hold until the US retail lases and industrial production reports due later on Tuesday.

China
remained on holiday today. Markets there will reopen for trade on
Wednesday, Hong Kong will be closed on Wednesday.

This article was written by Eamonn Sheridan at www.forexlive.com.

Comments from Suzuki are here from earlier:

• Japan finance minister Suzuki says rapid FX moves are undesirable

Reuters adds a little more:

• government will continue to
  analyse the impact of the strengthening yen on the economy and
  respond appropriately
• said the stronger yen could affect the economy both
  positively and negatively through various channels, such as
  overseas sales of exporters and import costs on households and
  businesses
• noted that the yen has been trading above an average 145
  to the dollar that Japanese firms assume for the second half of
  the fiscal year, but their earnings and financial conditions
  have been generally healthy

USD/JPY has swung around again today:

I posted earlier on the idea that the FOMC will be concerned about yen-related volatility in its decision (opinion from Morgan Stanley)

This article was written by Eamonn Sheridan at www.forexlive.com.

Blackrock comments on China echoing broader market views:

• The People’s Bank of China has been cutting rates but it’s not in the same boat as the Fed. It’s facing weak consumer
  demand, excess production capacity and deflation – based on broad measures of inflation – that could become entrenched.
• The lack of fiscal and other policy support casts doubt on if the economy will hit this year’s growth target.
• Export activity has
  been supporting growth, so it will be key to watch for any signs of weakness.

In Chinese equities:

• valuations are low relative to
  other regions but given the tough macro outlook, we prefer developed market equities over emerging markets and China.
• We are neutral. We see risks from weak consumer spending, even with measured policy support.
  An aging population and geopolitical risks are structural challenges.

This article was written by Eamonn Sheridan at www.forexlive.com.

Japan finance minister Suzuki

• Forex fluctuations have both merits and demerits on the Japanese
  economy
• Will respond
  appropriately after analyzing impact of forex moves
• Rapid fx moves
  undesirable
• Important for currencies to move a stable manner, reflecting fundamentals

USD/JPY is up from lows around 139.60 on Monday. It hit above 141.20 earlier in the session here.

Suzuki’s cage getting rattled.

This article was written by Eamonn Sheridan at www.forexlive.com.

ANZ-Roy Morgan Consumer Confidence rose 1.8 pts to an 8 week high.ANZ says it was a broad based rise.

84.1 is still deep in pessimism but I guess we’ll take it.

This article was written by Eamonn Sheridan at www.forexlive.com.

I’ve noted this already, but ICYMI.

• China and South Korea are out again
• Japan is open after its holiday on Monday.

As an aside, Hong Kong will be closed tomorrow.

This article was written by Eamonn Sheridan at www.forexlive.com.

It’s a very sparse data agenda.

• China and South Korea remain closed
• Japan reopens after its holiday Monday

As a ps. Hong Kong will be closed tomorrow.

This article was written by Eamonn Sheridan at www.forexlive.com.

Good morning, afternoon and evening all. Any charts, technical analysis, trade ideas, thoughts, views, ForexLive traders would like to share and discuss with fellow ForexLive traders, please do so:

This article was written by Eamonn Sheridan at www.forexlive.com.

The US major stock indices are closing mixed.

The Dow industrial average and closing at a record closing level.

The S&P index is closing around 0.6% from a record closing level and is now up 6 consecutive days.

The NASDAQ index is closing lower and snapped a 5-day winning streak.

Shares of Apple led the decline with a fall of -2.78% on reports the orders for the new iPhone were not great.

The final numbers are showing:

• Dow industrial average closed higher by 228.30 points or 0.55% at 41622.08
• S&P index closed up 7.07 points or 0.13% at 5623.09
• NASDAQ index fell -91.85 points or -0.52% at 17592.13

The small-cap Russell 2000 rose 6.679 points or 0.31% at 2189.16

Shares of Intel are up after the close after announcing an expanded strategic collaboration, helping to advance US based chip manufacturing. They will also establish an Intel foundry as an independent unit.

This article was written by Greg Michalowski at www.forexlive.com.