IC Markets Europe Fundamental Forecast | 9 November 2023
What happened in the Asia session?
The latest CPI and PPI readings in China for the month of October showed the nation re-entering disinflationary territory. Both consumer and producer inflation contracted amidst weak retail spending and an unexpected contraction in manufacturing activity. This contraction was led by deteriorating economic conditions in China’s biggest export destinations which showed exports sinking more than expected.
With weaker global demand as highlighted by China’s exports, crude prices reversed the early morning gains as WTI oil dropped from a high of $76.00 per barrel to trade around $75.40. Crude prices are likely to remain under pressure today.
What does it mean for the Europe & US sessions?
Not only have unemployment claims in the US started to trend high over the last couple of weeks, they have also printed stronger than the respective estimates – this result usually functions as a bearish catalyst for the greenback.
Meanwhile, Federal Reserve Chair Jerome Powell will be participating in a panel discussion titled “Monetary Challenges in a Global Economy” in Washington DC where audience questions are expected. Following his overnight speech where he did not offer many clues, Powell could shed more light on the outlook for monetary policy at his panel discussion later today.
The Dollar Index (DXY)
Key news events today
Unemployment Claims (1:30 pm GMT)
Fed Chair Powell Speaks (7:00 pm GMT)
What can we expect from DXY today?
Not only have unemployment claims in the US started to trend high over the last couple of weeks, they have also printed stronger than the respective estimates – this result usually functions as a bearish catalyst for the greenback.
Meanwhile, Federal Reserve Chair Jerome Powell will be participating in a panel discussion titled “Monetary Challenges in a Global Economy” in Washington DC where audience questions are expected. Following his overnight speech where he did not offer many clues, Powell could shed more light on the outlook for monetary policy at his panel discussion later today.
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
Medium Bearish
Gold (XAU)
Key news events today
Unemployment Claims (1:30 pm GMT)
Fed Chair Powell Speaks (7:00 pm GMT)
What can we expect from Gold today?
Not only have unemployment claims in the US started to trend high over the last couple of weeks, they have also printed stronger than the respective estimates – this result usually functions as a bearish catalyst for the greenback while boosting gold prices.
Meanwhile, Federal Reserve Chair Jerome Powell will be participating in a panel discussion titled “Monetary Challenges in a Global Economy” in Washington DC where audience questions are expected. Following his overnight speech where he did not offer many clues, Powell could shed more light on the outlook for monetary policy at his panel discussion later today which in turn could drive gold prices. Any hawkish rhetoric is likely to weigh on this precious metal.
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 shed nearly 40 pips during the US session but found substantial support around the key threshold of 0.6400. This currency was one of the strongest performers this morning as it rose towards 0.6420.
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
Weak Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi found strong support around the key 0.5900-threshold after falling 30 pips overnight. Along with the Aussie, it was one of the strongest performers this morning as it rose towards 0.5930.
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?
USD/JPY briefly rose above 151.00 before dipping under this level overnight. This currency pair initially rose at the start of the Asia session before reversing to slide below 150.90 and could edge lower as the day progresses.
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 President Lagarde Speaks (5:30 pm GMT)
What can we expect from EUR today?
ECB President Christine Lagarde is due to speak at the inauguration of the House of the Euro in Brussels later today where her remarks could have an impact on the direction of the Euro. Following worsening sales figures in the Eurozone, the Euro dropped as low as 1.0660 before reversing strongly to bounce as high as 1.0720 overnight and looks set to climb higher during the Asia session.
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
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
USD/CHF tumbles as low as 0.8977 before finding support around this level to briefly rise above the 0.9000-threshold. This currency pair could resume the downturn as demand for the greenback wanes 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
No major news events.
What can we expect from GBP today?
Bank of England (BoE) Governor Andrew Bailey was optimistic that inflation will drop towards the 2.0% target within two years but stated that it was too early to talk about interest rate cuts during yesterday’s speech. The Pound hit a high 1.2300 overnight but drifted lower as Asian markets came online – downward pressures remain for this currency.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
With crude prices falling strongly over the last couple of days, USD/CAD hit a high of 1.3815 overnight before falling towards 1.3790. This currency pair proceeded to drop lower as Asian markets came online and could remain under pressure for the first half of the day.
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
No major news events.
What can we expect from Oil today?
Although EIA inventories rose by 774k barrels, it was lower than the estimate of 1.3M. This lower-than-expected inventory build did not manage to stem the slide in crude prices as WTI oil dipped under the $75.00 per barrel mark overnight.
The latest CPI and PPI readings in China for the month of October showed the nation re-entering disinflationary territory. Both consumer and producer inflation contracted amidst weak retail spending and an unexpected contraction in manufacturing activity. This contraction was led by deteriorating economic conditions in China’s biggest export destinations which showed exports sinking more than expected.
With weaker global demand as highlighted by China’s exports, crude prices reversed the early morning gains as WTI oil dropped from a high of $76.00 per barrel to trade around $75.40. Crude prices are likely to remain under pressure today.
Next 24 Hours Bias
Medium Bearish
