IC Markets Europe Fundamental Forecast | 25 October 2023
What happened in the Asia session?
The monthly Consumer Price Index (CPI) indicator in Australia climbed by 5.6% YoY in September, higher than the forecast of 5.3%, and accelerating from 5.2% YoY in August. This marked the second consecutive monthly increase in annual inflation for the first time in 2023. A resurgence of inflationary pressures would keep the Reserve Bank of Australia on their toes, making them more inclined to keep their cash rate higher for longer. The stronger-than-expected CPI figure functioned as a significant bullish catalyst for the Aussie as it surged over 40 pips and hit the 0.6400-threshold.
What does it mean for the Europe & US sessions?
The German ifo Business Climate highlighted a bleak outlook and sentiment for the month of September. October’s estimate of 85.9 points to a relatively unchanged reading but given yesterday’s poor flash Composite PMI readings, a weaker-than-expected German ifo cannot be ruled out. The Euro could come under further downward pressure during the Europe session.
The Dollar Index (DXY)
Key news events today
Fed Chair Powell Speaks (8:35 pm)
What can we expect from DXY today?
Federal Reserve Chair Jerome Powell is due to deliver opening remarks at the Moynihan Lecture in Social Science and Public Policy in Washington DC where his remarks could have an impact on the direction of the US dollar. Stronger-than-expected flash Composite PMI readings pushed the DXY as high as 106.32 overnight but it started to pull back slightly as Asian markets came online. It could continue to slide lower in the first half of the day.
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 Bearish
Gold (XAU)
Key news events today
Fed Chair Powell Speaks (8:35 pm)
What can we expect from Gold today?
Federal Reserve Chair Jerome Powell is due to deliver opening remarks at the Moynihan Lecture in Social Science and Public Policy in Washington DC where his remarks could have an impact on the direction of the US dollar and thus drive gold prices. Stronger-than-expected flash Composite PMI readings drove gold prices down as low as $1,955/oz overnight but prices rebounded quite sharply to trade around $1,977/oz during the Asia session.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
CPI (12:30 am GMT)
What can we expect from AUD today?
The monthly Consumer Price Index (CPI) indicator in Australia climbed by 5.6% YoY in September, higher than the forecast of 5.3%, and accelerating from 5.2% YoY in August. This marked the second consecutive monthly increase in annual inflation for the first time in 2023. A resurgence of inflationary pressures would keep the Reserve Bank of Australia on their toes, making them more inclined to keep their cash rate higher for longer. The stronger-than-expected CPI figure functioned as a significant bullish catalyst for the Aussie as it surged over 40 pips and hit the 0.6400-threshold.
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?
The Kiwi surged this morning along with its Pacific neighbour as it raced towards 0.5870. Along with the Aussie, both these currencies are the strongest performing currencies as trading got underway during the Asian session.
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 demand for the US dollar increased overnight, USD/JPY failed to break above the 150-threshold – a level that has served as a significant resistance over the past four weeks. With demand for the greenback waning this morning, this currency pair could slide lower as the day progresses.
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 Bearish
The Euro (EUR)
Key news events today
German ifo Business Climate (8:00 am)
What can we expect from EUR today?
The German ifo Business Climate highlighted a bleak outlook and sentiment for the month of September. October’s estimate of 85.9 points to a relatively unchanged reading but given yesterday’s poor flash Composite PMI readings, a weaker-than-expected German ifo cannot be ruled out. The Euro could come under further downward pressure during the Europe session.
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 Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
A stronger US dollar pushed USD/CHF to a high of 0.8950 overnight. However, robust demand for the Swiss franc since the beginning of October is likely to dominate the flows for this currency pair as the downturn remains firmly entrenched.
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 Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
The stronger US dollar combined with an overall weak labour market report in the UK drove the Pound under the 1.2200-threshold overnight, falling as low as 1.2155. This currency could retrace slightly higher during the initial part of the trading before resuming the downturn.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
BoC Monetary Policy Statement (2:00 pm GMT)
BoC Press Conference (3:00 pm GMT)
What can we expect from CAD today?
The Bank of Canada (BoC) will announce its monetary policy statement where they are widely anticipated to hold their overnight rate steady at 5.00%. This would mark the second consecutive meeting where they kept rates on hold. Should the statement and press conference both convey a neutral tone, the Canadian dollar is likely to weaken further and potentially lift USD/CAD higher during the US session.
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 (2:30 pm GMT)
What can we expect from Oil today?
Stronger than expected readings for yesterday’s API stockpiles, where nearly 2.7M barrels of oil were drawn versus the estimate of a build of 1.6M, could not prevent the slide in crude oil prices. Prices slid lower for the third consecutive session as yesterday’s weak European PMI data weighed negatively on the outlook for energy demand. WTI oil fell below the $84.00 per barrel overnight and continued to slip lower towards $83.00 this morning. The estimate for EIA inventories points to a small drawdown of just 500k barrels – it is unlikely that a larger drawdown will provide the necessary catalyst to reverse the course of direction for this commodity.
Next 24 Hours Bias
Weak Bullish
