IC Markets Europe Fundamental Forecast | 10 November 2023
What happened in the Asia session?
The Reserve Bank of Australia (RBA) released its fourth and final instalment of its monetary policy statement for 2023, showing that the economy is stronger than originally anticipated while inflation remains high. The RBA also sees risk of upside surprises to inflation and fears that it will remain resilient and stay higher for longer while indicating a further hike in their cash rate is possible. Despite the relative hawkish tone of the statement, the Aussie remained under pressure and traded around 0.6360 this morning.
What does it mean for the Europe & US sessions?
The University of Michigan (UoM) will release its preliminary findings on consumer sentiment and inflation expectations for the month of November today. Sentiment has trended lower over the past few months due to ongoing concerns about inflation and uncertainty over the implications of negative news both domestically and abroad.
Meanwhile, inflation expectations rose strongly from 3.2% to 4.2% in October. Continued increase in expectations would indicate that inflationary pressures remain and could function as a bullish catalyst for the greenback.
The Dollar Index (DXY)
Key news events today
UoM Consumer Sentiment (3:00 pm GMT)
UoM Inflation Expectations (3:00 pm GMT)
What can we expect from DXY today?
The University of Michigan (UoM) will release its preliminary findings on consumer sentiment and inflation expectations for the month of November today. Sentiment has trended lower over the past few months due to ongoing concerns about inflation and uncertainty over the implications of negative news both domestically and abroad.
Meanwhile, inflation expectations rose strongly from 3.2% to 4.2% in October. Continued increase in expectations would indicate that inflationary pressures remain and could function as a bullish catalyst for the greenback.
Central Bank Notes:
- The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the second meeting in a row.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2.0% over the longer run.
- The Committee will continue to assess additional information and its implications for monetary policy.
- In determining the extent of additional policy firming that may be appropriate to return inflation to 2.0% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
- Next meeting runs from 12 to 13 December 2023.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
UoM Consumer Sentiment (3:00 pm GMT)
UoM Inflation Expectations (3:00 pm GMT)
What can we expect from Gold today?
The University of Michigan (UoM) will release its preliminary findings on consumer sentiment and inflation expectations for the month of November today. Sentiment has trended lower over the past few months due to ongoing concerns about inflation and uncertainty over the implications of negative news both domestically and abroad.
Meanwhile, inflation expectations rose strongly from 3.2% to 4.2% in October. Continued increase in expectations would indicate that inflationary pressures remain and could function as a bullish catalyst for the greenback and thus drive gold prices lower.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
RBA Monetary Policy Statement (12:30 am GMT)
What can we expect from AUD today?
The Reserve Bank of Australia (RBA) released its fourth and final instalment of its monetary policy statement for 2023, showing that the economy is stronger than originally anticipated while inflation remains high. The RBA also sees risk of upside surprises to inflation and fears that it will remain resilient and stay higher for longer while indicating a further hike in their cash rate is possible. Despite the relative hawkish tone of the statement, the Aussie remained under pressure and traded around 0.6360 this morning.
Central Bank Notes:
- The RBA increased the cash rate target by 25 basis points to 4.35%, the first increase in five meetings.
- Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago.
- Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.
- Next meeting is on 5 December 2023.
Next 24 Hours Bias
Medium Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi tumbled as low as 0.5890, shedding nearly 50 pips as hawkish rhetoric from Federal Reserve Chair Jerome Powell functioned as a significant bearish catalyst for this currency. Downwards pressures are likely to remain for the Kiwi as we wrap up the final trading day of the week.
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
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Hawkish rhetoric from Federal Reserve Chair Jerome Powell lit a fire under USD/JPY as it surged to hit 151.40 overnight. This currency pair was pulling back slightly as Asian markets digested Powell’s latest remarks but it is likely to remain elevated today.
Central Bank Notes:
- The Bank will continue with QQE with Yield Curve Control, aiming to achieve the price stability target of 2.0%, as long as it is necessary for maintaining that target in a stable manner.
- 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 at around 0% while regarding the upper bound of 1.0% for 10-year JGB yields as a reference in its market operations.
- Medium- to long-term inflation expectations have risen moderately. Even as actual inflation decelerates, inflation expectations are expected to rise moderately toward the end of the projection period, with the output gap turning positive and changes in firms’ wage- and price-setting behaviour and in labour-management wage negotiations. This will likely lead to a sustained rise in prices accompanied by wage increases.
- Japan’s economy is likely to continue recovering moderately for the time being, supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies.
- Next meeting is on 19 December 2023.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
ECB President Lagarde Speaks (12:30 pm GMT)
What can we expect from EUR today?
ECB President Christine Lagarde is due to participate in a fireside chat at the Financial Times’ Global Boardroom in London where her remarks could have an impact on the direction of the Euro. The Euro dropped as low as 1.0660 following hawkish rhetoric from Federal Reserve Chair Jerome Powell but was retracing higher as Asian markets came online – downward pressures remain for this currency.
Central Bank Notes:
- The ECB kept the three key interest rates unchanged.
- Inflation is still expected to stay too high for too long, and domestic price pressures remain strong.
- The Governing Council’s past interest rate increases continue to be transmitted forcefully into financing conditions.
- The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.
- Next meeting is on 14 December 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?
Hawkish rhetoric from Federal Reserve Chair Jerome Powell caused USD/CHF to hit 0.9040 overnight – this currency pair is likely to remain above the key 0.9000-threshold 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
GDP (7:00 am GMT)
What can we expect from GBP today?
Economic growth in the UK has been anemic over the last three quarters and the monthly GDP reading is unlikely to show a marked improvement, especially with the Composite PMI contracting for three months in a row. The Pound has been depressed since mid-July and is likely to remain under pressure following this latest GDP release.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6-to-3 to maintain its Official Bank Rate at 5.25%.
- Three members preferred to increase the Bank Rate by 0.25 percentage points to 5.5%.
- CPI inflation remains well above the 2% target, but is expected to continue to fall sharply, to 4¾% in 2023 Q4, 4½% in 2024 Q1 and 3¾% in 2024 Q2.
- This decline is expected to be accounted for by lower energy, core goods and food price inflation and, beyond January, by some fall in services inflation.
- The mean projection for CPI inflation is 2.2% and 1.9% at the two and three-year horizons respectively.
- Next meeting is on 14 December 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?
Hawkish rhetoric from Federal Reserve Chair Jerome Powell caused USD/CAD to surge as high as 1.3815 overnight. This currency pair was pulling back slightly as Asian markets came online but it is likely to remain elevated today.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0%, for the second meeting in a row.
- Canada’s economy has weakened with growth forecast for 2023 lowered to 1.2% from 1.8%
- Economic growth is expected to continue to be weak, growing 0.9% and 2.5% in 2024 and 2025 respectively.
- The Bank expects CPI inflation to average around 3.5% through the middle of 2024 before gradually easing to 2.0% in 2025.
- However, the near-term path for CPI is higher because of energy prices and ongoing persistence in core inflation.
- Next meeting is on 6 December 2023.
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude prices are all but certain to notch a third consecutive week of strong decline as the combination of weaker global demand and hawkish signals from the Federal Reserve weigh heavily on this commodity. WTI oil has tumbled well over 6% just this week thus far – the largest decline in six weeks. In all, WTI has dropped over 15% since 20th of October.
Next 24 Hours Bias
Medium Bearish
