IC Markets Europe Fundamental Forecast | 5 October 2023
What happened in the Asia session?
Australia’s trade surplus increased to A$9.6B in August which was higher than the forecast of A$8.6B as exports grew while imports fell. Shipments increased for the first time in three months, led by a rise in exports to China, the country’s top trading partner. The Aussie was one of the strongest performing currencies this morning climbing as high as 0.6378 and is likely to remain elevated today.
What does it mean for the Europe & US sessions?
Not only have unemployment claims trended lower over the past six weeks, but they have also printed lower than their respective forecasts which have acted as a bullish catalyst for the US dollar. Another round of weaker-than-expected claims could once again function as a bullish catalyst. However, the abysmal ADP jobs gains are acting as a bearish catalyst for the greenback and overhead pressures are likely to remain today.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
Not only have unemployment claims trended lower over the past six weeks, but they have also printed lower than their respective forecasts which have acted as a bullish catalyst for the US dollar. Another round of weaker-than-expected claims could once again function as a bullish catalyst. However, the abysmal ADP jobs gains are acting as a bearish catalyst for the greenback and overhead pressures are likely to remain today.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50%.
- The Committee is strongly committed to returning inflation to its 2.0% target.
- The Committee will adjust monetary policy if risks emerge that could hinder achieving its goals.
- Various factors will be considered, including labour market conditions, inflation pressures, inflation expectations, and international and financial developments.
- Next meeting runs from 31 October to 1 November 2023.
Next 24 Hours Bias
Strong Bearish
Gold (XAU)
Key news events today
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
Not only have unemployment claims trended lower over the past six weeks, but they have also printed lower than their respective forecasts which have acted as a bullish catalyst for the US dollar. Another round of weaker-than-expected claims could once again function as a bullish catalyst for the greenback and drive gold prices even lower.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Trade Balance (12:30 am GMT)
What can we expect from AUD today?
Australia’s trade surplus increased to A$9.6B in August which was higher than the forecast of A$8.6B as exports grew while imports fell. Shipments increased for the first time in three months, led by a rise in exports to China, the country’s top trading partner. The Aussie was one of the strongest performing currencies this morning climbing as high as 0.6378 and is likely to remain elevated today.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the fourth consecutive meeting.
- Inflation in Australia has passed its peak but is still too high and will remain so for some time yet.
- Some further tightening of monetary policy may be necessary.
- Next meeting is on 7 November 2023.
Next 24 Hours Bias
Strong Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Following the Reserve Bank of New Zealand (RBNZ) decision to hold their official cash rate at 5.50% for the third meeting in a row, the Kiwi dropped as low as 0.5870 but found support around 0.5900 overnight. It rose strongly towards 0.5950 as Asian markets came online.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row.
- The Committee agreed that the OCR needs to stay at a restrictive level to ensure that annual consumer price inflation returns to the 1 to 3% target range and to support maximum sustainable employment.
- While supply constraints in the economy continue to ease, inflation remains too high.
- Spending needs to remain subdued to better match the economy’s ability to supply goods and services, so that consumer price inflation returns to its target range.
- Next meeting is on 29 November 2023.
Next 24 Hours Bias
Strong Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Although no official from Japan’s Ministry of Finance has confirmed it, growing speculation surrounding a possible intervention in the open currency markets by the Bank of Japan (BoJ) is creating strong demand for the Japanese yen as USD/JPY tumbled below the 149.00-level this morning. In addition, the abysmal ADP jobs gains are also acting as an additional bearish catalyst for this currency pair.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2.0%.
- The Bank of Japan decided on the following measures:
- Yield curve control: Negative interest rate of -0.1% on policy-rate balances and purchase of Japanese government bonds to keep 10-year JGB yields around +0.5% and -0.5% from the target level.
- Inflation expectations have shown some upward movements against medium- to long-term inflation expectations and wage growth rise, accompanied by changes in factors such as firms’ wage- and price-setting behaviour.
- Japan’s economy is likely to continue recovering moderately for the time being.
- Next meeting is on 31 October 2023.
