IC Trading Europe Fundamental Forecast | 5 November 2024
What happened in the Asia session?
As widely expected, the RBA kept the cash rate target unchanged at 4.35% marking the eight consecutive pause. While inflation has fallen substantially since the peak in 2022, the forecasts published in today’s Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026. Headline inflation was 2.8% YoY in the September quarter, down from 3.8% YoY in the June quarter but this was as expected due to declines in fuel and electricity prices in the September quarter. However, this decline reflects only a temporary cost of living relief. Growth in GDP output has been weak as past declines in real disposable incomes and the ongoing effect of restrictive financial conditions continue to weigh on household consumption, particularly discretionary consumption. The Aussie was hovering around 0.6590 prior to the announcement and it remained somewhat stable as Governor Michele Bullock commenced her press conference.
What does it mean for the Europe & US sessions?
BoE Governor Andrew Bailey will be testifying on the inflation and economic outlook before Parliament’s Treasury Committee along with several other Monetary Policy Committee (MPC) members. The hearings are a few hours in length and could create higher volatility for the Pound – Cable was hovering around 1.2950 as Asian markets came online.
The Dollar Index (DXY)
Key news events today
U.S. Presidential Elections (All Day)
ISM Services PMI (3:00 pm GMT)
What can we expect from DXY today?
American voters will head to the polls today and traders should brace themselves for higher volatility as uncertainty surrounding the election results are likely to keep markets ‘heated’ today and tomorrow. Meanwhile, the Institute for Supply Management (ISM) will release its PMI report on the services sector for the month of October. Services activity has expanded over the past three months and the estimate of 53.8 points to a continuation of higher output, albeit at a slightly slower pace. It is bound to be an extremely volatile period for the dollar and all other asset classes over the next 48 hours.
Central Bank Notes:
- The Federal Funds Rate target range was reduced by 50 basis points to 4.75% to 5.00% on 18th September in an 11 to 1 vote with Governor Michelle Bowman dissenting, preferring to cut rates by a smaller amount.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance.
- The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
- Recent indicators suggest that economic activity has continued to expand at a solid pace while job gains have slowed, and the unemployment rate has moved up but remains low.
- Inflation has made further progress toward the Committee’s 2% objective but remains somewhat elevated.
- In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks and does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.
- In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee slowed the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
- The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.
- Next meeting runs from 6 to 7 November 2024.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
U.S. Presidential Elections (All Day)
ISM Services PMI (3:00 pm GMT)
What can we expect from Gold today?
American voters will head to the polls today and traders should brace themselves for higher volatility as uncertainty surrounding the election results are likely to keep markets ‘heated’ today and tomorrow. Meanwhile, the Institute for Supply Management (ISM) will release its PMI report on the services sector for the month of October. Services activity has expanded over the past three months and the estimate of 53.8 points to a continuation of higher output, albeit at a slightly slower pace. It is bound to be an extremely volatile period for gold and all other asset classes over the next 48 hours.
Next 24 Hours Bias
Weak Bullish
The Australian Dollar (AUD)
Key news events today
RBA Monetary Policy Statement (3:30 am GMT)
RBA Press Conference (4:30 am GMT)
What can we expect from AUD today?
As widely expected, the RBA kept the cash rate target unchanged at 4.35% marking the eight consecutive pause. While inflation has fallen substantially since the peak in 2022, the forecasts published in today’s Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026. Headline inflation was 2.8% YoY in the September quarter, down from 3.8% YoY in the June quarter but this was as expected due to declines in fuel and electricity prices in the September quarter. However, this decline reflects only a temporary cost of living relief. Growth in GDP output has been weak as past declines in real disposable incomes and the ongoing effect of restrictive financial conditions continue to weigh on household consumption, particularly discretionary consumption. The Aussie was hovering around 0.6590 prior to the announcement and it remained somewhat stable as Governor Michele Bullock commenced her press conference.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.35% on 5th November, marking the eight consecutive pause.
- Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance but the forecasts published in today’s Statement on Monetary Policy (SMP) do not see inflation returning sustainably to the midpoint of the target until 2026.
- Headline inflation was 2.8% over the year to the September quarter, down from 3.8% over the year to the June quarter; this was as expected due to declines in fuel and electricity prices in the September quarter.
- However, this decline reflects a temporary cost of living relief; abstracting from these effects, underlying inflation (as represented by the trimmed mean) was 3.5% over the year to the September quarter and is still some way from the 2.5% midpoint of the inflation target.
- Growth in output has been weak as past declines in real disposable incomes and the ongoing effect of restrictive financial conditions continue to weigh on household consumption, particularly discretionary consumption.
- However, growth in aggregate consumer demand, which includes spending by temporary residents such as students and tourists, has remained more resilient.
- A range of indicators suggest that labour market conditions remain tight, and while conditions have been easing gradually, some indicators have recently stabilised.
