IC Markets Europe Fundamental Forecast | 16 October 2023
What happened in the Asia session?
It was a relatively subdued trading session during Asian hours as the dollar index (DXY) remained above the 106.50-level while gold retreated away from the $1,932/oz level to slide under $1,920. Crude prices remain elevated with WTI oil trading above the $86 per barrel threshold.
What does it mean for the Europe & US sessions?
Trade balance data from the Eurozone along with Federal Reserve Bank of Philadelphia President Patrick Harker’s speeches are likely to impact the direction of the Euro and the US dollar. Higher volume during the Europe and US sessions could see trading activity pick up in the latter part of the day.
The Dollar Index (DXY)
Key news events today
FOMC Member Harker Speaks (2:30 pm GMT)
FOMC Member Harker Speaks (8:30 pm GMT)
What can we expect from DXY today?
Federal Reserve Bank of Philadelphia President Patrick Harker is due to speak at two events today – first at the Mortgage Bankers Association Annual Convention in Philadelphia where he will touch on the economic outlook of the US and then at a webinar hosted by the National Association of Corporate Directors. His remarks could have an impact on the direction of the US dollar later today.
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
Medium Bearish
Gold (XAU)
Key news events today
FOMC Member Harker Speaks (2:30 pm GMT)
FOMC Member Harker Speaks (8:30 pm GMT)
What can we expect from Gold today?
Federal Reserve Bank of Philadelphia President Patrick Harker is due to speak at two events today – first at the Mortgage Bankers Association Annual Convention in Philadelphia where he will touch on the economic outlook of the US and then at a webinar hosted by the National Association of Corporate Directors. His remarks could have an impact on the US dollar and thus drive the direction for gold prices later today.
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 was one of the strongest performing currencies this morning as it opened at 0.6300 and proceeded to rise strongly towards 0.6330. Following a deep sell-off last Thursday and Friday, the Aussie could experience a relief-rally today as short-sellers exit their positions and create a short-squeeze for this currency.
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 Bullish
The Kiwi Dollar (NZD)
Key news events today
CPI (9:45 pm GMT)
What can we expect from NZD today?
Consumer Price Inflation (CPI) in New Zealand eased to 6.0% YoY in the second quarter of 2023, the lowest reading since the fourth quarter of 2021. However, prices remain elevated based on historical levels with food and housing & household utilities as two of the largest contributors to this index. The estimate for the third quarter points to an increase of 1.9% QoQ, which is higher than the previous quarter’s reading of 1.1%. A higher-than-expected result could function as a bullish catalyst for the Kiwi which was the strongest performing currency as markets re-opened 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 Bullish
The Japanese Yen (JPY)
Key news events today
Industrial Production (4:30 am GMT)
What can we expect from JPY today?
The preliminary estimate showed industrial production unexpectedly coming in flat in August, which was better than the consensus of a 0.8% MoM fall. On an annualised basis, production has declined for two consecutive months highlighting the weakness in industrial activity. This provides the Bank of Japan with further impetus to maintain its ultra-dovish monetary policy in a bid to spur economic activity. USD/JPY gapped slightly lower to open around 149.35 this morning and could drift lower for most parts of the new trading day.
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 Bearish
The Euro (EUR)
Key news events today
Trade Balance (9:00 am GMT)
What can we expect from EUR today?
The Eurozone recorded a trade surplus of €6.5B in July, marking the second consecutive month of surplus. Imports tumbled by 18.2% to €221.3B while exports fell at a softer rate of 2.7% to €227.8B. Another month of trade surplus would indicate that Eurozone exports are picking up and could potentially provide a lift for the Euro.
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 Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
After declining sharply for most parts of last week, USD/CHF found support around the 0.9000-threshold. This currency pair ranged between 0.9000 and 0.9100 last Thursday and Friday with a potential for prices to continue this sideways trend as the new trading week kicks off.
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
MPC Member Pill Speaks (8:30 am GMT)
What can we expect from GBP today?
Bank of England (BoE) Chief Economist Huw Pill is due to speak about the UK’s economic outlook at the OMFIF Economic and Monetary Policy Institute in London. His remarks could impact the Pound during the European session and potentially provide an additional boost.
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 Bullish
The Canadian Dollar (CAD)
Key news events today
BoC Business Outlook Survey (2:30 pm GMT)
What can we expect from CAD today?
The Bank of Canada (BoC) will release its business outlook survey where markets will get insights into the future economic conditions of the surveyed firms, which are selected based on their relative contribution to the nation’s GDP figures. An optimistic outlook could lift the Canadian dollar and thus drive USD/CAD lower.
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
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
Crude prices rose strongly last Friday with WTI oil gaining over 5.0% to close within a whisker of $88.00 per barrel. However, WTI oil gapped lower to open at $86.37, falling under the $86-level briefly before rebounding as high as $86.50. The on-going geo-political risks in the Middle East remain elevated and any further developments from this region could act as a bullish catalyst for crude.
Next 24 Hours Bias
Weak Bullish