Next 24 Hours Bias
Strong Bearish
The Euro (EUR)
Key news events today
German Trade Balance (6:00 am GMT)
What can we expect from EUR today?
The trade surplus in Germany decreased to €15.9B in July from €18.7B in June which was the largest gain since January 2021. Exports fell as sales to countries outside the EU declined by 2.5%, mainly due to lower shipments to the UK. With the German economy on fragile ground, a significantly lower trade surplus for Germany could potentially act as a bearish catalyst for the Euro. However, the Euro rebounded strongly overnight following the abysmal ADP jobs gains which acted as a bearish catalyst for the US dollar.
Central Bank Notes:
- The ECB raised the three key interest rates by 25 basis points.
- Economic growth projections have been slightly lowered.
- The Governing Council will ensure interest rates are sufficiently restrictive to achieve the inflation target and keep them at those levels as long as needed.
- Rate decisions will be data-dependent, considering inflation outlook, economic data, underlying inflation dynamics, and monetary policy transmission strength.
- Next meeting is on 26 October 2023.
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
With demand for the US dollar waning following the abysmal ADP jobs gains, USD/CHF fell under 0.9150 and this currency pair is likely to slide lower as the day progresses.
Central Bank Notes:
- The SNB unexpectedly kept the policy rate unchanged at 1.75% in September.
- Inflation forecasts remain unchanged at 2.2% for both 2023 and 2024 while it was lowered from 2.1% to 1.9% for 2025.
- SNB predicts modest growth for the rest of the year due to subdued foreign demand, loss of purchasing power from inflation, and stricter financial conditions.
- The projection for GDP growth this year remained unchanged at 1.0%.
- Next meeting is on 14 December 2023.
Next 24 Hours Bias
Medium Bearish
The Pound (GBP)
Key news events today
Construction PMI (8:30 am GMT)
What can we expect from GBP today?
Construction activity in the UK expanded over the past two months as growth in the commercial and civil engineering segments helped to offset a slump in house building. However, business activity forecasts for the year ahead were the weakest since January – this was largely due to falling sales volumes across the construction sector as new orders saw its fastest decline in over three years. It is quite possible that this index could fall into contraction very soon, especially with September’s estimate of 50.0 bordering on the expansion-contraction threshold. The Pound could once again come under pressure during the Europe session. However, the Pound rebounded strongly overnight following the abysmal ADP jobs gains which acted as a bearish catalyst for the US dollar.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 5-to-4 to maintain its Official Bank Rate at 5.25%.
- Four members preferred to increase the Bank Rate by 0.25 percentage points, to 5.5%.
- CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation. Services price inflation, however, is projected to remain elevated in the near term.
- The mean projection for CPI inflation remained unchanged and is expected to decline to 2.0% and 1.9% at the two and three-year horizons, respectively.
- Next meeting is on 2 November 2023.
Next 24 Hours Bias
Medium Bullish
The Canadian Dollar (CAD)
Key news events today
Ivey PMI (2:00 pm GMT)
What can we expect from CAD today?
The Ivey PMI expanded strongly in August with a reading of 53.5 which surprised markets as the estimate was pointing to a contraction-level reading of 49.2. September’s estimate of 50.8 points to another month of expansion but at a slower pace. A stronger-than-expected reading could provide some boost to the Canadian dollar and with demand for the greenback now waning overnight, USD/CAD could pullback today.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0%.
- Canada’s economy was more substantial than expected in the second quarter of 2023, with GDP growth of 3.3%.
- The Bank expects CPI inflation to ease to around 3.0% in the summer, but concerns have increased about inflation staying above the 2.0% target.
- Next meeting is on 25 October 2023.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
EIA crude oil inventories experienced a larger than expected draw as 2.2M barrels of crude were used versus the estimate of a 100k-drawdown. However, this did not stop crude prices from tumbling sharply overnight as the combination of rising US Treasury yields – which could halt global economic growth and hence slowdown demand for crude oil – and diminishing concerns surrounding supply weighed on prices. WTI oil plunged under the $84.00 per barrel mark overnight, losing nearly 6.0% in the process. Overhead pressures are likely to remain for this commodity today.
Next 24 Hours Bias
Medium Bearish
