IC Markets Europe Fundamental Forecast | 12 December 2024

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December 12, 2024 14:00

IC Markets Asia Fundamental Forecast | 12 December 2024

What happened in the Asia session?

After slowing noticeably in October with only 15.9K jobs being added to the Australian economy, employment change jumped by 35.6K in November beating the market estimate of 26.0K while the unemployment rate edged lower from 4.1% to 3.9%. However, October’s figures were revised lower to 12.1K but that did not stop the Aussie from surging past 0.6400 and hit 0.6418 by midday Asia. This currency pair should continue to remain elevated as the day progresses.

What does it mean for the Europe & US sessions?

The Swiss National Bank (SNB) is poised to make its fourth consecutive rate cut of this year with another 25-basis point reduction, bringing the policy rate down to 0.75%. With headline and core inflation firmly anchored below the SNB’s target of 2% for almost a year and a half, this central bank is set to make further reductions in 2025. SNB Chairman Martin Schlegel’s press conference will begin half an hour after the policy announcement which could create further headwinds for the franc and potentially lift USD/CHF higher.

The European Central Bank (ECB) is widely expected to make its third successive rate cut at its final monetary policy meeting of this year with market consensus pointing to a 25-basis point reduction; this would bring the main refinancing rate down to 3.15%. After which, ECB President Christine Lagarde will commence her press conference where she could shed further light on the deliberations that took place amongst board members and also on the outlook for future monetary policy action. The Euro will most certainly face higher volatility after midday in Europe.

The Dollar Index (DXY)

Key news events today

PPI (1:30 pm GMT)

Unemployment Claims (1:30 pm GMT)

What can we expect from DXY today?

The Producer Price Index (PPI) – which measures wholesale inflation – has accelerated in recent months, especially for the core reading. With November’s forecast pointing to another month of higher prices, the dollar could receive a strong boost later today. After drifting under the 220K-level since mid-November, unemployment claims unexpectedly edged higher last week with a reading 224K. This week’s estimate of 221K points to a somewhat elevated reading which is higher than the 4-week average of 217K. Higher claims – a sign of labour market weakness – could cause the dollar to come under pressure. Whatever the outcome, traders should brace themselves for higher volatility before the start of the U.S. trading hours.

Central Bank Notes:

The Board of Governors of the Federal Reserve System voted unanimously to lower the Federal Funds Rate target range by 25 basis points to 4.50% to 4.75% on 7th November.
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.
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 17 to 18 December 2024.

Next 24 Hours Bias

Medium Bullish

Gold (XAU)

Key news events today

PPI (1:30 pm GMT)

Unemployment Claims (1:30 pm GMT)

What can we expect from Gold today?

Next 24 Hours Bias

Medium Bullish

The Australian Dollar (AUD)

Key news events today

Labour Force Report (12:30 am GMT)

What can we expect from AUD today?

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

Medium Bullish

The Kiwi Dollar (NZD)

Key news events today

No major news events.

What can we expect from NZD today?

The Kiwi fell for the second successive day as it hit a low of 0.5760 on Wednesday. This currency pair stabilized around this level to retrace higher at the beginning of Thursday’s Asia session to hover around 0.5790 – these are the support and resistance levels for today.

Support: 0.5750

Resistance: 0.5830

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

Medium Bullish

The Japanese Yen (JPY)

Key news events today

No major news events.

What can we expect from JPY today?

The yen continued to depreciate on Wednesday driving USD/JPY strongly towards the 153-level. This currency pair hit an overnight high of 152.84 before dipping under 152.50 as Asian markets came online – these are the support and resistance levels for today.

Support: 150.60

Resistance: 153.50

Central Bank Notes:

The Policy Board of the Bank of Japan decided on 31st October, by a unanimous 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.
The year-on-year rate of increase in the consumer price index (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.
While the effects of a 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.
Comparing the projections with those presented in the previous Outlook for Economic Activity and Prices (Outlook Report), the projected real GDP growth rates are more or less unchanged. The projected year-on-year rate of increase in the CPI (all items less fresh food) for fiscal 2025 is somewhat lower due to factors such as the recent decline in crude oil and other resource prices.
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 19 December 2024.

