IC Markets Europe Fundamental Forecast | 19 October 2023
What happened in the Asia session?
Australia’s Labour Force report for the month of September showed a minuscule 6.7k jobs being added to the labour market versus the estimate of 20.6k. This was a huge miss in employment gains, especially when compared to August’s figures of 63.3k. The Aussie tanked spectacularly in the aftermath of this data release, diving as low as 0.6300 and is likely to fall further as the day progresses.
What does it mean for the Europe & US sessions?
Unemployment claims in the US have been trending lower over the past six weeks out of nine which signal a robust labour market. However, claims have started to trend higher over the last three weeks but readings have been coming in lower than their respective estimates over this period. Lower-than-expected claims will usually function as a bullish catalyst for the DXY.
Meanwhile, Federal Reserve Chairman Jerome Powell is due to speak at the Economic Club of New York Luncheon where he could also sing a similar tune as Federal Reserve Governor Christopher Waller, where his overnight remarks were neutral and added downward pressure on the dollar.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (12:30 pm GMT)
Fed Chair Powell Speaks (4:00 pm GMT)
What can we expect from DXY today?
Unemployment claims in the US have been trending lower over the past six weeks out of nine which signal a robust labour market. However, claims have started to trend higher over the last three weeks but readings have been coming in lower than their respective estimates over this period. Lower-than-expected claims will usually function as a bullish catalyst for the DXY.
Meanwhile, Federal Reserve Chairman Jerome Powell is due to speak at the Economic Club of New York Luncheon where he could also sing a similar tune as Federal Reserve Governor Christopher Waller, where his overnight remarks were neutral and added downward pressure on the 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
Medium Bullish
Gold (XAU)
Key news events today
Unemployment Claims (12:30 pm GMT)
Fed Chair Powell Speaks (4:00 pm GMT)
What can we expect from Gold today?
Unemployment claims in the US have been trending lower over the past six weeks out of nine which signal a robust labour market. However, claims have started to trend higher over the last three weeks but readings have been coming in lower than their respective estimates over this period. Lower-than-expected claims will usually function as a bullish catalyst for the US dollar and thus drive gold prices lower.
Meanwhile, Federal Reserve Chairman Jerome Powell is due to speak at the Economic Club of New York Luncheon where he could also sing a similar tune as Federal Reserve Governor Christopher Waller, where his overnight remarks were neutral and added downward pressure on the dollar, resulting in higher gold prices.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
Labour Force Report (12:30 am GMT)
What can we expect from AUD today?
Australia’s Labour Force report for the month of September showed a minuscule 6.7k jobs being added to the labour market versus the estimate of 20.6k. This was a huge miss in employment gains, especially when compared to August’s figures of 63.3k. The Aussie tanked spectacularly in the aftermath of this data release, diving as low as 0.6300 and is likely to fall further as the day progresses.
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 Bearish
The Kiwi Dollar (NZD)
Key news events today
Trade Balance (9:45 pm GMT)
What can we expect from NZD today?
New Zealand’s trade deficit widened to $2.3B in August from $1.2B in the previous month as imports sank by 8.1%. When compared to the same month of the prior year, the deficit shrank from $2.6B indicating a marginal improvement in the balance of trade. Another month of widening deficits in September is likely to add further downward pressures on the Kiwi.
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
National Core CPI (11:30 pm GMT)
What can we expect from JPY today?
The core Consumer Price Index (CPI) in Japan rose 3.1% YoY in August, rising at the same pace in July but was slightly higher than the estimate of 3.0%. The core inflation print also exceeded the Bank of Japan’s (BoJ) 2% target for the 17th consecutive month, providing further impetus to the BoJ to maintain its ultra-dovish monetary policy stance. September’s forecast points to a potential slowdown to 2.7% YoY where a weaker-than-expected reading could potentially cause the yen to strengthen.
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
No major news events.
What can we expect from EUR today?
The Euro dropped to 1.0525 during the US session before Federal Reserve Governor Christopher Waller’s neutral remarks provided some support, rising as high as 1.0555. However, demand for the greenback appears to be strong this morning as the Euro looks to slide towards 1.0520 during the Asia 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
Medium Bearish
The Swiss Franc (CHF)
Key news events today
Trade Balance (6:00 am GMT)
What can we expect from CHF today?
Switzerland’s trade surplus widened to CHF3.2B in August from CHF2.6B in the previous month as exports rose 6.6% MoM. Further widening of this surplus is likely to create further demand for the Swiss franc, potentially causing USD/CHF to remain under the key 0.9000-threshold.
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
No major news events.
What can we expect from GBP today?
The Pound dropped to 1.2140 during the US session before Federal Reserve Governor Christopher Waller’s neutral remarks provided some support, rising as high as 1.2177. However, demand for the greenback appears to be strong this morning as the Pound looks to slide towards 1.2120 during the Asia 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
Medium Bearish
The Canadian Dollar (CAD)
Key news events today
IPPI (12:30 pm GMT)
RMPI (12:30 pm GMT)
What can we expect from CAD today?
Canada’s Industrial Product Price Index (IPPI) and Raw Materials Price Index (RMPI) increased relatively strongly in July and August on a monthly basis. Another month of stronger-than-expected readings could function as a bullish catalyst for the Canadian dollar and potentially rein in USD/CAD as it broke above the key 1.3700-threshold overnight.
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
No major news events.
What can we expect from Oil today?
EIA crude oil inventories experienced a larger-than-expected drawdown as nearly 4.5M barrels of crude were drawn versus the estimate of just 300k – this indicates that US demand was strong last week. However, this data point did not boost prices as WTI oil fell below $87.00 per barrel. Prices for WTI could continue to slide lower where it may potentially find support around the $86.00-level today.
Next 24 Hours Bias
Weak Bearish
