IC Markets Europe Fundamental Forecast | 24 October 2023
What happened in the Asia session?
The flash Composite PMI for Australia showed this index falling into contraction for the third time in four months. This was the lowest figure in 21 months, led by a significant decline in activity for both the manufacturing and service sectors. The fall in business activity was due to decrease in new orders (which signals weaker future demand), inflationary pressures and high interest rates.
New export business was also down for the eighth successive month while input costs continued to rise rapidly, as inflation ticked up to a three-month high. Despite the Composite PMI signalling a contraction, the Aussie rose as high as 0.6362 as the broad sell-off in the US dollar makes it one of the weakest currencies this morning.
What does it mean for the Europe & US sessions?
The US Composite PMI came in at 50.2 in September, highlighting an unchanged business activity across the private sector for the second consecutive month. The service sector’s output stagnated as new orders (which signals weaker future demand) saw a sharp decline and backlogs of work also fell at a faster rate. The flash estimate for October points to a small contraction and a weaker-than-expected reading could add further downward pressures on the US dollar.
The Dollar Index (DXY)
Key news events today
Flash Composite PMI (1:45 pm)
What can we expect from DXY today?
The US Composite PMI came in at 50.2 in September, highlighting an unchanged business activity across the private sector for the second consecutive month. The service sector’s output stagnated as new orders (which signals weaker future demand) saw a sharp decline and backlogs of work also fell at a faster rate. The flash estimate for October points to a small contraction and a weaker-than-expected reading could add further downward pressures on the US 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
Strong Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Spot gold prices stayed above the $1,970/oz overnight before rising quite strongly towards $1,985/oz as Asian markets came online. With the US dollar also selling off aggressively, this decline could also function as a bullish catalyst for this precious metal as gold and the greenback typically share a negative correlation.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
RBA Gov Bullock Speaks (8:00 am GMT)
What can we expect from AUD today?
RBA Governor Michele Bullock will be speaking at the Commonwealth Bank of Australia Global Markets Conference in Sydney where audience questions are expected. Her comments and remarks will be watched closely as they could have an impact on the direction of the Aussie 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 strong sell-off in the greenback, the Kiwi broke above 0.5850 overnight and is likely to remain elevated today. However, the level at 0.5870 could present itself as a significant pullback resistance zone for this currency.
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
Flash Composite PMI (12:30 am)
What can we expect from JPY today?
The Composite PMI in Japan contracted for the first time in ten months, falling to 49.9 in October amid ongoing weakness in the country’s manufacturing sector as new orders continue to fall. Meanwhile, services activity remained expansionary for the fourteenth month in a row but it was the slowest rate of growth this year. Following the sell-off in the US dollar overnight, USD/JPY dropped towards 149.50 as Asian markets came online.
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
Medium Bearish
The Euro (EUR)
Key news events today
Flash Composite PMI (8:00 am)
What can we expect from EUR today?
The Composite PMI contracted for the fourth consecutive month in September as business activity levels declined further with output for both manufacturing and services falling. The flash estimate for October points to another month of contraction which could add downward pressure on the Euro during the European session. Following the sell-off in the US dollar overnight, the Euro broke above 1.0630 and was rising strongly towards 1.0700 as Asian markets came online.
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
Strong Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Following the sell-off in the US dollar overnight, USD/CHF pulled back sharply and was falling towards 0.8900 this morning. Should this currency pair break under this threshold, expect it to decline even further 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
Flash Composite PMI (8:30 am)
What can we expect from GBP today?
The Composite PMI contracted for the second month in a row in September as manufacturing production declined for the seventh consecutive month while services activity contracted for a second consecutive month. The flash estimate for October points to another month of contraction and could likely add some downward pressure on the Pound which rose strongly overnight. It climbed as high as 1.2275 as Asian markets came online this morning.
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
Strong Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
The Canadian dollar strengthened overnight following the sell-off in the greenback. USD/CAD broke below the 1.3700-threshold and continued to slide lower towards 1.3650 as Asian markets came online. Expect this currency pair to remain under pressure for most parts of 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?
Crude oil prices rose on Tuesday as fighting between Israel and Hamas, particularly missile attacks from both sides, continued this week. With focus shifting to a potential ground assault by Israel on the Gaza trip, geo-political tensions remain high. WTI oil found support around the $85.00 per barrel mark overnight to climb towards $87 this morning. WTI prices could remain above the $85-level while any further escalation could drive prices towards the recent high of $89.30 per barrel.
Next 24 Hours Bias
Weak Bullish
