IC – Europe Fundamental Forecast | 22 July 2026

by | Jul 22, 2026

IC – Europe Fundamental Forecast | 22 July 2026

What happened in the Asia session?

Markets were driven by a combination of Japanese trade data, continued weakness in the Japanese yen, and ongoing geopolitical concerns surrounding the Middle East. Japan’s June trade report showed exports rising strongly by around 19% year-over-year, supported by semiconductor demand and robust shipments to the U.S. and China. However, imports surged even faster, largely because of elevated crude oil prices, resulting in a return to a trade deficit. At the same time, the yen weakened to fresh multi-decade lows above ¥163 per U.S. dollar, increasing speculation that Japanese authorities could intervene in the foreign exchange market.

What does it mean for the Europe & US sessions?

European markets are entering the session with a cautious tone as traders balance resilient equity sentiment against persistent geopolitical risks and elevated oil prices. The primary market drivers today will be the U.S. EIA crude oil inventory report, any fresh headlines from the Middle East, and high-profile U.S. corporate earnings. These developments are likely to dictate movements in crude oil, the U.S. dollar, equity indices, Treasury yields, and safe-haven assets throughout both the European and North American trading sessions.
​
The Dollar Index (DXY)

Key news events today

No major news event

What can we expect from DXY today?

The U.S. dollar is trading on a firmer footing supported by a combination of higher U.S. Treasury yields, resilient risk sentiment, and expectations that the Federal Reserve will keep interest rates unchanged at next week’s FOMC meeting. Investors are also digesting the latest U.S. trade policy developments after President Donald Trump announced additional tariffs on selected imports, reinforcing concerns that inflationary pressures could remain elevated and delay future Fed rate cuts.

Central Bank Notes:

  • The Federal Open Market Committee (FOMC) left the federal funds rate unchanged at 3.50%–3.75% at its June 16–17, 2026, meeting, marking another pause in the policy cycle. Under new Fed Chair Kevin Warsh, policymakers signaled a more cautious and hawkish stance as inflation remains above target despite moderating energy prices.
  • The Committee remains committed to achieving maximum employment and returning inflation to its 2% objective. Labor market conditions have remained relatively stable, with job gains continuing at a moderate pace and the unemployment rate projected to remain near 4.4% through 2026.
  • Inflation continues to be the primary concern for policymakers. Headline inflation remains elevated, supported by earlier energy-related price pressures and persistent services inflation. The June projections showed higher inflation forecasts than previously expected, leading several officials to favor keeping policy restrictive for longer.
  • Economic activity continues to expand at a moderate pace. Productivity growth, capital investment, and AI-related spending remain supportive of growth, while consumer spending and housing activity show signs of slowing compared with late 2025 and early 2026.
  • The June 2026 Summary of Economic Projections (SEP) revealed a more divided Committee. Nine officials projected at least one rate hike during 2026, while others expected rates to remain unchanged or eventually decline. The median outlook shifted toward a higher-for-longer policy path compared with earlier projections.
  • The Committee emphasized a data-dependent approach and noted that future decisions will depend on incoming data on inflation, employment, and economic growth. Officials acknowledged that geopolitical developments and energy markets remain important upside risks to inflation.
  • The FOMC continues its balance sheet normalization program, maintaining Treasury runoff caps at $5 billion per month and agency mortgage-backed securities (MBS) runoff caps at $35 billion per month, while ensuring ample reserves remain in the banking system.
  • The next meeting is scheduled for 28 to 29  July 2026.

Next 24 Hours Bias
Weak Bullish

Gold (XAU)

Key news events today

No major news event

What can we expect from Gold today?

Gold prices extended their rally, climbing to around a two-week high as investors increased demand for safe-haven assets. The move has been driven by escalating geopolitical tensions in the Middle East, including renewed concerns over disruptions to global energy shipments, while markets also remain focused on next week’s U.S. Federal Reserve policy meeting. Rising oil prices have reinforced inflation concerns, supporting demand for gold despite expectations that the Fed will likely leave interest rates unchanged for now.

Next 24 Hours Bias   
Weak Bearish

The Euro (EUR)

Key news events today

No major news event

What can we expect from EUR today?

The euro is trading cautiously as investors await the outcome of the European Central Bank (ECB) Governing Council meeting, which began today in Frankfurt, with the policy decision due on Thursday, 23 July. Markets overwhelmingly expect the ECB to leave interest rates unchanged, but attention is focused on President Christine Lagarde’s guidance regarding September, as elevated energy prices driven by Middle East tensions continue to threaten the inflation outlook. Recent data showed Eurozone inflation easing to 2.8% in June, supporting a pause for now, although markets still expect further policy tightening later this year if inflationary pressures persist.

Central Bank Notes:

  • The Governing Council is expected to maintain the three key rates unchanged at their June levels into July, with the main refinancing rate around 2.15%, the marginal lending facility at 2.40%, and the deposit facility at 2.00%. Policy remains on a meeting‑by‑meeting, data‑dependent footing.
  • Real GDP growth is expected to be modest: around 0.9% in 2026, 1.3% in 2027, and 1.4% in 2028. Quarterly momentum implies roughly 0.2–0.3% q/q growth in Q2 2026, consistent with resilience seen late‑2025.
  • Balance‑sheet normalization continues smoothly. APP and PEPP wind‑downs are effectively completed; the Eurosystem is allowing remaining longer‑dated holdings to run off. No material liquidity shortages are expected; the Governing Council will monitor transmission and market functioning closely.
  • Upside risks: stronger‑than‑expected services inflation persistence, renewed energy or commodity price shocks, and tighter global financial conditions that transmit unevenly.
  • The ECB is likely to keep policy rates on hold while emphasizing data dependence: future moves will be guided by incoming HICP prints, wage dynamics, and indicators of monetary transmission (credit, deposit flows, and market functioning).
  • With rates expected to be on hold and inflation slightly above target for 2026, the EUR may trade with two‑way volatility; upside for the EUR if euro‑area data surprise to the upside or if US data weaken relative to the euro‑area, but limited unilateral appreciation given symmetric policy risks.
  • Curve pricing should reflect a prolonged period of unchanged rates with modest probability of hikes if upside inflation surprises continue; front-end stays anchored, while longer‑dated yields respond to inflation‑expectation movements and global risk sentiment.

