IC Markets Europe Fundamental Forecast | 3 November 2023
What happened in the Asia session?
Markets traded within a relatively narrow range as the dollar index (DXY) ranged between 106.10 and 106.20 while spot gold prices hovered around $1,985/oz. It was an empty calendar with no major catalyst to drive markets in either direction.
What does it mean for the Europe & US sessions?
Non-farm payrolls (NFPs) have printed higher than their respective forecasts for most parts of 2023. After September’s blowout figure of 336k, we are likely to see monthly job growth moderate as seen in the estimate of 179k while the unemployment rate is expected to remain unchanged at 3.8%. A combination of stronger-than-expected NFPs with lower unemployment rate is more than likely to function as a bullish catalyst for the DXY.
The Dollar Index (DXY)
Key news events today
NFPs (12:30 pm GMT)
Unemployment Rate (12:30 pm GMT)
ISM Services PMI (2:00 pm GMT)
What can we expect from DXY today?
Non-farm payrolls (NFPs) have printed higher than their respective forecasts for most parts of 2023. After September’s blowout figure of 336k, we are likely to see monthly job growth moderate as seen in the estimate of 179k while the unemployment rate is expected to remain unchanged at 3.8%. A combination of stronger-than-expected NFPs with lower unemployment rate is more than likely to function as a bullish catalyst for the DXY.
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
NFPs (12:30 pm GMT)
Unemployment Rate (12:30 pm GMT)
ISM Services PMI (2:00 pm GMT)
What can we expect from Gold today?
Non-farm payrolls (NFPs) have printed higher than their respective forecasts for most parts of 2023. After September’s blowout figure of 336k, we are likely to see monthly job growth moderate as seen in the estimate of 179k while the unemployment rate is expected to remain unchanged at 3.8%. A combination of stronger-than-expected NFPs with lower unemployment rate is more than likely to function as a bullish catalyst for the DXY and thus drive gold prices lower.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie hit a high of 0.6455 overnight before pulling pack to 0.6415. Should markets see a renewed demand for the greenback, AUD/USD could fall towards 0.6400.
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
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi rose as high as 0.5917 before dipping under the 0.5900-threshold. As Asian markets came online, NZD/USD was attempting to climb above this threshold once more.
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
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The greenback sold off for most parts of yesterday before seeing some renewed demand during the US mid-session. USD/JPY dropped as low as 149.85 before rebounding to hit 150.55. This currency pair could 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
Unemployment Rate (10:00 am GMT)
What can we expect from EUR today?
The Eurozone’s unemployment rate fell to 6.4% in August which was the lowest reading on record – September’s estimate of 6.4% shows this rate remaining unchanged. Following the overnight data in the US, the Euro dropped as low as 1.0615 and could trade in a relatively narrow range for most parts of today.
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?
Inflation in Switzerland remained unchanged at 1.7% YoY while the monthly growth of 0.1% came in line with estimates in October. Demand for the greenback picked up overnight as USD/CHF climbed above 0.9050 and could remain elevated 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
Weak Bullish
The Pound (GBP)
Key news events today
Services PMI (9:30 am GMT)
What can we expect from GBP today?
The services sector in the UK has contracted over the past three months as October’s flash estimate came in at 49.2 – the lowest reading in nine months. The final PMI for October is expected to remain unchanged which is likely to add downward pressure on the Pound today.
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
Weak Bearish
The Canadian Dollar (CAD)
Key news events today
Employment Change (12:30 pm GMT)
Unemployment Rate (12:30 pm GMT)
What can we expect from CAD today?
Canada will be releasing its equivalent of the NFPs at the same as the US. The unemployment rate is expected to edge higher from 5.5% to 5.6% while employment change is likely to decrease from September’s robust gains of 63.8k down to 24.8k in October. Whatever the outcome, it will definitely be a high-octane period of price action during the US session where USD/CAD is all but certain to experience high volatility.
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
No major news events.
What can we expect from Oil today?
Crude oil prices are set to register a second consecutive week of losses as worries surrounding supply disruptions due to geo-political risks in the Middle East eased. WTI oil rebounded overnight to climb above $82.00 per barrel and could edge higher today. However, WTI oil is set to decline nearly 3.6% this week and almost 7% since 23rd October.
Next 24 Hours Bias
Weak Bullish