- Employment grew strongly over the three months to September, by an average of 0.4% per month but the unemployment rate was 4.1% in September, up from the trough of 3.5% in late 2022.
- While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high while the November SMP forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint.
- This reinforces the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out.
- Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range and it will continue to rely upon the data and the evolving assessment of risks to guide its decisions.
- Next meeting is on 10 December 2024.
Next 24 Hours Bias
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
After gapping higher to rise above the 0.6000-level, the Kiwi reversed sharply to close at 0.5971 on Monday. This currency pair was trading around 0.5975 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.5950
Resistance: 0.6030
Central Bank Notes:
- The Monetary Policy Committee agreed to reduce the OCR by 50 basis points, bringing it down to 4.75% in October as inflation converges to target.
- The Committee assesses that annual consumer price inflation is within its 1 to 3% inflation target range and converging on the 2% midpoint.
- Economic activity in New Zealand is subdued, in part due to restrictive monetary policy while business investment and consumer spending have been weak, and employment conditions continue to soften.
- The economy is now in a position of excess capacity, encouraging price- and wage-setting to adjust to a low-inflation economy; lower import prices have assisted the disinflation.
- High-frequency indicators point to continued subdued growth in the near term, mostly due to weak consumer spending and business investment while labour market conditions are expected to ease further, with filled jobs and advertised vacancy rates continuing to decline.
- The Committee confirmed that future changes to the OCR would depend on its evolving assessment of the economy.
- Next meeting is on 27 November 2024.
Next 24 Hours Bias
Weak Bearish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
Japanese banks will re-open after a three-day weekend after being closed in observance of Culture Day on Monday. As demand for the greenback waned on the first trading day of the week, USD/JPY dropped as low as 151.52 before settling around 152.11. This currency pair was trading around 152.40 as Asian markets came online – these are the support and resistance levels for today.
Support: 151.60
Resistance: 153.90
Central Bank Notes:
- The Policy Board of the Bank of Japan decided on 31st October, by a unanimous vote, to set the following guideline for money market operations for the intermeeting period:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0.25%.
- The Bank will embark on a plan to reduce the amount of its monthly outright purchases of JGBs so that it will be about 3 trillion yen in January-March 2026; the amount will be cut down by about 400 billion yen each calendar quarter in principle.
- The year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) is likely to be at around 2.5% for fiscal 2024 and then be at around 2% for fiscal 2025 and 2026.
- While the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices are expected to wane, underlying CPI inflation is expected to increase gradually, since it is projected that the output gap will improve and that medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify.
- Comparing the projections with those presented in the previous Outlook for Economic Activity and Prices (Outlook Report), the projected real GDP growth rates are more or less unchanged. The projected year-on-year rate of increase in the CPI (all items less fresh food) for fiscal 2025 is somewhat lower due to factors such as the recent decline in crude oil and other resource prices.
- Japan’s economy is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions.
- Next meeting is on 19 December 2024.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
After hitting a high of 1.0914, the Euro pulled back towards 1.0876 to remain relatively unchanged on Monday. This currency pair was trading around 1.0880 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 1.0840
Resistance: 1.0950
Central Bank Notes:
- The Governing Council today decided to reduce the three key ECB interest rates by 25 basis points on 17th October to mark the second successive rate cut.
- Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 3.40%, 3.65% and 3.25% respectively.
- The incoming information on inflation shows that the disinflationary process is well on track while the inflation outlook is also affected by recent downside surprises in indicators of economic activity.
- Inflation is expected to rise in the coming months, before declining to target in the course of next year. Domestic inflation remains high, as wages are still rising at an elevated pace. At the same time, labour cost pressures are set to continue easing gradually, with profits partially buffering their impact on inflation.
- The Eurosystem no longer reinvests all of the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP), reducing the PEPP portfolio by €7.5 billion per month on average and the Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024.
- The Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim and is not pre-committing to a particular rate path.
- Next meeting is on 12 December 2024.
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?
As demand for the dollar eased, USD/CHF fell strongly towards the 0.8600-level before retracing higher on Monday. This currency pair was trading around 0.8640 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 0.8610
Resistance: 0.8700
Central Bank Notes:
- The SNB eased monetary policy by lowering its key policy rate by 25 basis points for the third consecutive meeting, going from 1.25% to 1.00% in September.
- Inflationary pressure has again decreased significantly compared to the previous quarter, reflecting the appreciation of the Swiss franc over the last three months.
- Inflation in the period since the last monetary policy assessment was lower than expected, standing at 1.1% in August compared to 1.4% in May.
- The new conditional inflation forecast is significantly lower than that of June: 1.2% for 2024, 0.6% for 2025 and 0.7% for 2026, based on the assumption that the SNB policy rate is 1.0% over the entire forecast horizon.
- Swiss GDP growth was solid in the second quarter of 2024 as momentum in the chemicals/pharmaceuticals industry was particularly strong.
