IC – Europe Fundamental Forecast | 21 August 2026

IC – Europe Fundamental Forecast | 21 August 2026

What happened in the Asia session?

The Asian session had a mildly risk-off tone but was particularly positive for the Japanese yen. Strong Japanese inflation and a much stronger manufacturing PMI increased expectations of further BOJ tightening, supporting the yen and potentially putting pressure on USD/JPY and other yen crosses. At the same time, continued weakness in the U.S. dollar supported gold, AUD/USD and NZD/USD, while elevated oil prices and global bond yields continued to weigh on Asian equities. Japan’s Nikkei nevertheless rebounded during the session, helped by semiconductor strength and bargain hunting, although the index remained under pressure for the week.

What does it mean for the Europe & US sessions?

Today’s European session is primarily about UK retail sales and the French/German PMIs. Traders should pay particular attention to whether the PMI data confirm improving European activity or show renewed weakness, while the UK retail-sales figure could provide an immediate catalyst for GBP. Into the U.S. session, the focus shifts toward Treasury yields, Fed-rate expectations and President Trump’s comments. At the same time, elevated oil prices and geopolitical tensions remain important inflation and risk-sentiment drivers. Gold continues to benefit from the weaker dollar and concerns surrounding U.S. debt and yields, keeping XAU/USD firmly on the radar for traders today.

The Dollar Index (DXY)

Key news events today

President Trump Speaks (11:00 pm GMT)

What can we expect from DXY today?

The dollar remains vulnerable as investors question U.S. fiscal policy and the effectiveness of Treasury intervention in the bond market. The combination of elevated long-term yields, concerns about the U.S. debt position, and reduced expectations for near-term Fed tightening is weighing on the greenback. For forex traders, this keeps the bias tilted toward USD weakness, particularly against currencies such as the EUR and GBP, while gold remains supported by the softer dollar.

Central Bank Notes:

• The Federal Open Market Committee (FOMC) kept the federal funds rate unchanged at 3.50%–3.75% at its July 28–29, 2026, meeting, marking the fifth consecutive meeting without a policy change. The Committee voted 9–3 to maintain rates, with three members dissenting in favor of a 25-basis-point rate hike, highlighting growing concern among some policymakers that inflation remains too high.
• The Committee reaffirmed its dual mandate of maximum employment and price stability. Officials noted that the labor market remains resilient, with job gains broadly keeping pace with labor force growth and the unemployment rate remaining relatively stable. The FOMC continues to view employment conditions as consistent with a healthy economy while remaining vigilant for signs of labor market weakening.
• Inflation remains the Committee’s primary concern. While some recent inflation data have shown moderation, overall price pressures remain above the Fed’s 2% target. Policymakers emphasized that elevated inflation continues to be driven in part by higher energy prices and persistent supply-side pressures, leading the Committee to maintain a restrictive monetary policy stance.
• Economic activity continues to expand at a solid pace despite elevated uncertainty. Strong productivity growth, business investment, and continued spending related to artificial intelligence remain supportive of economic growth. However, the FOMC acknowledged that geopolitical tensions, particularly developments affecting global energy markets, continue to pose risks to both inflation and the broader economic outlook.
• The July meeting highlighted increasing divisions within the Committee. Three policymakers—Beth Hammack, Neel Kashkari, and Lorie Logan—voted against the majority, preferring an immediate rate increase. This unusually large number of dissents reflects growing concern among some officials that inflation could remain persistent and may require additional policy tightening if progress stalls.
• Chair Kevin Warsh reiterated that future policy decisions will remain strictly data-dependent. He avoided providing explicit forward guidance, emphasizing that upcoming decisions will depend on incoming inflation, employment, and growth data. Warsh also stressed that the Committee remains fully committed to returning inflation to its 2% objective and is prepared to act if inflationary pressures intensify.
• The FOMC continues its balance sheet normalization program without changes. The Federal Reserve will maintain Treasury runoff caps at $5 billion per month and agency mortgage-backed securities (MBS) runoff caps at $35 billion per month, while continuing to ensure ample reserves remain available within the banking system.
• The next meeting is scheduled for 15 to 16  September 2026.

Next 24 Hours Bias
Weak Bearish

Gold (XAU)

Key news events today

President Trump Speaks (11:00 pm GMT)

What can we expect from Gold today?

