IC Markets Europe Fundamental Forecast | 21 November 2023
What happened in the Asia session?
The Reserve Bank of Australia (RBA) released their minutes for the monetary policy meeting that took place on the 8th of November, indicating that the board considered holding the cash rate on hold but decided to hike by 25 basis points given the increased risks with respect to CPI inflation as well as inflation expectations. The Aussie hit a high of 0.6585 this morning before pulling back slightly to trade around 0.6565.
What does it mean for the Europe & US sessions?
The Federal Reserve will release its minutes for the FOMC meeting that took place on the 1st of November where Fed Chair Jerome Powell and his fellow policymakers kept the Fed Funds rate on hold at 5.25% to 5.50% for the second consecutive meeting.
Markets will receive a detailed understanding of the deliberations undertaken by the committee for November’s meeting as well as provide the outlook for the final meeting that will take place on the 13th of December. Any hawkish tone within the minutes is likely to spur demand for the greenback.
The Dollar Index (DXY)
Key news events today
FOMC Meeting Minutes (7:00 pm GMT)
What can we expect from DXY today?
The Federal Reserve will release its minutes for the FOMC meeting that took place on the 1st of November where Fed Chair Jerome Powell and his fellow policymakers kept the Fed Funds rate on hold at 5.25% to 5.50% for the second consecutive meeting. Markets will receive a detailed understanding of the deliberations undertaken by the committee for November’s meeting as well as provide the outlook for the final meeting that will take place on the 13th of December. Any hawkish tone within the minutes is likely to spur demand for the greenback.
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
Strong Bearish
Gold (XAU)
Key news events today
FOMC Meeting Minutes (7:00 pm GMT)
What can we expect from Gold today?
The Federal Reserve will release its minutes for the FOMC meeting that took place on the 1st of November where Fed Chair Jerome Powell and his fellow policymakers kept the Fed Funds rate on hold at 5.25% to 5.50% for the second consecutive meeting. Markets will receive a detailed understanding of the deliberations undertaken by the committee for November’s meeting as well as provide the outlook for the final meeting that will take place on the 13th of December. Any hawkish tone within the minutes is likely to spur demand for the greenback and thus drive gold prices lower.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
Monetary Policy Meeting Minutes (12:30 am GMT)
What can we expect from AUD today?
The Reserve Bank of Australia (RBA) released their minutes for the monetary policy meeting that took place on the 8th of November, indicating that the board considered holding the cash rate on hold but decided to hike by 25 basis points given the increased risks with respect to CPI inflation as well as inflation expectations. The Aussie hit a high of 0.6585 this morning before pulling back slightly to trade around 0.6565.
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
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
The Kiwi was one of the stronger performing currencies this morning as it raced past 0.6050 as Asian markets came online – it is likely to remain elevated today.
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
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Japanese yen saw strong inflows causing USD/JPY to dive and fall as low as 148.20 overnight. Downward pressures are likely to remain for this currency pair and a break under the 148-threshold could occur 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
Strong Bearish
The Euro (EUR)
Key news events today
ECB President Lagarde Speaks (4:00 pm GMT)
What can we expect from EUR today?
ECB President Christine Lagarde is due to speak at an event hosted by the German Ministry of Finance in Berlin. Any hawkish remarks with regards to the ECB’s monetary policy outlook is likely to cause the Euro to extend its current rally.
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
Trade Balance (7:00 am GMT)
What can we expect from CHF today?
Switzerland’s trade surplus widened to CHF5.0B in September as exports surged 8.9% MoM to CHF23.9B, due to higher sales of chemicals and pharmaceuticals; machinery and electronics; and watches while imports rose to CHF18.9B. Another month of widening surplus could spur demand for the Swiss franc and cause USD/CHF to extend its downward slide.
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 Bearish
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 noted that there is still plenty of ground to cover before inflation falls to the BoE’s 2.0% target despite UK inflation easing to 4.6% YoY in October at yesterday’s Henry Plumb Memorial Lecture. Governor Bailey also warned that “it’s certainly too soon to declare victory over inflation” – the Pound hit a high of 1.2520 overnight and is likely to extend its gains 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 Bullish
The Canadian Dollar (CAD)
Key news events today
CPI (1:30 pm GMT)
What can we expect from CAD today?
Inflation in Canada moderated to 3.8% YoY for the month of September from 4.0% in the previous month. Although still historically high, inflationary pressures have dissipated quite strongly over the past twelve months and with October’s estimate of 3.6% YoY pointing to further easing, the Canadian dollar could weaken further causing USD/CAD to potentially rise during 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
Weak Bearish
Oil
Key news events today
API Weekly Crude Oil Stock (9:30 pm GMT)
What can we expect from Oil today?
Crude oil prices rose overnight with WTI oil climbing as high as $78.40 per barrel. Prices then proceeded to ease this morning as demand concerns arising from a slowing global economy outweighed the prospects of additional supply cuts by Saudi Arabia and the OPEC members.
API stockpiles have increased over the past three weeks which typically signals weaker demand in the US. Crude prices could face additional downwards pressures should inventory levels experience another week of stronger-than-expected increase for this data point.
Next 24 Hours Bias
Weak Bullish
