IC Markets Europe Fundamental Forecast | 26 October 2023
What happened in the Asia session?
Robust demand for the greenback pushed the dollar index (DXY) as high as 106.80. This level has functioned as a significant resistance in October thus far and it appears to halt the bullish momentum once again. Should the DXY break cleanly above this threshold, it could potentially trigger a strong bullish move above 107.00.
What does it mean for the Europe & US sessions?
For the first time in the current hiking cycle, the ECB could finally keep its main refinancing rate on hold at 4.50%. Should the statement project a neutral outlook along with any additional neutral remarks by ECB President Christine Lagarde, the Euro could definitely come under heavy selling pressure later today.
The Dollar Index (DXY)
Key news events today
Advance GDP (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from DXY today?
The advance estimate for the third quarter GDP is set to show the US economy expanding strongly by 4.1% YoY, following a growth of 2.1% YoY in the previous quarter. Meanwhile, unemployment claims have been printing lower than their respective forecasts over the past nine weeks which usually function as a bullish catalyst for the US dollar.
Should the advance estimate for GDP come in strong and claims also print a weaker number, this combination of data points is more than likely to boost demand for the greenback during the US session.
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
Strong Bullish
Gold (XAU)
Key news events today
Advance GDP (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
What can we expect from Gold today?
The advance estimate for the third quarter GDP is set to show the US economy expanding strongly by 4.1% YoY, following a growth of 2.1% YoY in the previous quarter. Meanwhile, unemployment claims have been printing lower than their respective forecasts over the past nine weeks which usually function as a bullish catalyst for the US dollar.
Should the advance estimate for GDP come in strong and claims also print a weaker number, this combination of data points is more than likely to boost demand for the greenback during the US session and thus drive gold prices lower.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie was in free-fall as it shed well over 70 pips overnight and continued to slide lower as Asian markets came online. It is one of the weakest currencies this morning as it tumbled towards 0.6250 – downward pressures are likely to remain throughout the day.
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
No major news events.
What can we expect from NZD today?
Along with the Aussie, the Kiwi is the other currency that nose dived overnight, losing nearly 50 pips as it broke under the key threshold of 0.5800. Downward pressures are likely to remain throughout the day as it continued to slide lower towards 0.5750 this morning.
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
Tokyo Core CPI (11:30 pm GMT)
What can we expect from JPY today?
The Tokyo core CPI has been trending lower over the past three months on an annualized basis with September’s reading coming in at 2.5% YoY. The estimate for October remains unchanged and a softer-than-expected figure will give further impetus to the Bank of Japan to maintain its ultra-dovish monetary policy stance – potentially resulting in the USD/JPY remaining elevated.
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
Medium Bullish
The Euro (EUR)
Key news events today
ECB Monetary Policy Statement (12:15 pm GMT)
ECB Press Conference (12:45 pm GMT)
What can we expect from EUR today?
For the first time in the current hiking cycle, the ECB could finally keep its main refinancing rate on hold at 4.50%. Should the statement project a neutral outlook along with any additional neutral remarks by ECB President Christine Lagarde, the Euro could definitely come under heavy selling pressure later today.
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
No major news events.
What can we expect from CHF today?
A stronger US dollar pushed USD/CHF to a high of 0.8970 overnight. The bullish momentum continued this morning as this currency pair raced towards the key threshold of 0.9000.
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
No major news events.
What can we expect from GBP today?
The stronger US dollar drove the Pound towards 1.2100 overnight before breaking under this key threshold as Asian markets came online. It continues to slide lower and is likely to reach 1.2050 which is a significant pullback support.
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
No major news events.
What can we expect from CAD today?
As widely expected, the Bank of Canada (BoC) held its overnight rate steady at 5.0% for the second consecutive meeting. The Governing Council noted there is growing evidence that past rate hikes have tempered both economic activity and inflationary pressures, with growth forecast for 2023 lowered to 1.2% from 1.8%. Domestic consumption has subdued while business investments have also been negatively impacted by weaker demand and higher borrowing costs. However, the labour market is resilient while wage pressures persist.
The Canadian dollar weakened significantly in the aftermath of the BoC statement release and continued to be shaky as the press conference by Governor Tiff Macklem got under way. This caused USD/CAD to surge as high as 1.3800 while the dollar index (DXY) hit 106.50 by the end of 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
Medium Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
EIA crude oil inventories surprised to the downside as nearly 1.4M barrels of crude were added versus the estimate of just 240k. Despite the higher build up of inventory levels, crude prices gained as much as 2.0% overnight as geo-political risks heightened in the Middle East conflict. Combined with weaker global growth, expect crude prices to whipsaw over the next few trading sessions. WTI oil climbed above the $85 per barrel threshold overnight and is likely to remain elevated today.
Next 24 Hours Bias
Medium Bullish
