Articles

• I see a soft landing for Europe as guaranteed.
• I’m not sure too much has changed in recent data.
• Market pricing of cuts is likely too aggressive.
• Some colleagues likely to push for big December cut.
• Current data don’t justify 50 bps in December.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• Downside risks to growth are accumulating.
• 50 bps is on the table.
• Data will determine the cut size.
• There are early signs to be concerned about the labour market.
• Downside risks dominate growth and inflation.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• I’m pretty confident inflation will hit 2% in 2025.
• We can take our foot off the brake if the base case holds.
• It’s logical to assume a recovery in consumption.
• Consumer recovery will take a bit longer.
• Structural undershoot of the 2% goal is not a risk now.
• Large economic deterioration is needed for bigger cuts.
• The biggest slowdown in wages is still ahead of us.
• Trade fragmentation will be bad for both the US and Europe.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Headlines:

• USD/JPY extends gains to nearly 1% on the day now
• USDJPY Technical Analysis – Higher Treasury yields revive the carry trade
• Equities stay more sluggish as rising yields keeps optimism in check
• EUR/USD continues its descent to test the early August low
• ECB reportedly starting to debate whether rates need to go below neutral in latest cycle
• Germany turns to India as their next bet to reduce China reliance
• US MBA mortgage applications w.e. 18 October -6.7% vs -17.0% prior

Markets:

• USD leads, JPY lags on the day
• European equities lower; S&P 500 futures down 0.2%
• US 10-year yields up 1.4 bps to 4.219%
• Gold up 0.1% to $2,752.09
• WTI crude down 1.9% to $70.38
• Bitcoin down 1.5% to $66,491

The standout mover on the day is the Japanese yen as it stumbled lower, after an early move in Asia trading as well.

USD/JPY nudged up to near 152.00 in the handover from Asia to Europe and built on that during the session. The pair is now up over 1% to 152.80, holding near the highs. It wasn’t just USD/JPY that moved as it was broad-based yen weakness that prevailed.

Higher yields during the week were a catalyst but that has now led to key technical breaks across multiple yen charts as seen here.

Besides that, the dollar kept firmer across the board as it continues to enjoy a good run in October. EUR/USD dipped lower to test its early August low, not helped by a Reuters report highlighting the potential for the ECB to cut rates quicker and by more than anticipated.

The antipodeans also struggled amid a more dour risk backdrop. Higher yields is weighing on stocks and that in turn is pushing the aussie and kiwi lower. AUD/USD is down 0.5% to 0.6650 with NZD/USD down 0.4% to 0.6020 currently.

Coming up, we have the Bank of Canada policy decision to look out for. The central bank is expected to cut rates by 50 bps to 3.75%, with market odds showing a ~91% probability of such a scenario playing out.

USD/CAD is not too fazed on the day even with oil prices falling further though. The pair is little changed, up just 0.1% to 1.3830 currently and stuck in a 16 pips range.

This article was written by Justin Low at www.forexlive.com.

The break below the 200-day moving average (blue line) last week turned the bias in the pair to being more bearish. And sellers reaffirmed that by holding at the key level amid some pushing and pulling towards the end of last week. Flip over to the new week and it’s been rather one-way traffic with the dollar also keeping firmer.

For today though, the euro is also not really helped by this earlier report by Reuters here.

It’s not a direct shift in policy signal by the ECB but it certainly add to the recent dovishness. Money market odds are now showing near 40% probability of a 50 bps rate cut for December. That’s where we’re at right now.

As for the overall outlook, traders are still anticipating roughly five more 25 bps rate cuts by the ECB in the next five meetings through to June next year. So, that is the baseline scenario.

But if economic data continues to worsen and pressure the ECB to pick up the pace on rate cuts, don’t expect the euro to find much comfort amid a divergent outlook with the dollar.

Going back to EUR/USD, the pair is now circling back towards the 1 August low of 1.0777. A break there will see little else standing in the way of a push towards 1.0700 next. The June lows around the region of 1.0666-76 will also be a potential downside target to watch out for.

This article was written by Justin Low at www.forexlive.com.