Gold is benefiting from a weaker dollar, declining bond yields, and renewed safe-haven/inflation-hedging demand. The key level to watch today is $4,500; continued trading above it would keep the bullish structure intact, while a sustained break back below it could trigger profit-taking. With gold already up strongly this week, traders should also watch for short-term consolidation or a pullback before another potential leg higher.

Next 24 Hours Bias   
Strong Bullish

The Euro (EUR)

Key news events today

French Flash Manufacturing PMI (7:15 am GMT)

French Flash Services PMI (7:15 am GMT)

German Flash Manufacturing PMI (7:30 am GMT)

German Flash Services PMI (7:30 am GMT)

What can we expect from EUR today?

The euro has a slightly bullish fundamental backdrop, mainly because inflation remains above target and markets are increasingly pricing the possibility of additional ECB rate increases. Improving German sentiment is another positive factor. However, the outlook is not decisively bullish because European growth remains fragile and today’s PMI figures could reveal renewed weakness, particularly in France. For EUR traders, the key catalysts today are the French/German and eurozone flash PMIs, followed by eurozone consumer expectations and consumer confidence. Stronger-than-expected PMIs would likely support EUR, while weaker readings could trigger renewed selling pressure.

Central Bank Notes:

• The Governing Council kept all three key interest rates unchanged at its 22–23 July meeting, maintaining the deposit facility at 2.25%, the main refinancing operations rate at 2.40%, and the marginal lending facility at 2.65%. The ECB reiterated that monetary policy will remain meeting-by-meeting and data-dependent, with no pre-commitment to a future rate path.
• The euro area economy continues to expand at a modest pace, with growth expected to remain below trend but resilient. While domestic demand and the labor market continue to provide support, elevated uncertainty, higher energy prices, and weaker external demand are expected to limit the pace of expansion through the second half of 2026.
• Balance-sheet normalization continues as planned. The APP and PEPP portfolios continue to decline predictably as the Eurosystem no longer reinvests maturing securities. The ECB has indicated that liquidity conditions remain orderly and that it stands ready to preserve the smooth transmission of monetary policy if necessary.
• Inflation risks remain tilted to the upside. Renewed volatility in oil and natural gas prices following geopolitical tensions in the Middle East could keep headline inflation above the ECB’s 2% target for longer. Policymakers are closely monitoring the persistence of energy-driven inflation, wage developments, and any potential second-round effects.
• The ECB is expected to maintain a cautious policy stance into August. Future policy decisions will continue to depend on incoming inflation data, wage growth, underlying inflation measures, credit conditions, and the effectiveness of monetary policy transmission. While markets see the possibility of further tightening later in the year if inflation remains persistent, the ECB has not committed to additional rate increases.
• For the euro (EUR), the outlook remains balanced. Stable ECB policy provides support, but renewed energy-price shocks and global risk sentiment may generate two-way volatility. The euro could strengthen if euro-area inflation remains sticky or economic data outperform expectations, while weaker growth or a more hawkish Federal Reserve could weigh on the currency.
• Euro-area bond markets are expected to remain sensitive to inflation expectations and geopolitical developments. Front-end yields should remain relatively anchored while the ECB stays on hold, whereas longer-dated yields will continue to respond to energy-price developments, inflation expectations, and global risk sentiment.

​The next meeting is on 9 to 10 September 2026

Next 24 Hours Bias
Medium Bullish

The Swiss Franc (CHF)

Key news events today

No major news event

What can we expect from CHF today?

The Swiss franc enters Friday with a medium bullish bias. Strong Swiss Q2 growth and safe-haven demand are supportive, while weaker U.S. data and declining expectations for Fed tightening are adding pressure to USD/CHF. However, the SNB’s 0% rate and growing CHF carry-trade use could limit further franc appreciation. Traders should pay close attention to U.S. dollar movements and Jackson Hole-related Fed signals for the next major CHF catalyst.

