IC Markets Europe Fundamental Forecast | 15 November 2023
What happened in the Asia session?
Australia’s Wage Price Index grew 4.0% YoY in the third quarter of 2023. This was the highest reading since the first quarter of 2009 with the most significant contribution to wage growth coming from the accommodation and food services and the health care and social assistance sectors. Strong wage growth is likely to lift the Aussie further following softer US CPI data overnight.
Meanwhile, China’s industrial production edged higher to 4.6% YoY in October, coming in slightly better than the estimate of 4.5%. This reading marked the fastest pace of expansion since April of this year with the mining and manufacturing sectors acting as the largest contributors to the overall growth. Crude prices were buoyed following this data release as WTI oil climbed towards the $78.50-region and could drift higher as the day progresses.
What does it mean for the Europe & US sessions?
Retail sales grew 0.7% MoM in September to mark the seventh consecutive month of growth. Despite high prices and elevated borrowing costs, consumer spending remains robust. However, October’s estimate of -0.3% points to a first decline in seven months and weaker-than-expected sales could negatively impact the greenback.
The Producer Price Index (PPI) – which measures wholesale inflation – rose 0.5% MoM in September. Although the cost of gasoline surged for that month, the gain of 0.5% was the lowest reading in three months. Softer PPI readings are likely to create downward pressure for the dollar.
The Dollar Index (DXY)
Key news events today
Retail Sales (1:30 pm GMT)
PPI (1:30 pm GMT)
What can we expect from DXY today?
Retail sales grew 0.7% MoM in September to mark the seventh consecutive month of growth. Despite high prices and elevated borrowing costs, consumer spending remains robust. However, October’s estimate of -0.3% points to a first decline in seven months and weaker-than-expected sales could negatively impact the greenback.
The Producer Price Index (PPI) – which measures wholesale inflation – rose 0.5% MoM in September. Although the cost of gasoline surged for that month, the gain of 0.5% was the lowest reading in three months. Softer PPI readings are likely to create downward pressure for the dollar.
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
Strong Bearish
Gold (XAU)
Key news events today
Retail Sales (1:30 pm GMT)
PPI (1:30 pm GMT)
What can we expect from Gold today?
Retail sales grew 0.7% MoM in September to mark the seventh consecutive month of growth. Despite high prices and elevated borrowing costs, consumer spending remains robust. However, October’s estimate of -0.3% points to a first decline in seven months and weaker-than-expected sales could negatively impact the greenback.
The Producer Price Index (PPI) – which measures wholesale inflation – rose 0.5% MoM in September. Although the cost of gasoline surged for that month, the gain of 0.5% was the lowest reading in three months. Softer PPI readings are likely to create downward pressure for the dollar. Whatever the outcome, it is likely to be a relatively volatile period for gold prices later today.
Next 24 Hours Bias
Strong Bullish
The Australian Dollar (AUD)
Key news events today
Wage Price Index (12:30 am GMT)
What can we expect from AUD today?
Australia’s Wage Price Index eased from 3.7% YoY to 3.6% YoY in the second quarter of 2023. The first quarter reading of 3.7% could very well mark the peak in wage growth as the third quarter estimate of 1.3% points to further moderation. A lower-than-expected reading could potentially increase the downward pressures on the Aussie.
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 Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
Following softer-than-expected inflation data from the US, the Kiwi surged over 150 pips to rise above 0.6000 overnight. As Asian markets digest the latest CPI readings this morning, the Kiwi is likely to remain elevated today.
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 Bullish
The Japanese Yen (JPY)
Key news events today
Trade Balance (11:50 pm GMT)
What can we expect from JPY today?
Japan’s trade balance unexpectedly swung into surplus in September with a figure of ¥62.4B. This marked the first surplus in three months as exports rose, supported by robust demand from the US. Another month of widening surplus could strengthen the Japanese yen and cause USD/JPY to pull back.
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
Medium Bearish
The Euro (EUR)
Key news events today
Trade Balance (10:00 am GMT)
Industrial Production (10:00 am GMT)
What can we expect from EUR today?
The Eurozone’s trade balance posted a surplus of €6.7B in August with both exports and imports tumbling – the former at a much slower rate. The Eurozone’s economy is fragile as evidenced by the Composite PMI readings, which have now contracted for five months in a row.
Meanwhile, industrial production has also been dire with the annualized reading declining since March of 2023. Should both these data points highlight a worsening economic situation, the Euro is likely to come under pressure once more.
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
Strong Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Following the release of the latest US inflation data overnight, USD/CHF tumbled over 120 pips to fall under 0.8900. As Asian markets digest the softer-than-expected CPI data, this currency pair is likely to remain under pressure 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
Strong Bearish
The Pound (GBP)
Key news events today
CPI (7:00 am GMT)
What can we expect from GBP today?
Although still historically high, inflation in the UK has eased from its peak of 11.1% YoY in October of 2022 to 6.7% YoY in September of this year. Softer CPI readings could provide some relief to policymakers as inflationary pressures appear to moderate further – this would also cause the Pound to potentially weaken during the Europe session.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
Following the release of the latest US inflation data overnight, USD/CAD dived over 130 pips to fall under 1.3700 overnight. As Asian markets digest the softer-than-expected CPI data, this currency pair is likely to remain under pressure 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
Medium Bearish
Oil
Key news events today
China Industrial Production (2:00 am GMT)
Crude Oil Inventories (3:30 pm GMT)
What can we expect from Oil today?
China’s industrial production edged higher to 4.6% YoY in October, coming in slightly better than the estimate of 4.5%. This reading marked the fastest pace of expansion since April of this year with the mining and manufacturing sectors acting as the largest contributors to the overall growth. Crude prices were buoyed following this data release as WTI oil climbed towards the $78.50-region and could drift higher as the day progresses.
Next 24 Hours Bias
Weak Bullish