• Prior -17.0%
• Market index 214.8 vs 230.2 prior
• Purchase index 131.3 vs 138.4 prior
• Refinance index 672.6 vs 734.6 prior
• 30-year mortgage rate 6.52% vs 6.52% prior

Another week, another plunge in mortgage applications as higher rates continue to weigh on the market. Both purchases and refinancing activity fell sharply with the latter once again sliding hard in the past week.

This article was written by Justin Low at www.forexlive.com.

Here’s a snapshot of thing currently:

• Eurostoxx -0.2%
• Germany DAX -0.1%
• France CAC 40 -0.4%
• UK FTSE -0.2%
• S&P 500 futures -0.2%
• Nasdaq futures -0.2%
• Dow futures -0.4%

The declines aren’t anything too significant and can still be seen as investors just taking some off the top from the surging gains before this. But rising yields is definitely a threat that could lead to a deeper retracement in equities, so that’s something to be wary about.

10-year Treasury yields are up another 2 bps to near 4.23% on the day and 2-year yields are holding back above 4% at around 4.05% now.

As the overall risk mood keeps more sluggish, the dollar remains in prime position still. AUD/USD is now down 0.4% to 0.6655 with USD/JPY continuing to hold higher and is up 1.1% to 152.72 currently.

This article was written by Justin Low at www.forexlive.com.

Scholz will be leading a high-level delegation for government consultations, but it is clear that the major forum will be to work out more business between Germany and India. It comes at a delicate time, especially with the German economy struggling and still largely being reliant on China demand for some key sectors.

German economy minister, Robert Habeck, has come out to say that “India plays a key role in the diversification of the German economy”. Adding that they must work to “strengthen the resilience of German companies and their supply chains to and from Asia”.

It’s still a long way to go though. For some context, German direct investments in India were seen at roughly €25 billion as per 2022. That’s only roughly 20% of what was invested in China.

In any case, it’s a small first step but one that might grow to be of much more influence in the next decade or two perhaps.

No doubt that India is a big market with lots of potential but bureaucracy and corruption are two things that present major hurdles for companies to enter and to capitalise on business there.

This article was written by Justin Low at www.forexlive.com.

The post Ex-Dividend 24/10/2024 first appeared on IC Markets | Official Blog.

The dollar continuing to keep steadier on the week is helping to solidify the latest upside run in the pair, though the move today is largely driven by a much softer yen side of the equation. USD/JPY isn’t the only yen pair on the move, with others also rising by some 0.7% to 0.8% currently. From earlier: Yen pairs keeping things interesting on the week

Going back to USD/JPY, the pair is now solidifying a break above its 200-day moving average (blue line). The key level is seen at 151.35, so buyers are now well in control and establishing a more bullish bias.

There’s not much in terms of headlines or catalysts driving the move, outside of higher bond yields in general this week.

But with a push above key technical levels, it is giving more incentive for buyers to push their agenda. The 61.8 Fib retracement level of the swing lower from July to September at 153.40 will be one of the next key technical levels to watch next.

This article was written by Justin Low at www.forexlive.com.

• Eurostoxx +0.1%
• Germany DAX flat
• France CAC 40 flat
• UK FTSE +0.1%
• Spain IBEX +0.2%
• Italy FTSE MIB +0.2%

S&P 500 futures and Nasdaq futures are flattish, so that’s not giving too much to work with. It’s another slow day in Europe to start with, although the yen is still keeping things interesting in FX. USD/JPY is trading up to fresh highs at 152.45 currently. Besides that, gold is also continuing to hold higher at fresh record highs around $2,753.

This article was written by Justin Low at www.forexlive.com.

IC Markets Europe Fundamental Forecast | 23 October 2024

What happened in the Asia session?

The dollar index (DXY) reached a high of 104.19 before pulling back to edge lower towards 104.10 by midday Asia while spot prices for gold rebounded off $2,740/oz to rise strongly towards $2,750/oz. The most recent all-time high for this precious metal was formed at $2,748.90/oz on Tuesday but it looks like this level could be eclipsed at some point during the European and U.S. trading hours.

What does it mean for the Europe & US sessions?

