IC Markets Europe Fundamental Forecast | 6 October 2023
What happened in the Asia session?
The dollar index (DXY) found support around 106.35 this morning before edging higher towards 106.50. Markets were relatively subdued as they await the highly anticipated US labour market data later today.
What does it mean for the Europe & US sessions?
Non-farm payrolls (NFPs) have printed under the 200k-threshold over the past three months, potentially indicating a slowdown in hiring practices for US corporations. The estimate of 171k for September suggests that this slowdown is set to continue for another month while the unemployment rate is expected to edge lower to 3.7% from 3.8%. A lower-than-expected NFP print is more than likely to function as a bearish catalyst for the US dollar and also highlight a major slowdown in the US labour market.
The Dollar Index (DXY)
Key news events today
NFPs (12:30 pm GMT)
Unemployment Rate (12:30 pm GMT)
What can we expect from DXY today?
Non-farm payrolls (NFPs) have printed under the 200k-threshold over the past three months, potentially indicating a slowdown in hiring practices for US corporations. The estimate of 171k for September suggests that this slowdown is set to continue for another month while the unemployment rate is expected to edge lower to 3.7% from 3.8%. A lower-than-expected NFP print is more than likely to function as a bearish catalyst for the US dollar and also highlight a major slowdown in the US labour market.
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
Weak Bearish
Gold (XAU)
Key news events today
NFPs (12:30 pm GMT)
Unemployment Rate (12:30 pm GMT)
What can we expect from Gold today?
Non-farm payrolls (NFPs) have printed under the 200k-threshold over the past three months, potentially indicating a slowdown in hiring practices for US corporations. The estimate of 171k for September suggests that this slowdown is set to continue for another month while the unemployment rate is expected to edge lower to 3.7% from 3.8%. A lower-than-expected NFP print is more than likely to function as a bearish catalyst for the US dollar and provide a much-needed boost to gold prices.
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 has rebounded quite strongly after hitting a low of 0.6285 on Tuesday and is now attempting to break above the 0.6280-level for the second time this week. With demand for the US dollar waning, the Aussie could have a strong finish to end the current trading week.
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 has rebounded strongly after hitting a low of 0.5870 on Wednesday and is rising towards 0.5980 this morning. With demand for the US dollar waning, the Kiwi is likely to have a strong finish to end the current trading 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
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
After hitting a high of 150.15 earlier in the week, the combination of a suspected intervention by the Bank of Japan (BoJ) and the disappointing ADP employment report have caused USD/JPY to fall under 148.50. This currency pair is likely to remain under pressure today and is set to notch its first weekly loss in five weeks.
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
Weak Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
Following the lacklustre demand for the US dollar in the second half of the week, the Euro climbed as high as 1.0550 and could make a second attempt today to break above this level. With US NFPs coming up later today, a ‘softer’ figure could push the Euro higher during the US session.
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
Weak Bullish
The Swiss Franc (CHF)
Key news events today
Unemployment Rate (5:45 am GMT)
Foreign Currency Reserves (7:00 am GMT)
What can we expect from CHF today?
Switzerland’s unemployment rate has been relatively stable between 2.0% and 23.31% over the past four months and it is expected to remain the same. Foreign currency reserves have been trending lower since the middle of last year as the Swiss National Bank (SNB) sold its reserves to prop up the value of the Swiss franc during the high inflationary period of 2022 till present. With inflation starting to retreat steadily for Switzerland, the reduction in foreign reserves may not see significant declines moving forward. USD/CHF has fallen under 0.9150 as demand for the US dollar faded in the second half of the week.
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
No major news events.
What can we expect from GBP today?
Following the lacklustre demand for the US dollar in the second half of the week, the Pound climbed as high as 1.1295 and could make a second attempt today to break above this level. With US NFPs coming up later today, a ‘softer’ figure could push the Pound higher during the US session.
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
Weak Bullish
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’s equivalent of the US NFPs will be released at the same as their neighbour. The unemployment rate is expected to edge higher to 5.6% while the employment is forecasted to add 22k jobs in September. Whatever the outcome may be, USD/CAD is all but certain to face extremely high volatility during the release of these economic data points during the US session.
Central Bank Notes:
- The Bank of Canada held its target for the overnight rate at 5.0%.
- Canada’s economy was more substantial than expected in the second quarter of 2023, with GDP growth of 3.3%.
- The Bank expects CPI inflation to ease to around 3.0% in the summer, but concerns have increased about inflation staying above the 2.0% target.
- Next meeting is on 25 October 2023.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude oil prices suffered another 2%-loss for the second consecutive day as this commodity looks to erase nearly all the gains made from 28th August – crude prices are set to register its largest weekly loss since mid-March. Part of the sell-off in crude can be attributed to the broad run-up in the dollar and US Treasury yields since July as the combination of elevated interest rates and higher Treasury yields raises concerns on slowing global growth which can erode consumption. WTI oil dropped under $82.00 per barrel overnight and while it could experience a short-relief bounce, a fall under the $81-mark is likely to occur.
Next 24 Hours Bias
Medium Bearish
