IC Markets Europe Fundamental Forecast | 28th October 2021

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What happened in the US session?

The Friday release of PCE should be particularly interesting as this will be the last piece of inflation data that the Fed gets before the November rate decision, at which they’re highly expected to announce a tapering of bond purchases.

At this point, the US Dollar continues to oscillate within the support zone taken from prior resistance. The Greenback is actually negative for the month of October, owed to the sizable breakout that showed up after the Fed’s rate decision in late-September.

What does it mean for the Asia Session?

Asia-Pacific markets look set for a modestly upbeat trading session after technology stocks surged in Wall Street trading overnight. The tech-heavy Nasdaq 100 index gained nearly 1% on the close as big names such as Tesla, Alphabet and Amazon charged higher. A string of positive earnings results have investors shifting capital into the high-beta stocks. The sentiment-linked Australian Dollar is benefiting from the risk taking, with AUD/USD tracking for a third daily gain.

 

The Dollar Index (DXY)

Key news events today

No major news

What can we expect from DXY today?

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.

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?

Gold prices consolidated near the key US$1,800 level on Thursday (Oct 28), supported by a pullback in US bond yields as investors looked forward to key central bank meetings for clues on whether they would consider tightening monetary policy earlier than thought.

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

The Euro (EUR)

Key news events today

  • Governing Council of the ECB: monetary policy meeting

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.

We can expect the ECB to err on the dovish side in an effort to prevent an unwarranted tightening of financial conditions when the Eurozone economic recovery is slowing.

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 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?

The era of UK Quantitative Easing (QE) is coming to an end and the Bank of England (BoE) may well start increasing interest rates in early 2022 as inflation begins to stalk the UK economy. The UK central bank will finish its GBP 895 billion bond-buying spree by the end of this year, effectively tightening monetary conditions and setting the course for higher UK interest rates in 2022.

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 bullish

The Canadian Dollar (CAD)

Key news events today

No major news events.

What can we expect from CAD today?

This past session, we would see a ‘favorable’ wind arise for the Canadian Dollar through the Bank of Canada’s (BOC) surprisingly hawkish stance conflict with the general risk aversion that arose among speculative assets.

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 24 Hours Bias

Weak Bullish

Oil

Key news events today

No major news events.

What can we expect from Oil today?

Crude and Brent oil prices are moving lower through the Asia-Pacific session as traders assess the potential for more supply coming onto the market via Iran, as well as building US inventories. WTI dropped nearly 2.5% overnight, although Brent managed to fend off lower prices until Asia began to trade. Brent is tracking a loss north of 2% in early Thursday trading.

 

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