The Bank of Canada (BoC) is widely expected to move ahead with a second successive rate cut after reducing their overnight rate by 25 basis points (bps) in September. Not only would this mark the fourth consecutive rate cut, but it would also be the largest so far with market consensus pointing to a reduction of 50 bps. With economic activity looking sluggish and inflation moderating significantly lower over the past eight to ten months, the Governing Council was concerned about undershooting inflation targets at the previous meeting, adding to their worries of overtightening and causing further deterioration from an economic standpoint. The BoC will be hoping that a larger reduction of 50 bps will kick start its economy – the Loonie is likely to face significant headwinds following this announcement and during Governor Tiff Macklem’s press conference.

The Dollar Index (DXY)

Key news events today

FOMC Member Bowman Speaks (1:00 pm GMT)

What can we expect from DXY today?

Federal Reserve Governor Michelle Bowman will be delivering her opening remarks at the Annual Fintech Conference hosted by the Federal Reserve Bank of Philadelphia. Following ‘balanced’ views from other Fed officials earlier this week, markets will be looking to Governor Bowman to see if she shares a similar viewpoint. Her statements could have a much higher impact on the dollar given her position in the Committee and the fact that she was the first voting member to dissent at the FOMC meeting that took place on 18th September where she preferred to reduce rates by a smaller amount.

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

FOMC Member Bowman Speaks (1:00 pm GMT)

What can we expect from Gold today?

Federal Reserve Governor Michelle Bowman will be delivering her opening remarks at the Annual Fintech Conference hosted by the Federal Reserve Bank of Philadelphia. Following ‘balanced’ views from other Fed officials earlier this week, markets will be looking to Governor Bowman to see if she shares a similar viewpoint. Her statements could have a much higher impact on the dollar (and gold) given her position in the Committee and the fact that she was the first voting member to dissent at the FOMC meeting that took place on 18th September where she preferred to reduce rates by a smaller amount.

Next 24 Hours Bias

Weak Bearish

The Australian Dollar (AUD)

Key news events today

No major news events.

What can we expect from AUD today?

The Aussie was relatively unmoved around 0.6685 on Tuesday before falling quite sharply as Asian markets came online. This currency pair dived towards 0.6660 before stabilizing to retrace higher – these are the support and resistance levels for today.

Support: 0.6650

Resistance: 0.6700

Central Bank Notes:

• The RBA kept the cash rate target unchanged at 4.35% on 24th September, marking the seventh consecutive pause.
• Inflation has fallen substantially since its peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance but it is still some way above the midpoint of the 2 to 3% target range.
• The trimmed-mean CPI was 3.9% YoY in the June quarter, broadly as forecast in the May Statement on Monetary Policy (SMP) while headline inflation declined in July as measured by the monthly CPI indicator.
• Headline inflation is expected to fall further temporarily but current forecasts do not see inflation returning sustainably to target until 2026.
• GDP data for the June quarter have confirmed that growth has been weak but growth in aggregate consumer demand, which includes spending by temporary residents such as students and tourists, remained more resilient.
• Broader indicators suggest that labour market conditions remain tight, despite some signs of gradual easing while wage pressures have eased somewhat.
• Data since then have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out while agreeing that policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.
• The Board will continue to rely upon the data and the evolving assessment of risks to guide its decisions and will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.
• Next meeting is on 5 November 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?

The Kiwi floated around 0.6050 for most part of Tuesday before falling at the beginning of the Asia session. This currency pair dropped to a low of 0.6030 before rebounding slightly higher – these are the support and resistance levels for today.

Support: 0.6020

Resistance: 0.6060

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?

The combination of a stronger dollar and depreciating yen propelled USD/JPY above 151 as Asian markets came online. This currency pair was rising strongly towards 151.80 and is likely to remain elevated today – these are the support and resistance levels for today.

Support: 151.00

Resistance: 152.00

Central Bank Notes:

• The Policy Board of the Bank of Japan decided, by a unanimous vote, to set the following guideline for money market operations for the intermeeting period:
  1. The Bank will encourage the uncollateralized overnight call rate to remain at around 0.25%
  2. 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) has been in the range of 2.5 to 3.0% recently, as services prices have continued to rise moderately, reflecting factors such as wage increases, although the effects of a passthrough to consumer prices of cost increases led by the past rise in import prices have waned.
• Meanwhile, 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.
• In the second half of the projection period of the July 2024 Outlook for Economic Activity and Prices, it is likely to be at a level that is generally consistent with the price stability target.
• Japan’s economy has recovered moderately, although some weakness has been seen in part, but it 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 31 October 2024.