​The next meeting is on 22 to 23 July 2026

Next 24 Hours Bias
Weak Bullish

The Swiss Franc (CHF)

Key news events today

No major news event

What can we expect from CHF today?

The Swiss franc remains well supported as investors continue to favor defensive currencies amid lingering uncertainty over global growth and the outlook for major central banks. While there have been no new policy announcements from the Swiss National Bank (SNB) today, markets continue to expect the SNB to maintain its cautious stance after keeping its policy rate at 0.00%, relying on the possibility of foreign exchange intervention rather than further rate changes if excessive franc strength threatens Switzerland’s export sector.

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
Weak Bearish

The Pound (GBP)

Key news events today

CPI y/y (6:00 am GMT)

What can we expect from GBP today?

The British pound remained driven by a combination of softer domestic labour market data, expectations surrounding the Bank of England’s next policy decision, and political developments in the UK. Official data released this week showed the UK labour market remains weak but stable, with the unemployment rate holding at 4.9% and annual wage growth (excluding bonuses) remaining at 3.4%. While these figures suggest inflationary pressure from wages is continuing to ease, they also reinforce market expectations that the Bank of England is likely to leave interest rates unchanged at 3.75% at its upcoming meeting rather than tighten policy further.

Central Bank Notes:

  • The Bank of England’s Monetary Policy Committee (MPC) met on 17–18 June 2026 and voted 7–2 to maintain the Bank Rate at 3.75%. Two members, Megan Greene and Chief Economist Huw Pill, voted for a 25-basis-point increase to 4.00%, citing concerns about inflation expectations and the risk of persistent price pressures. The majority favored keeping policy unchanged while assessing the evolving impact of recent energy-market developments.
  • Quantitative tightening (QT) continues as planned, with the Bank maintaining its balance-sheet reduction strategy through gilt runoff and sales. The MPC considers QT an important part of policy normalization while preserving sufficient liquidity in financial markets.
  • Inflation remains above target despite some easing in energy prices. The Bank expects CPI inflation to remain around or above 3% during the second half of 2026, compared with the 2% target. While recent declines in oil and gas prices have reduced the near-term inflation outlook, policymakers remain concerned about potential second-round effects through wages and services inflation.
  • UK economic growth remains subdued. The MPC noted signs of weakening demand, falling vacancies, and a softer labor market, although recent wage growth data came in slightly stronger than expected. The Committee expects economic activity to remain modest as higher borrowing costs and uncertainty continue to weigh on business investment and consumer spending.
  • Global risks remain elevated, particularly due to developments in the Middle East and their potential effects on energy markets, trade flows, and financial conditions. Although tensions have eased somewhat following diplomatic progress, policymakers continue to monitor commodity-price volatility and its implications for UK inflation.
  • Inflation risks remain tilted to the upside. The MPC highlighted concerns that higher inflation expectations, resilient wage growth, and renewed energy-price shocks could require a more restrictive policy stance. However, downside risks from weaker growth and increasing economic slack offset this influence.
  • The MPC continues to emphasize a data-dependent and restrictive policy stance, with no commitment to either rate cuts or hikes in the near term. Governor Andrew Bailey stated that policymakers will remain vigilant and stand ready to respond if inflation proves more persistent than expected. The presence of two votes for a rate increase demonstrates that the Committee remains alert to upside inflation risks.
  • The next meeting is on 30 July 2026.

    Next 24 Hours Bias
    Weak Bullish



The Canadian Dollar (CAD)

Key news events today

No major news event

What can we expect from CAD today?

The Canadian dollar is finding support from rising crude oil prices, which generally benefit Canada’s export-driven economy, but gains remain limited as investors continue to favor the U.S. dollar amid geopolitical uncertainty and renewed trade tensions. Markets are also digesting weaker-than-expected Canadian inflation data, which reduced expectations for additional Bank of Canada rate hikes after the central bank kept its overnight rate unchanged at 2.25% last week. Meanwhile, the Trump administration’s announcement of new tariffs on several Canadian imports has added pressure to the loonie, raising concerns about Canada’s export outlook and economic growth.
​
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
Weak Bearish

Oil

Key news events today

EIA Crude Oil Inventories (2:30 pm GMT)

What can we expect from Oil today?

Crude oil remains supported as geopolitical risk premiums continue to build. Escalating military conflict between the U.S. and Iran, coupled with threats to critical oil shipping routes through the Bab el-Mandeb and ongoing concerns around regional exports, are driving prices higher despite signs of rising U.S. crude inventories. Traders will closely monitor the official EIA inventory data and any further developments in the Middle East, with market sentiment remaining firmly focused on potential supply disruptions rather than underlying demand fundamentals.

Next 24 Hours Bias
Strong Bullish

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