Central Bank Notes:

• At its monetary policy assessment on 18 June 2026, the Swiss National Bank left the SNB policy rate unchanged at 0.00%, in line with market expectations. Policymakers maintained that the current policy setting remains appropriate given low inflation and ongoing global economic uncertainty.
• Inflation remains exceptionally subdued in Switzerland. Recent data show consumer price growth staying comfortably within the SNB’s price stability range, with headline inflation around 0.6% year-on-year in May 2026, while underlying inflation pressures remain limited despite higher global energy prices.
• The SNB continues to view medium-term inflation pressures as largely unchanged. While energy prices linked to Middle East tensions have temporarily lifted near-term inflation expectations, the stronger Swiss franc has helped offset imported inflation, supporting the central bank’s decision to maintain rates at current levels.
• External risks remain elevated. Policymakers highlighted ongoing geopolitical tensions, trade uncertainties, and slower global growth prospects, particularly in key export markets such as the Eurozone and the United States. These factors continue to warrant a cautious policy approach.
• Swiss economic activity remains resilient but modest. GDP growth is expected to remain around 1–1.5% in 2026, supported by domestic demand, although manufacturing and export-oriented sectors continue to face challenges from a strong franc and softer foreign demand.
• The SNB reiterated its readiness to act if necessary. The Governing Board emphasized that it remains willing to intervene in foreign exchange markets to counter excessive Swiss franc appreciation and stands prepared to adjust policy should inflation or economic conditions deviate materially from expectations.

The next meeting is on 24 September 2026.

Next 24 Hours Bias
Medium Bullish

The Pound (GBP)

Key news events today

Retail Sales m/m (6:00 am GMT)

Flash Manufacturing PMI (6:30 am GMT)

Flash Services PMI (6:30 am GMT)

What can we expect from GBP today?

The pound’s underlying momentum remains positive, supported by higher UK inflation, expectations for a relatively restrictive BoE, improving consumer confidence and a weaker dollar. However, today’s retail-sales and PMI figures could create significant volatility. A combination of better-than-expected retail sales and stronger PMIs would reinforce the bullish case and could open the way for GBP/USD to challenge higher levels. Conversely, weak retail sales combined with softer PMIs could trigger a pullback from the six-month high.

Central Bank Notes:

• The Bank of England’s Monetary Policy Committee (MPC) met on 29–30 July 2026, with the decision and updated Monetary Policy Report scheduled for publication on 30 July. The previous meeting in June resulted in a 7–2 vote to maintain the Bank Rate at 3.75%, with Megan Greene and Huw Pill voting for a 25-basis-point increase to 4.00%. The July meeting is particularly important because it includes a new Monetary Policy Report and updated economic projections.
• UK inflation has continued to move closer to the Bank’s 2% target. CPI inflation fell to 2.6% in June 2026, from 2.8% in May, while core CPI remained at 2.6%. Services inflation also eased from 3.7% to 3.6%, suggesting that underlying domestic price pressures are gradually moderating. Nevertheless, services inflation remains above the 2% target and continues to be an important consideration for the MPC.
• The inflation outlook remains complicated by energy-market developments. The earlier Middle East energy shock pushed inflation higher and created uncertainty around the speed at which inflation would return sustainably to target. Although energy prices have fallen from their earlier peaks, they remain elevated relative to pre-conflict levels. The MPC therefore continues to monitor the potential for energy costs to feed into wages, services prices and inflation expectations.
• The UK economy remains relatively subdued, with weak demand and signs of cooling in the labour market weighing against the upside inflation risks. The combination of slower economic activity and easing inflation creates a difficult policy balance for the MPC: keeping rates restrictive for too long could weaken growth further, while easing policy prematurely could allow persistent domestic inflation pressures to return.
• Wage growth and services inflation remain key risks for monetary policy. Although headline CPI has fallen substantially from earlier 2026 levels, the MPC is likely to remain cautious until there is greater evidence that domestic inflation pressures are sustainably declining. The moderation in services inflation to 3.6% is encouraging, but it remains above levels consistent with the Bank’s 2% inflation target.
• Quantitative tightening (QT) remains part of the Bank’s broader monetary-policy framework. The MPC continues reducing the stock of UK government bonds held for monetary-policy purposes through its balance-sheet reduction programme. At the June meeting, the stock of government bonds held for monetary-policy purposes stood at approximately £522 billion.
• The policy outlook remains highly data-dependent. With inflation moving lower but services inflation and wage pressures still elevated, the MPC faces a delicate balance between maintaining sufficiently restrictive policy and avoiding unnecessary damage to economic growth. Market participants had previously placed substantial probability on the Bank Rate remaining at 3.75% through the July meeting, although expectations for later meetings showed greater uncertainty, including the possibility of rate increases if inflation proves persistent.
• The next meeting is on 17 September 2026.
  