Next 24 Hours Bias

Medium Bullish

The Euro (EUR)

Key news events today

ECB President Lagarde Speaks (2:00 pm GMT)

What can we expect from EUR today?

ECB President Christine Lagarde will speak about Europe’s financial challenges at the Atlantic Council in Washington DC where she could use this platform to drop further insights into the outlook on future monetary policy action. Higher volatility could be expected for the Euro during her speech later today.

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?

Persistent demand for the dollar has kept USD/CHF elevated since mid-October and it was rising strongly towards 0.8670 as Asian markets came online. This currency pair will likely continue to climb higher as the day progresses – these are the support and resistance levels for today.

Support: 0.8635

Resistance: 0.8710

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

BoE Gov Bailey Speaks (6:45 pm GMT)

What can we expect from GBP today?

Bank of England (BoE) Governor Andrew Bailey will be participating in a moderated discussion at the Annual Meetings of the International Monetary Fund and the World Bank Group in Washington DC. Governor Bailey could use this opportunity to drop further insights on the current state of the British economy and how it may shape the central bank’s view on future policy actions – the pound has depreciated significantly in recent weeks and could face higher volatility during this speech later today.

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 Bullish

The Canadian Dollar (CAD)

Key news events today

BoC Monetary Policy Statement (1:45 pm GMT)

BoC Press Conference (2:30 pm GMT)

What can we expect from CAD today?

The Bank of Canada (BoC) is widely expected to move ahead with a second successive rate cut after reducing their overnight rate by 25 basis points (bps) in September. Not only would this mark the fourth consecutive rate cut, but it would also be the largest so far with market consensus pointing to a reduction of 50 bps. With economic activity looking sluggish and inflation moderating significantly lower over the past eight to ten months, the Governing Council was concerned about undershooting inflation targets at the previous meeting, adding to their worries of overtightening and causing further deterioration from an economic standpoint. The BoC will be hoping that a larger reduction of 50 bps will kick start its economy – the Loonie is likely to face significant headwinds following this announcement and during Governor Tiff Macklem’s press conference.

Central Bank Notes:

• The Bank of Canada reduced its target for the overnight rate by 25 basis points for the third consecutive meeting to 4.25% while continuing its policy of balance sheet normalization on 4th September.
• Canada’s economy grew 2.1% in the second quarter of 2024, led by government spending and business investment.
• This second quarter GDP growth was slightly stronger than forecast in July, but preliminary indicators suggest that economic activity was soft through June and July.
• As expected, inflation slowed further to 2.5% in July. The Bank’s preferred measures of core inflation averaged around 2.5% and the share of components of the consumer price index growing above 3% is roughly at its historical norm.
• High shelter price inflation is still the biggest contributor to total inflation but is starting to slow while inflation also remains elevated in some other services.
• The labour market continues to slow, with little change in employment in recent months. Wage growth, however, remains elevated relative to productivity.
• The Governing Council is carefully assessing these opposing forces on inflation and monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook.
• The Bank remains resolute in its commitment to restoring price stability for Canadians.
• Next meeting is on 23 October 2024.

Next 24 Hours Bias

Medium Bullish

Oil

Key news events today

EIA Crude Oil Inventories (2:30 pm GMT)

What can we expect from Oil today?

Crude oil prices rose strongly for the second successive day as WTI oil rose 2% on Tuesday to bring this week’s gain to almost 4.6% at its highest point as traders downplayed hopes of a ceasefire in the Middle East and improving demand out of China. However, the API stockpiles unexpectedly increased by 1.6M barrels of crude versus a smaller gain of 0.7M which caused prices to slip at the end of the U.S. session. After hitting a high of $72.09 per barrel, WTI oil dipped to hover around $71.50.

Next 24 Hours Bias

Weak Bullish

The post IC Markets Europe Fundamental Forecast | 23 October 2024 first appeared on IC Markets | Official Blog.