IC Markets Europe Fundamental Forecast | 26 September 2023
What happened in the Asia session?
Japan’s core CPI, which excludes fresh food but includes fuel costs, remained unchanged at 3.3% YoY in August but was slightly higher than the forecast of 3.2%. Although this reading exceeded the Bank of Japan’s (BoJ) target of 2% for the 18th consecutive month, the BoJ maintains its ultra-dovish monetary policy stance with USD/JPY remaining elevated around 148.80.
What does it mean for the Europe & US sessions?
Federal Reserve Governor Michelle Bowman is due to deliver pre-recorded opening remarks at a FedCommunities event in Washington DC where she could once again reiterate her calls for further rate hikes to rein in inflation. Although the Federal Reserve did not increase the Fed Funds rate last week, Fed officials are jawboning stronger demand for the US dollar with their hawkish statements.
The Dollar Index (DXY)
Key news events today
CB Consumer Confidence (2:00 pm GMT)
FOMC Member Bowman Speaks (5:35 pm GMT)
What can we expect from DXY today?
The Conference Board Consumer Confidence survey pulled back in August, erasing the early summer gains as the hot labour market cools and high interest rates bite the American consumer. The estimate for September points to another decline for this survey as consumers were less optimistic about their short-term income prospects as well as the short-term outlook for the labour market.
Federal Reserve Governor Michelle Bowman is due to deliver pre-recorded opening remarks at a FedCommunities event in Washington DC where she could once again reiterate her calls for further rate hikes to rein in inflation. Although the Federal Reserve did not increase the Fed Funds rate last week, Fed officials are jawboning stronger demand for the US dollar with their hawkish statements.
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 Bullish
Gold (XAU)
Key news events today
CB Consumer Confidence (2:00 pm GMT)
FOMC Member Bowman Speaks (5:35 pm GMT)
What can we expect from DXY today?
The Conference Board Consumer Confidence survey pulled back in August, erasing the early summer gains as the hot labour market cools and high interest rates bite the American consumer. The estimate for September points to another decline for this survey as consumers were less optimistic about their short-term income prospects as well as the short-term outlook for the labour market.
Federal Reserve Governor Michelle Bowman is due to deliver pre-recorded opening remarks at a FedCommunities event in Washington DC where she could once again reiterate her calls for further rate hikes to rein in inflation. Although the Federal Reserve did not increase the Fed Funds rate last week, Fed officials are jawboning stronger demand for the US dollar with their hawkish statements which would potentially add further downward pressure on gold prices.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
After being one of the weakest currencies yesterday, the Aussie found support just above the 0.6400-level overnight and was rising strongly as Asian markets came online. It was rising towards 0.6430 this morning and a relief bounce could be expected today.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the third consecutive meeting.
- Inflation in Australia has passed its peak and is trending lower but needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting is on 3 October 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?
After being one of the weakest currencies yesterday, the Kiwi found support around 0.5950 yesterday and was rising strongly as Asian markets came online. It was rising towards 0.5980 this morning and a relief bounce could be expected today.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the 1% to 3% target range while supporting maximum sustainable employment.
- Headline inflation and inflation expectations have declined but the core reading remains too high.
- Next meeting is on 4 October 2023.
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
Core CPI (5:00 am GMT)
Monetary Policy Meeting Minutes (11:50 pm GMT)
What can we expect from JPY today?
Japan’s core CPI, which excludes fresh food but includes fuel costs, remained unchanged at 3.3% YoY in August but was slightly higher than the forecast of 3.2%. Although this reading exceeded the Bank of Japan’s (BoJ) target of 2% for the 18th consecutive month, the BoJ maintains its ultra-dovish monetary policy stance with USD/JPY remaining elevated around 148.80, especially after yesterday’s surprise speech by BoJ Governor Kazuo Ueda. In addition, the minutes from last week’s monetary policy meeting will also be released later today which could function as another bullish catalyst for USD/JPY.
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 Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The German ifo Business Climate index fell for the fifth time in a row in September as sentiment among German managers darkened further and companies are increasingly pessimistic about the months ahead.
Meanwhile, ECB President Christine Lagarde was relatively hawkish during her testimony before the Committee on Economic and Monetary Affairs in Brussels where she stated that “borrowing costs will remain elevated for as long as necessary to tame consumer prices even as the economy struggles”. Despite her hawkish rhetoric, the Euro fell as low as 1.0575 overnight and is expected to remain under pressure today.
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 Bearish
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 remaining strong, USD/CHF broke above 0.9100 yesterday as hawkish rhetoric by various Fed officials have jawboned USD/CHF higher since last Friday, especially after the unexpected pause by the Swiss National Bank. This currency pair is likely to remain elevated today.
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 Bullish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
With demand for the US dollar remaining strong, the Pound dipped under 1.2200 briefly overnight as hawkish rhetoric by various Fed officials have jawboned the US dollar higher since last Friday, especially after the unexpected pause by the Bank of England. After retracing higher, the Pound is likely to slip under 1.2200 again 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 Bearish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Despite relatively strong demand for the US dollar, USD/CAD fell as low as 1.3450 yesterday. Higher crude oil prices could have played a part in strengthening the Canadian dollar in recent weeks but with crude prices now pulling back, USD/CAD could climb towards 1.3500 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?
API crude stocks experienced a larger than expected draw last week as nearly 5.3M barrels of crude were utilized, indicating higher demand in the US. However, fears are now mounting that higher-for-longer US interest rates will weigh on crude oil demand despite the ongoing tightness in supply levels. In addition, renewed concerns over China’s economy have also dampened its growth prospects. WTI oil failed to break above $90 per barrel yesterday and could now slide under the $89-level today.
Next 24 Hours Bias
Weak Bearish