Next 24 Hours Bias

Medium Bullish

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?

Central Bank Notes:

The Governing Council reduced the three key ECB interest rates by 25 basis points on 17th October to mark the second 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 3.40%, 3.65% and 3.25% respectively.
The incoming information on inflation shows that the disinflationary process is well on track while the inflation outlook is also affected by recent downside surprises in indicators of economic activity.
Inflation is expected to rise in the coming months, before declining to target in the course of next year. Domestic inflation remains high, as wages are still rising at an elevated pace. At the same time, labour cost pressures are set to continue easing gradually, with profits partially buffering their impact on inflation.
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.
The next meeting is on 12 December 2024.

Next 24 Hours Bias

Medium Bearish

The Swiss Franc (CHF)

Key news events today

SNB Monetary Policy Statement (8:30 am GMT)

SNB Press Conference (9:00 am GMT)

What can we expect from CHF today?

Central Bank Notes:

The SNB eased monetary policy by lowering its key policy rate by 25 basis points for the third consecutive meeting, going from 1.25% to 1.00% in September.
Inflationary pressure has again decreased significantly compared to the previous quarter, reflecting the appreciation of the Swiss franc over the last three months.
Inflation in the period since the last monetary policy assessment was lower than expected, standing at 1.1% in August compared to 1.4% in May.
The new conditional inflation forecast is significantly lower than that of June: 1.2% for 2024, 0.6% for 2025 and 0.7% for 2026, based on the assumption that the SNB policy rate is 1.0% over the entire forecast horizon.
Swiss GDP growth was solid in the second quarter of 2024 as momentum in the chemicals/pharmaceuticals industry was particularly strong.
However, growth is likely to remain rather modest in the coming quarters due to the recent appreciation of the Swiss franc and the moderate development of the global economy.
The SNB anticipates GDP growth of around 1% this year while currently expecting growth of around 1.5% for 2025.
Further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term.
The next meeting is on 12 December 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?

Despite a strengthening dollar, the pound has shown strong resilience this week with Cable keeping its head above the 1.2700-level. This currency pair climbed above 1.2750 as Asian markets came online and it should continue to edge higher as the day progresses – these are the support and resistance levels for today.

Support: 1.2715

Resistance: 1.2865

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 7th 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

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) moved ahead with its fifth consecutive rate cut by reducing the overnight rate by 50 basis points (bps), bringing it down to 3.25%. This latest policy action also marked the second successive reduction of 50 bps as the Canadian economy grew by an annualized 1% in the third quarter, below the central bank’s projections, while growth in the fourth quarter also poses the risk of missing forecasts.

However, policymakers suggested that there will not be any further aggressive rate cuts next year, and officials also dropped the statement that borrowing costs are due to be lowered should their base case hold. These unexpected remarks strengthened the Loonie causing USD/CAD to reverse off Wednesday’s peak of 1.4196 and plunge as low as 1.4119. This currency pair stabilized around 1.4150 at the beginning of Thursday’s Asia session but overhead pressures are likely to build – these are the support and resistance levels for today.

Support: 1.4200

Resistance: 1.4080

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

Weak Bearish

Oil

Key news events today

No major news events.

What can we expect from Oil today?

Oil prices jumped more than 2.5% overnight after the European Union agreed to an additional round of sanctions threatening Russian oil flows that could tighten global crude supplies. In addition, the EIA crude oil inventories experienced a larger-than-anticipated drawdown for the third consecutive week as 1.4M barrels of crude were removed from storage versus the estimate of 1.0M barrels. WTI oil surged to a high of $70.53 per barrel on Wednesday before easing slightly as Asian markets came online – this benchmark is expected to remain elevated.

Next 24 Hours Bias

Medium Bullish

The post IC Markets Europe Fundamental Forecast | 12 December 2024 first appeared on IC Markets | Official Blog.

IC Markets Europe Fundamental Forecast | 12 December 2024

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