- However, growth is likely to remain rather modest in the coming quarters due to the recent appreciation of the Swiss franc and the moderate development of the global economy.
- The SNB anticipates GDP growth of around 1% this year while currently expecting growth of around 1.5% for 2025.
- Further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term.
- Next meeting is on 12 December 2024.
Next 24 Hours Bias
Weak Bullish
The Pound (GBP)
Key news events today
Monetary Policy Report Hearing (Tentative)
What can we expect from GBP today?
BoE Governor Andrew Bailey will be testifying on the inflation and economic outlook before Parliament’s Treasury Committee along with several other Monetary Policy Committee (MPC) members. The hearings are a few hours in length and could create higher volatility for the Pound – Cable was hovering around 1.2950 as Asian markets came online.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8 to 1 to maintain Bank Rate at 5.0% while one member preferred to reduce Bank Rate by 25 basis points to 4.75%, on 19th September 2024.
- The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100B over the next 12 months to a total of £558B.
- Twelve-month CPI inflation had been 2.2% in August and July, slightly lower than August Report expectations. Consumer core goods and food price inflation had remained subdued as the cost pressures from previous global shocks had unwound further, and producer price levels had been broadly flat while energy prices had continued to drag on CPI inflation.
- Services price inflation had increased to 5.6% in August compared to 5.2% in July and 5.7% in June. This was slightly lower in August than had been expected at the time of the August Report. There had been volatility in a number of services sub-components in the July and August outturns, including accommodation and catering prices and airfares.
- GDP had increased by 0.6% in 2024 Q2, 0.1 percentage points lower than had been expected in the August Monetary Policy Report. That had followed 0.7% growth in Q1, but Bank staff judged that the underlying pace of growth had been somewhat weaker during the first half of the year.
- Headline GDP growth was expected to return to its underlying pace of around 0.3% per quarter in the second half of the year. Based on a broad set of indicators, the MPC judged that the labour market continued to loosen but that it remained tight by historical standards.
- Monetary policy decisions have been guided by the need to squeeze persistent inflationary pressures out of the system so as to return CPI inflation to the 2% target both in a timely manner and on a lasting basis; policy has been acting to ensure that inflation expectations remain well anchored.
- In the absence of material developments, a gradual approach to removing policy restraint remains appropriate while monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.
- The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting.
- Next meeting is on 7 November 2024.
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?
The Loonie strengthened quite significantly on Monday as USD/CAD fell under 1.3900 to hit a low of 1.3875 before retracing higher. This currency pair was drifting around 1.3900 at the beginning of the Asia session – these are the support and resistance levels for today.
Support: 1.3880
Resistance: 1.3950
Central Bank Notes:
- The Bank of Canada reduced its target for the overnight rate by 50 basis points bringing it down to 3.75% while continuing its policy of balance sheet normalization on 23rd October; this marked the fourth consecutive meeting where rates were reduced.
- Canada’s economy grew at around 2% in the first half of the year and growth of 1.75% is expected in the second half; consumption has continued to grow but is declining on a per person basis while exports have been boosted by the opening of the Trans Mountain Expansion pipeline.
- Overall, the Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026 – as the economy strengthens, excess supply is gradually absorbed.
- The labour market remains soft with unemployment at 6.5% in September while wage growth remains elevated relative to productivity growth. Overall, the economy continues to be in excess supply.
- Headline CPI has declined significantly from 2.7% in June to 1.6% in September while shelter costs inflation remains elevated but has begun to ease; the preferred measures of core inflation are now below 2.5%.
- Excess supply elsewhere in the economy has reduced inflation in the prices of many goods and services while the drop in global oil prices has led to lower gasoline prices – these factors have all combined to bring inflation down.
- The Bank expects inflation to remain close to the target over the projection horizon, with the upward and downward pressures on inflation roughly balancing out; the upward pressure from shelter and other services gradually diminishes, and the downward pressure on inflation recedes as excess supply in the economy is absorbed.
- With inflation now back around the 2% target, the Governing Council decided to reduce the policy rate by 50 basis points to support economic growth and keep inflation close to the middle of the 1% to 3% range.
- If the economy evolves broadly in line with the latest forecast, further reduction of the policy rate can be expected but the timing and pace of additional reductions in the policy rate will be guided by incoming information and assessment of its implications for the inflation outlook.
- The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.
- Next meeting is on 11 December 2024.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
API Crude Oil Stocks (21:30 pm GMT)
What can we expect from Oil today?
Crude oil prices rose strongly as OPEC+ said that it would delay a planned December output hike by one month due to soft demand and rising supply outside the group over the weekend. WTI oil jumped over 2% on Monday as it hit a high of $71.81 before settling around $71.47 per barrel. Oil prices eased slightly on Tuesday as markets braced for uncertainties arising for the upcoming U.S. presidential elections – WTI oil was hovering around $71.50 per barrel as Asian markets came online this morning.
Next 24 Hours Bias
Weak Bearish
