IC Markets Europe Fundamental Forecast | 17 October 2023
What happened in the Asia session?
The Reserve Bank of Australia (RBA) released its minutes from October’s monetary policy meeting which showed a more hawkish outlook and sentiment among board members. RBA members acknowledged that upside risks to inflation were a significant concern and they also had a low tolerance for slower return of inflation to their 2% to 3% target. The Aussie rose as high as 0.6366 this morning and is likely to remain elevated today.
What does it mean for the Europe & US sessions?
The ZEW Economic Sentiment for Germany has printed in negative territory over the past five months, highlighting the growing weakness in Europe’s largest economy. The assessment of the economic situation saw a significant drop of 8.1 points falling to -79.4 in September, marking its lowest level in three years. The estimate of -9.5 for October points to another month of negative sentiment but improving slightly from September’s -11.4 print. A weaker-than-expected figure could function as a bearish catalyst for the Euro.
The Dollar Index (DXY)
Key news events today
Retail Sales (12:30 pm GMT)
Industrial Production (1:15 pm GMT)
What can we expect from DXY today?
US retail sales advanced 0.6% MoM in August, higher than the forecast of 0.2%. Sales continue to highlight robust consumer spending despite the combination of elevated prices and high borrowing costs. Sales at gasoline stations recorded the biggest increase as gasoline prices soared 10% MoM. September’s estimate of 0.3% points to a sixth consecutive month of growth but at a slower rate.
Industrial production rose 0.4% MoM in August which was above market expectations of a 0.1% increase. However, September’s forecast points to production stalling which would end two consecutive months of gains for this sector. A weaker-than-expected reading would highlight industrial momentum dissipating in the US.
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
Weak Bullish
Gold (XAU)
Key news events today
Retail Sales (12:30 pm GMT)
Industrial Production (1:15 pm GMT)
What can we expect from Gold today?
US retail sales advanced 0.6% MoM in August, higher than the forecast of 0.2%. Sales continue to highlight robust consumer spending despite the combination of elevated prices and high borrowing costs. Sales at gasoline stations recorded the biggest increase as gasoline prices soared 10% MoM. September’s estimate of 0.3% points to a sixth consecutive month of growth but at a slower rate.
Industrial production rose 0.4% MoM in August which was above market expectations of a 0.1% increase. However, September’s forecast points to production stalling which would end two consecutive months of gains for this sector. A weaker-than-expected reading would highlight industrial momentum dissipating in the US. A resulting weaker US dollar could provide a lift for gold prices later today.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
Monetary Policy Meeting Minutes (12:30 am GMT)
RBA Gov Bullock Speaks (12:30 am GMT)
What can we expect from AUD today?
The Reserve Bank of Australia (RBA) released its minutes from October’s monetary policy meeting which showed a more hawkish outlook and sentiment among board members. RBA members acknowledged that upside risks to inflation were a significant concern and they also had a low tolerance for slower return of inflation to their 2% to 3% target. The Aussie rose as high as 0.6366 this morning and is likely to remain elevated today.
In addition, newly appointed RBA Governor Michele Bullock is due to participate in a fireside chat about the current economic climate at the Australian Financial Security Authority Inaugural Summit in Sydney. A combined hawkish tone from the latest minutes and Governor Bullock’s chat could function as a potential bullish catalyst for the Aussie dollar.
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
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Following the latest Consumer Price Inflation (CPI) for the third quarter of 2023, which was weaker than the forecast, the Kiwi shed more than 20 pips early this morning but found support around the 0.5900-threshold. Should this level fail to hold prices, the Kiwi is likely to tumble lower today.
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 Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
After hitting a high of 149.77 at the beginning of the US session, USD/JPY tumbled lower following Federal Reserve Bank of Philadelphia President Patrick Harker’s neutral remarks on the outlook for monetary policy in the US. This currency pair found support around 149.50 overnight and it could continue to edge higher 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
German ZEW Economic Sentiment (9:00 am GMT)
What can we expect from EUR today?
The ZEW Economic Sentiment for Germany has printed in negative territory over the past five months, highlighting the growing weakness in Europe’s largest economy. The assessment of the economic situation saw a significant drop of 8.1 points falling to -79.4 in September, marking its lowest level in three years. The estimate of -9.5 for October points to another month of negative sentiment but improving slightly from September’s -11.4 print. A weaker-than-expected figure could function as a bearish catalyst for the Euro.
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
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
After hitting a high of 0.9030 at the beginning of the US session, USD/CHF fell as low as 0.9000 overnight. This currency pair has found strong support around this key threshold and it could retrace higher for the initial part of the day.
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
Weak Bullish
The Pound (GBP)
Key news events today
Labour Market Report (6:00 am GMT)
What can we expect from GBP today?
The UK’s labour market report is due for release today where the unemployment rate is expected to remain unchanged at 4.3% while the claimant count change points to a figure of 2.3k. A robust labour report could provide a much-needed boost for the Pound during the European session.
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
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
CPI (12:30 pm GMT)
What can we expect from CAD today?
Canada’s Consumer Price Inflation (CPI) rose to 4.0% YoY in August from 3.3% YoY in the previous month, exceeding market expectations of 3.8% YoY. It marked the second consecutive month of acceleration in the Canadian inflation rate since hitting the two-year-low of 2.8% in June. Should inflationary pressures continue to build in September, it increases the likelihood that the Bank of Canada may keep interest rates elevated for a higher period of time. This hawkish sentiment for the Canadian dollar could drive USD/CAD lower later 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
API Weekly Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
Crude prices extend their overnight losses as a lack of immediate escalation in the Middle East appears to assure markets that the conflict may not spillover into the rest of the region for now. WTI oil tumbled under the $86.00 per barrel level overnight and continued to slide lower towards $85.00 as Asian markets came online. Following last week’s surprise build in API stockpiles, another round of higher-than-expected reading could function as an additional bearish catalyst for crude prices towards the end of the day.
Next 24 Hours Bias
Weak Bearish
