IC Markets Europe Fundamental Forecast | 4 October 2023
What happened in the Asia session?
As widely expected, the Reserve Bank of New Zealand (RBNZ) kept its official cash rate on hold at 5.50% for the third consecutive meeting as higher interest rates are constraining economic activity and reducing inflationary pressures as required. The statement also added that demand growth in the economy continues to ease and while GDP growth in the second quarter of 2023 was stronger than anticipated, the growth outlook remains subdued. As monetary conditions remain restrictive, spending growth is expected to decline further. The Kiwi plunged as low as 0.5870 following the release of the statement, shedding 50 pips in the process and is likely to remain under pressure for the rest of the day.
What does it mean for the Europe & US sessions?
Following yesterday’s surprise JOLTS job openings data, the ADP employment report will be the next closely watched economic data point for the US labour market this week. August’s figures of 177k printed lower than the estimate and September’s forecast points to a gain of 153k jobs. Another weaker-than-expected number could potentially function as a bearish catalyst for the US dollar.
The Dollar Index (DXY)
Key news events today
ADP Employment Report (12:15 pm GMT)
ISM Services PMI (2:00 pm GMT)
What can we expect from DXY today?
Following yesterday’s surprise JOLTS job openings data, the ADP employment report will be the next closely watched economic data point for the US labour market this week. August’s figures of 177k printed lower than the estimate and September’s forecast points to a gain of 153k jobs. Another weaker-than-expected number could potentially function as a bearish catalyst for the US dollar.
Meanwhile, the services sector has been powering the overall US economy for most parts of 2023 but recent data shows the rate of expansion slowing considerably. September’s estimate for ISM Services PMI shows a figure of just 50.2, inching closer to contraction and a weaker than anticipated PMI reading could rein in 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
Weak Bullish
Gold (XAU)
Key news events today
ADP Employment Report (12:15 pm GMT)
ISM Services PMI (2:00 pm GMT)
What can we expect from Gold today?
Following yesterday’s surprise JOLTS job openings data, the ADP employment report will be the next closely watched economic data point for the US labour market this week. August’s figures of 177k printed lower than the estimate and September’s forecast points to a gain of 153k jobs. Another weaker-than-expected number could potentially function as a bearish catalyst for the US dollar.
Meanwhile, the services sector has been powering the overall US economy for most parts of 2023 but recent data shows the rate of expansion slowing considerably. September’s estimate for ISM Services PMI shows a figure of just 50.2, inching closer to contraction and a weaker-than-anticipated PMI reading could rein in the US dollar. A strong pullback in the US dollar could finally provide some lift for gold in the near-term during the US session.
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?
Following the Reserve Bank of Australia’s (RBA) decision to keep the official cash rate on hold at 4.10% for the fourth meeting in a row, the Aussie dropped below 0.6300 overnight and is likely to remain under pressure 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
Medium Bearish
The Kiwi Dollar (NZD)
Key news events today
RBNZ Rate Statement (1:00 am GMT)
What can we expect from NZD today?
As widely expected, the Reserve Bank of New Zealand (RBNZ) kept its official cash rate (OCR) on hold at 5.50% for the third consecutive meeting as higher interest rates are constraining economic activity and reducing inflationary pressures as required. The statement also added that demand growth in the economy continues to ease and while GDP growth in the second quarter of 2023 was stronger than anticipated, the growth outlook remains subdued. As monetary conditions remain restrictive, spending growth is expected to decline further. The Kiwi plunged as low as 0.5870 following the release of the statement, shedding 50 pips in the process and is likely to remain under pressure for the rest of the day.
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?
The Japanese yen gained nearly 2% versus the US dollar overnight as USD/JPY plunged as low as 147.30 before stabilizing around the 149.00-region. There was widespread speculation that the Bank of Japan (BoJ) conducted a stealth intervention operation in the currency markets at around 2:00 pm GMT which caused the yen to gain significantly versus its peers. Further intervention measures could drive USD/JPY lower but the demand for the greenback has resumed this morning with this currency pair edging higher towards 149.50.
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
Services PMI (8:00 am GMT)
ECB President Lagarde Speaks (8:15 am GMT)
What can we expect from EUR today?
The services sector was the bright spark in overall economic activity for the Eurozone for most parts of 2023 but with the final estimate of 48.4 for the month of September, this index now points to a second consecutive month of contraction. With manufacturing still remaining in the doldrums, overall activity in the Eurozone is sluggish and is likely to weigh on the Euro.
Meanwhile, ECB President Christine Lagarde is due to deliver pre-recorded opening remarks at the ECB Conference on Monetary Policy in Frankfurt where her statements are likely to have an impact on the direction of 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?
With demand for the US dollar remaining strong, USD/CHF hit 0.9245 overnight and is likely to remain elevated for the rest of the trading 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
Services PMI (8:30 am GMT)
What can we expect from GBP today?
Just like its European neighbours, services activity fell into contraction in August and the final estimate of 47.2 points to another month of contraction. Overall economic activity has slowed in the UK and another weak PMI reading is all but certain to weigh on the Pound.
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
No major news events.
What can we expect from CAD today?
With demand for the US dollar remaining strong, USD/CAD hit 1.3735 overnight and is likely to remain elevated for the rest of the trading day.
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 Bullish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
The API weekly stockpiles experienced a larger than anticipated drawdown with 4.2M barrels of crude taken from inventory versus the estimate of just 920k. Despite the surprise drawdown, crude prices remain under pressure as WTI oil failed to break above the $89.00 per barrel mark overnight. With data for EIA crude oil inventories to be released today, another surprise draw could potentially provide some lift for this commodity.
Next 24 Hours Bias
Weak Bearish
