IC Markets Asia Fundamental Forecast | 22 November 2023
What happened in the US session?
The minutes for the FOMC meeting that took place on the 1st of November were released overnight showing that the Federal Reserve would need more evidence of inflationary pressures abating as considerable momentum in consumer spending could be sustained. They also stated that monetary policy should be kept sufficiently restrictive in order to bring inflation down to their target of 2%.
All in, it was a hawkish set of minutes but with hardly any fresh insights. After dropping to a low of 103.20, the dollar index (DXY) climbed as high as 103.70 following the release of these minutes.
What does it mean for the Asia Session?
As markets digest the latest insights from November’s FOMC meeting, we could see the DXY move higher towards the 104-level following a strong sell-off over the past two trading days.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (1:30 pm GMT)
What can we expect from DXY today?
Not only have unemployment claims in the US trended higher over that past four weeks, but the results have also printed higher than the respective forecasts. Higher claims signal potentially weakening of the labour market and could cause the Federal Reserve to adopt a more neutral stance with regard to monetary policy. Should the latest results come in stronger than anticipated, the DXY could potentially come under heavy selling pressures once more.
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
Unemployment Claims (1:30 pm GMT)
What can we expect from Gold today?
Not only have unemployment claims in the US trended higher over that past four weeks, but the results have also printed higher than the respective forecasts. Higher claims signal potentially weakening of the labour market and could cause the Federal Reserve to adopt a more neutral stance with regard to monetary policy. Should the latest results come in stronger than anticipated, the DXY could potentially come under heavy selling pressures once more and thus lift gold prices higher.
Next 24 Hours Bias
Medium Bearish
The Australian Dollar (AUD)
Key news events today
RBA Gov Bullock Speaks (8:35 am GMT)
What can we expect from AUD today?
RBA Governor Michele Bullock will be speaking on the economic outlook and monetary policy at the Australian Business Economists Annual Dinner in Sydney where her remarks could have a profound impact on the direction of the Aussie during the Europe session.
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 broke a pullback support level last night, and could possibly continue its bearish momentum, to break a recent low at 0.6005. We can expect the Kiwi to be bearish in the next 24 hours or the rest of the week, however, it could be temporary as we are still bearish on the higher timeframe (Daily and above).
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?
The Japanese yen saw strong inflows causing USD/JPY to dive and fall as Japan’s economy has shown recovery in the past week. However, USD/JPY respected a key support level, and we could possibly see price gaming slight bullish momentum before continuing its bearish run. The levels to watch out for would be 148.55, which is an overlap resistance level, and the support level to watch out for would be 147.49. Price could either break above the resistance level to become bullish or break below the support level to become bearish.
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 Financial Stability Review (9:00 am GMT)
What can we expect from EUR today?
The ECB’s Financial Stability Review is an assessment of the conditions in the financial system and potential risks to financial stability. Any evidence on strains and imbalances in the system could provide insight into the future of monetary policy for the Eurozone. Any risks highlighted to inflationary pressures could cause the Euro to extend its current rally.
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
Weak Bearish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
USD/CHF has been consolidating for the past few days since Monday, and we could possibly see a breakout happening in the near future. Based on price action, price could fall to a level of support at 0.8796 after the consolidation. Furthermore, the inflation forecasts remain unchanged and could be lowered in 2025. Hence, this supports our bearish sentiment as well.
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
Autumn Forecast Statement (Tentative)
What can we expect from GBP today?
The Bank of England’s (BoE) Autumn Forecast Statement provides an updated economic outlook and previews the government’s budget for the coming year. Data such as expected spending and income levels, borrowing levels, and financial objectives are covered along with comments on the latest independent economic forecasts. This statement could impact the direction of the Pound when it is released, although the time is yet to be determined.
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
BoC Gov Macklem Speaks (4:30 pm GMT)
What can we expect from CAD today?
Bank of Canada (BoC) Governor Tiff Macklem is due to speak at the Saint John Region Chamber of Commerce in New Brunswick. The text version of his speech will be released at 4;30 pm GMT and could create some volatility for the Canadian dollar during the US session.
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
Crude Oil Inventories (3:30 pm GMT)
What can we expect from Oil today?
API stockpiles added 9.1M barrels of crude to its inventories versus the estimate of 1.5M, signally a strong drop-off in oil demand in the US. The EIA forecast also points to a modest increase of 0.9M but another stronger than expected build could dampen oil prices once more.
WTI oil climbed as high as $77.90 per barrel overnight before pulling back slightly as Asian markets came online. This commodity is likely to remain under pressure today.
Next 24 Hours Bias
Medium Bearish
