IC Markets Europe Fundamental Forecast | 27th October 2021

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What happened in the US session?

A batch of mixed developments may produce headwinds for the US Dollar as it puts pressure on the Federal Reserve to delay its exit strategy.

The latest US Conference Board consumer confidence posted a surprise increase to 113.8, above expectations looking for a drop to 108.3. Meanwhile, both the present situation index and expectations index regarding business and labour market conditions both rose in October.

What does it mean for the Asia Session?

A lack of prominent economic event risk during Friday’s Asia Pacific session may place the focus for currencies on general market sentiment. Given the decline in Wall Street futures, this could set the stage for further gains in the US Dollar and Japanese Yen. This may come at the cost of the Australian and New Zealand Dollars.

The Dollar Index (DXY)

Key news events today

No major news

What can we expect from DXY today?

The U.S. dollar edged up on Tuesday in narrow-range trading as markets awaited news from upcoming central bank meetings that might spark volatility. Report showed that U.S. consumers were more confident about the economy than expected, the dollar index DXY rose modestly and was up 0.1% at 93.9280 at 3:30

Central Bank Notes:

  • Tapering likely to start in November, December; end in mid-2022
  • Pace of reduction is $10b in treasuries and $5b in mortgage-backed securities
  • Sees one hike in 2022, three hikes in 2023
  • Next meeting on 3 November

Next 24 Hours Bias

Weak Bullish

Gold (XAU)

Key news events today

No major news events.

What can we expect from Gold today?

All eyes on the upcoming US central bank meeting on Thursday. For now, gold will continue trading relatively flat till further direction provided by the upcoming central bank meetings. Fears of inflation continue to plague the market .

 

Central Bank Notes:

  • Gold prices’ recent gains have come on the back of rising inflation expectations outpacing bond yields.
  • The final week of October will see several central bank meetings and initial 3Q’21 GDP readings, putting focus on how policymakers are planning on dealing with persistently higher inflation in context of a weaker growth environment.

Next 24 Hours Bias

Weak Bullish

 

Weak Bullish

 

The Euro (EUR)

Key news events today

No major news

What can we expect from EUR today?

EUR/USD consolidated after trading to a fresh monthly high (1.1669) during the previous week, but the European Central Bank (ECB) interest rate decision may sway the near-term outlook for the exchange rate if the Governing Council adjusts the forward guidance for monetary policy.

EUR/USD appears to be under pressure as the ECB is expected to retain the current course for monetary policy, and more of the same from the Governing Council may drag on the exchange rate as the central bank relies on its non-standard tools to support the Euro Area.

Central Bank Notes:

  • PEPP monthly purchase target lowered to EUR60-70 billion, likely to end March 2022
  • Net purchases under APP will continue at EUR20 billion per month for as long as necessary
  • Mixed GDP growth projections over the next three years
  • Next meeting on 28 October 2021

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?

Markets were caught off guard Thursday when the Swiss National Bank (SNB) canceled its policy pegging the exchange rate of the euro buying 1.20 Swiss francs, a policy put in place more than three years ago to keep the currency from getting too strong and hurting the economy. The SNB also cut interest rates deeper into negative territory, by 50 basis points to negative 0.75 percent, in an effort to help cushion the blow.

Central Bank Notes:

  • Reiterated pledge to intervene in FX market to counter upward pressure on CHF, which was classified as ‘highly valued’.
  • Keeping a close eye on mortgage lending and residential property prices.
  • Next meeting on 16 December 2021

Next 24 Hours Bias

Weak Bearish

The Pound (GBP)

Key news events today

No major news events.

What can we expect from GBP today?

Sterling has been one of the strongest major currencies against the U.S. Dollar of recent with impetus from a hawkish Bank of England (BoE) as well as a marginally weaker greenback. Both nations have begun a divergence in terms of their central bank policies where the Fed is only looking to begin tapering asset purchase while the BoE is already eyeing rate hikes as soon as November 2021. The rapid rate hikes will look to strengthen GBP.

Central Bank Notes:

  • Bank of England Governor Bailey stated that inflation will be higher than forecast, urging Britons to get ready for earlier rate hikes.
  • Members voted 7 – 2 (prev. 8 – 1) to maintain Gilt portfolio at GBP875 billion
  • Next meeting on 4 November

Next 24 Hours Bias

Weak bearish

The Canadian Dollar (CAD)

Key news events today

No major news events.

What can we expect from CAD today?

It seems likely that the Bank of Canada will soon restart its stimulus withdrawal efforts when it meets tomorrow

The anticipated, brief pause in the Canadian Dollar’s otherwise strong October run may soon be over, giving way to the Loonie taking flight once more.

Central Bank Notes:

  • Underestimated rate of growth in inflation and GDP.
  • Expects economy to strengthen in H2 2021
  • Rate hike likely in H2 2022
  • Matured bond purchases of around CAD 1 billion a week on average
  • Next meeting on 27 October

Next 24 Hours Bias

Weak Bearish

Oil

Key news events today

No major news events.

What can we expect from Oil today?

Crude oil is holding the high ground for now after an industry report showed US stockpiles dwindling.

West Texas Intermediate crude is currently US$ 84.08 barrel as this goes to print. Discussion between Iran and the EU today may impact oil prices.

The Federal Communication Commission (FCC) banned China Telecom Americas from operating in the US, citing national security grounds. The Chinese state-owned telco was warned in 2020 that this may happen, along with China Unicom Americas and ComNet (USA).

 

OPEC+ Notes:

  • The cartel agreed on a roadmap in July to gradually raise its collective output quota by 400,000 barrels per day every month from August to April next year.
  • Cuts 2021 demand forecast by 160k bpd; keeps 2022 figure at 4.2m bpd
  • Next meeting on 4 November

Next 24 Hours Bias

Weak bearish