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IC Markets Europe Fundamental Forecast | 29 September 2023
What happened in the Asia session?
The Dollar index (DXY) dropped as low as 106.02, which could be broken in the next few hours. The GDP result was 2.1%, which was lower than the forecast of 2.2%. Hence, since DXY is dropping further towards an overlap support, we can expect Gold, and FX pairs such as EUR/USD and GBP/USD to rise.
What does it mean for the Europe & US sessions?
Following the acceleration from 3.0% YoY in June to 3.7% YoY in August for the headline CPI reading, there is a strong likelihood that the PCE Price Index – which is the Federal Reserve’s preferred measure of inflation – could also show inflationary pressures returning in the US. Hotter-than-expected inflation data is all but certain to fuel the next bullish move for the DXY.
In addition, Federal Reserve Bank of New York President John Williams is due to speak about the economic outlook and monetary policy at the Long Island Association Regional Economic Briefing in New York where he could follow in the footsteps of his fellow FOMC members and also chime in with further hawkish rhetoric which would act as another bullish catalyst for the US dollar.
The Dollar Index (DXY)
Key news events today
PCE Price Index (12:30 pm GMT)
FOMC Member Williams Speaks (4:45 pm GMT)
What can we expect from DXY today?
Following the acceleration from 3.0% YoY in June to 3.7% YoY in August for the headline CPI reading, there is a strong likelihood that the PCE Price Index – which is the Federal Reserve’s preferred measure of inflation – could also show inflationary pressures returning in the US. Hotter-than-expected inflation data is all but certain to fuel the next bullish move for the DXY.
In addition, Federal Reserve Bank of New York President John Williams is due to speak about the economic outlook and monetary policy at the Long Island Association Regional Economic Briefing in New York where he could follow in the footsteps of his fellow FOMC members and also chime in with further hawkish rhetoric which would act as another bullish catalyst for the US dollar.
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
Strong Bearish
Gold (XAU)
Key news events today
PCE Price Index (12:30 pm GMT)
FOMC Member Williams Speaks (4:45 pm GMT)
What can we expect from Gold today?
Following the acceleration from 3.0% YoY in June to 3.7% YoY in August for the headline CPI reading, there is a strong likelihood that the PCE Price Index – which is the Federal Reserve’s preferred measure of inflation – could also show inflationary pressures returning in the US. Hotter-than-expected inflation data is all but certain to fuel the next bullish move for the DXY.
In addition, Federal Reserve Bank of New York President John Williams is due to speak about the economic outlook and monetary policy at the Long Island Association Regional Economic Briefing in New York where he could follow in the footsteps of his fellow FOMC members and also chime in with further hawkish rhetoric which would act as another bullish catalyst for the US dollar. Naturally, any gains in the greenback would add further downward pressure on gold price.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
No major news events.
What can we expect from AUD today?
The Aussie has been bullish since the Asia session earlier this morning, we can expect the Aussie to continue its bullish momentum, breaking the previous highs at 0.6465, and rise towards a pullback resistance level at 0.6470. The Aussie could potentially reverse from there, however, traders would have to monitor if there is candle closure below this key resistance level.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the third consecutive meeting.
- Inflation in Australia has passed its peak and is trending lower but needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting is on 3 October 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?
Kiwi broke through the previous high of 0.5973 this morning, as well as previous multi-swing high resistance levels at 0.5983. Since the Asian session, Kiwi has been showing strong signs of bullishness towards a key resistance area, which is a swing high resistance to grab liquidity at 0.6014. Kiwi could potentially reverse from here, however, since there is a huge bullish engulfing candle, it could break past this resistance level to continue its bullish momentum.
Central Bank Notes:
- The Monetary Policy Committee kept the OCR unchanged at 5.50% for the third meeting in a row.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the 1% to 3% target range while supporting maximum sustainable employment.
- Headline inflation and inflation expectations have declined but the core reading remains too high.
- Next meeting is on 4 October 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?
Since this morning, USD/JPY has failed to make any significant movement apart from creating a lower high. Hence, in order for USD/JPY to have a bearish run, it has to create a lower low as confirmation for USD/JPY to fall further. The first obstacle would be at 149.14, which is an overlap support level, which is Thursday’s previous lows. Hence, it would pose a challenge for USD/JPY to break past this support level and fall further.
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
Medium Bearish
The Euro (EUR)
Key news events today
ECB President Lagarde Speaks (7:40 am GMT)
CPI (9:00 am GMT)
What can we expect from EUR today?
ECB President Christine Lagarde is due to speak at a conference on “Ensuring an Orderly Energy Transition” in Paris. Although the topic is not related to monetary policy, she could still touch on the ECB’s outlook on future rate hikes.
Inflation in the Eurozone has been trending lower as a whole over the past few months. The flash CPI readings for CPI point to further easing with the headline and core indices expected to slow to 4.5% and 4.8% respectively YoY. ‘Softer’ CPI data is likely to add further downward pressure on 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?
Due to its correlation with DXY, since DXY is falling, we can expect USD/CHF to continue to fall to a key support level at 0.9105, which is a pullback support level. There could be potential for a bullish bounce towards the upside after price reaches the pullback support level. Hence, we have to monitor USD/CHF, as it could either bounce off this pullback support level, or break below it.
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?
The Pound has been gaining slight bullish momentum due to its correlation with DXy, and could potentially break past a pullback resistance at 1.2237. If price breaks past this pullback resistance, then price could continue rising to the upside. Furthermore, price broke through the bullish triangle pattern formed on the H1 timeframe, which led to a breakout to the upside.
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
Monthly GDP (12:30 pm GMT)
What can we expect from CAD today?
GDP stalled for the month of July as decreases in the manufacturing, transportation & warehousing and construction sectors dragged down the Canadian economy. Higher interest rates have stifled economic growth with the forecast for August pointing to a meagre growth of just 0.1% MoM. A stronger-than-expected reading could provide a boost to the Canadian dollar and potentially drive USD/CAD lower in the latter part of the day.
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
Weak Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
After a recent surge, oil prices dipped in early trade on Friday as profit-taking and anticipation of supply increases by Saudi Arabia and Russia overshadowed hopes of strong demand from China during its Golden Week holiday.
Oil prices had eased about 1% on Thursday, as traders took profits after prices soared to 10-month highs, and some worried that high interest rates may weigh on oil demand.
Crude oil prices pulled back overnight with WTI oil dropping to a low of $90.51 per barrel.
We can expect Oil to pullback from its low last night, rising towards $92.19, which is a key pullback resistance level, before dipping further to the downside.
Next 24 Hours Bias
Weak Bullish
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