  Next 24 Hours Bias
  Medium Bullish

The Canadian Dollar (CAD)

Key news events today

No major news event

What can we expect from CAD today?

The Canadian dollar remains well supported as oil prices rise, the U.S. dollar weakens, and optimism around a U.S.–Canada trade deal increases. Today’s Canadian retail-sales release at 8:30 a.m. ET is the key scheduled domestic catalyst. Stronger-than-expected retail sales could provide another boost to CAD and push USD/CAD lower, while disappointing data or a breakdown in the trade negotiations could trigger a reversal. For traders, oil, the U.S.–Canada tariff negotiations and USD/CAD’s reaction around recent support are the main factors to watch today.
​
Central Bank Notes:

• At its 15 July 2026 meeting, the Governing Council maintained the overnight rate target at 2.25%, marking a sixth consecutive decision at this level and extending the policy pause that began in late 2025. The decision was in line with market expectations. It reflects the Council’s view that the current stance remains appropriately restrictive to return inflation sustainably to the 2% target over the projection horizon while balancing two‑sided risks.
• External conditions remain challenging, with persistent geopolitical tensions in the Middle East and ongoing U.S. trade frictions continuing to weigh on global sentiment and supply chains. Council minutes and external commentary highlight that these risks are asymmetric, with the potential either to slow foreign demand or to heighten volatility in global energy and other commodity prices, warranting a nimble policy stance.
• Real GDP appears to have resumed growth in Q2 2026 after stalling earlier in the year, with the Bank and private forecasters now expecting output to expand at roughly a 2.3–2.5% annualized pace, slightly above the April baseline. Growth remains supported by resource shipments and exports amid robust global energy demand, while domestic activity is gradually broadening as consumption and housing stabilize and business investment shows tentative improvement from earlier weakness.
• The labour market remains tight but continues a gradual rebalancing: employment rose by about 18,000 positions in June, and the unemployment rate edged down to 6.5%, tying its lowest level since mid‑2024. Wage growth has cooled from prior peaks, and regional participation increases are consistent with easing wage pressures over time, although pockets of labour scarcity persist in energy‑related and some service sectors.
• Headline CPI has drifted above 2% and was around 3.2% year‑over‑year in May, with inflation expected to remain elevated in June before gradually easing as energy effects fade. Core measures have moved closer to 2% on average, and the share of CPI components running above 3% has fallen back toward historical norms, suggesting underlying inflation is moderating even as near‑term headline readings remain somewhat higher. The Bank continues to project inflation returning to the 2% target in early 2027, conditional on oil prices stabilizing near their assumed range.
• High‑frequency indicators point to continued expansion in manufacturing and exports into early summer, with Purchasing Managers’ Index readings still in positive territory, supported by solid energy‑sector activity and demand for intermediate goods. However, surveys indicate that firms’ capex intentions remain cautious in light of trade uncertainty and past weakness in domestic demand, suggesting investment may recover only gradually.
• Credit growth remains moderate, and bank lending spreads and deposit pricing show limited additional pass‑through from recent global rate moves, keeping domestic financial conditions relatively stable. Mortgage rates remain somewhat elevated compared with pre‑tightening levels but have been broadly unchanged in recent months, contributing to a measured moderation in housing activity rather than an abrupt adjustment.
• The next meeting is on 2 September 2026.

Next 24 Hours Bias
Medium Bullish

Oil

Key news events today

No major news event

What can we expect from Oil today?

Oil remains strongly bullish in the short term, with Brent approaching $95 as traders price in prolonged Middle East supply disruptions and fading hopes of a U.S.–Iran diplomatic breakthrough. However, the unexpected U.S. crude inventory build and weaker global demand forecasts could create resistance to further gains. For traders, geopolitical headlines surrounding Iran and the Strait of Hormuz remain the key drivers, so volatility is likely to stay elevated.

Next 24 Hours Bias
Medium Bullish

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