IC Markets Europe Fundamental Forecast | 12 October 2023
What happened in the Asia session?
The Melbourne Institute’s (MI) consumer inflation expectations edged higher to 4.8% YoY in October, up from 4.6% in the previous month. There was a small up-tick in both actual and expected pay, although wage expectations continue to be relatively weak. However, there are concerns that cost pressures in Australia may remain elevated for a longer period of time. The Aussie rose as high as 0.6425 after release of this data point but then started to retreat away from this level.
What does it mean for the Europe & US sessions?
The Consumer Price Index (CPI) accelerated for a second straight month to 3.7% YoY in August from 3.2% YoY in July, which was also above the market forecast of 3.6%. Oil prices have been on the rise over the past two months, pushing inflation higher. The forecast for September points to a somewhat unchanged reading of 3.6% YoY. Should CPI print on the lower side, it could function as a bearish catalyst for the US dollar.
The Dollar Index (DXY)
Key news events today
CPI (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
The Consumer Price Index (CPI) accelerated for a second straight month to 3.7% YoY in August from 3.2% YoY in July, which was also above the market forecast of 3.6%. Oil prices have been on the rise over the past two months, pushing inflation higher. The forecast for September points to a somewhat unchanged reading of 3.6% YoY. Should CPI print on the lower side, it could function as a bearish catalyst for the US dollar.
Unemployment claims have been coming in lower than their respective forecasts over the past seven weeks, which usually act as a bullish catalyst for the greenback. However, claims have started to edge higher over the last two weeks and if this data point surprises to the upside, it would indicate that some cracks may be appearing in the labour market and could potentially add downward pressure on the dollar.
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
Medium Bearish
Gold (XAU)
Key news events today
CPI (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
The Consumer Price Index (CPI) accelerated for a second straight month to 3.7% YoY in August from 3.2% YoY in July, which was also above the market forecast of 3.6%. Oil prices have been on the rise over the past two months, pushing inflation higher. The forecast for September points to a somewhat unchanged reading of 3.6% YoY. Should CPI print on the lower side, it could function as a bearish catalyst for the US dollar and provide a potential lift for gold prices.
Unemployment claims have been coming in lower than their respective forecasts over the past seven weeks, which usually act as a bullish catalyst for the greenback. However, claims have started to edge higher over the last two weeks and if this data point surprises to the upside, it would indicate that some cracks may be appearing in the labour market and could potentially add downward pressure on the dollar and thus provide a boost for this precious metal.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
MI Inflation Expectations (12:00 am GMT)
What can we expect from AUD today?
The Melbourne Institute’s (MI) consumer inflation expectations edged higher to 4.8% YoY in October, up from 4.6% in the previous month. There was a small up-tick in both actual and expected pay, although wage expectations continue to be relatively weak. However, there are concerns that cost pressures in Australia may remain elevated for a longer period of time. The Aussie rose as high as 0.6425 after release of this data point but then started to retreat away from this level.
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
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi fell as low as 0.6000 overnight before rising towards 0.6020 as Asian markets came online. After running into a major resistance level at 0.6050 on Tuesday, the Kiwi could trade sideways between this resistance level and 0.5990 for the rest of the week.
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
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
‘Hotter’ than expected PPI data overnight caused USD/JPY to rise above 149.00. Combined with the Bank of Japan’s (BoJ) ongoing ultra-dovish monetary policy, this currency pair remains elevated and could climb towards 149.50 today.
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
Weak Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro fell as low as 1.0580 overnight before rising towards 1.0630 as Asian markets came online. Despite the hawkish tone of the minutes for September’s FOMC meeting, the Euro has managed to remain elevated thus far.
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?
Despite ‘hotter’ than expected PPI data and the hawkish tone of September’s FOMC, USD/CHF continues to slide lower. The Swiss franc has gained considerably versus the dollar over the past seven trading days and downward pressures continue to grow for this currency pair.
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
Strong Bearish
The Pound (GBP)
Key news events today
GDP (6:00 am GMT)
What can we expect from GBP today?
The British economy shrank 0.5% month-over-month in July, the biggest decline so far this year, which also reversed a 0.5% growth in June. Figures came worse than market forecasts of a 0.2% fall. The services sector decreased by 0.5% and was the main contributor to the contraction, led by a 3.4% fall in the human health activities industry. September’s estimate points to a weak growth of 0.2% MoM and another poor reading is likely to weigh on the Pound. However, it broke above 1.2300 overnight and could remain above this threshold today.
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
No major news events.
What can we expect from CAD today?
After falling sharply on Monday, USD/CAD has been trading in a relatively narrow range between 1.3570 and 1.3620. As crude prices continue to pull back sharply, demand for the Canadian dollar could diminish and cause USD/CAD to edge higher 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
Weak Bullish
Oil
Key news events today
EIA Crude Oil Inventories (3:00 pm GMT)
What can we expect from Oil today?
The API data surprised markets overnight as it registered a huge build in stockpile levels. Nearly 13M barrels of crude oil were added to inventories versus the small estimate of a 1.3M-gain. This data point served as a bearish catalyst for oil as WTI oil tumbled under the $82 per barrel mark to close the gap that took place on Monday morning. The estimate for the EIA inventories points to a small drawdown of 400k barrels. However, even a larger than expected EIA drawdown is not expected to lift crude prices later today.
Next 24 Hours Bias
Strong Bearish
