Today Forex News and Analysis

Today Forex News and Analysis..

Investors Focus on Eurozone CPI Report: Potential Rate Cuts and Market Impact

As we move into October 2024, investors’ attention is primarily directed toward the Eurozone inflation report, scheduled for release on Tuesday, October 1, at 12:00 (GMT+3). This data will play a crucial role in shaping expectations regarding the European Central Bank’s (ECB) upcoming policy decisions.

The consensus in the market is that overall inflation will decrease slightly from 2.8% to 2.7% year-on-year. The core inflation rate, which excludes volatile food and energy prices, is expected to drop from 2.2% to 1.9%, potentially falling into the ECB’s target range of 2%.

Market Sentiment and ECB’s Next Move

While ECB President Christine Lagarde and her colleagues haven’t given clear signals about an October rate cut, disappointing Eurozone Purchasing Managers’ Index (PMI) data have led many market participants to anticipate a rate reduction. As of now, the probability of a 25 basis points (bps) rate cut at the October 17 meeting stands at around 75%. If inflation continues to decline, it could further bolster this expectation, increasing the likelihood of rate cuts.

Lower inflationary pressures will put additional downward pressure on the euro, which is already being closely watched by forex traders. In the event of rising inflation, which is considered unlikely, the ECB may rethink its strategy. However, without any major surprises, the euro may continue to slide as the case for further rate cuts strengthens.

Key Currency Pairs to Watch

The Euro’s response to the CPI report will have significant implications for various major currency pairs. Traders should keep an eye on the following:

• EUR/USD
• EUR/JPY
• EUR/AUD
• EUR/GBP
• EUR/CAD
• EUR/CHF
• EUR/NZD

Additionally, indices like the EU50 and DE40 will likely be influenced by inflation data and any potential monetary policy changes by the ECB.

With lower inflationary pressures in European countries, traders should not miss the opportunity to trade these movements.

European Stock Market Overview

In contrast to US stock market performance, European equity markets have been under pressure. On Monday, major indices experienced losses as Germany’s DAX fell by 0.76%, France’s CAC 40 declined sharply by 2.00%, Spain’s IBEX 35 dropped by 0.76%, and the UK’s FTSE 100 closed down by 1.01%. The automotive sector, in particular, dragged the CAC 40 lower, with Stellantis NV seeing a sharp 14.7% drop, reaching its lowest level since October 2022. Renault and Vinci were also among the top fallers, losing 5.6% and 5.1%, respectively.

The inflation rate in Germany fell to 1.8% in September, its lowest since February 2021, while Italy saw inflation drop to 0.8%. France and Spain also experienced larger-than-expected declines in inflation, reinforcing market expectations that Eurozone inflation will continue to fall toward the ECB’s 2% target. As a result, the likelihood of a further ECB rate cut has increased.

US Market Performance

On the other side of the Atlantic, US equity markets were slightly positive at the start of the week. The Dow Jones Index (US30) rose 0.04%, while the S&P 500 Index (US500) and NASDAQ Technology Index (US100) posted gains of 0.42% and 0.38%, respectively. Investors continued to process Federal Reserve Chairman Jerome Powell’s remarks at the National Association for Business Economics. Powell indicated that while the Fed is not on a predetermined path, two quarter-point rate cuts could still occur this year, depending on economic performance.

The odds of a 50 bps rate cut in November have dropped to around 35%, down from over 50% just a week ago.

Global Energy Market and Oil Prices

In the energy markets, WTI crude oil prices settled at $68.17 per barrel on Monday, finishing the month down by 7%. While rising tensions in the Middle East—highlighted by Israeli airstrikes and bombings of Houthi targets in Yemen—provided some support to prices, it was not enough to offset the impact of rising supplies and weak demand. Concerns surrounding China’s slowing economy, which saw manufacturing output shrink for the fifth consecutive month, also weighed on oil prices. Traders remain cautious, unsure whether Beijing will implement stimulus measures to address these ongoing economic challenges.

Asia-Pacific Market Overview

In Asia, markets traded mostly flat. Japan’s Nikkei 225 fell by 4.80%, while China’s FTSE China A50 and Hong Kong’s Hang Seng were closed due to holidays. Australia’s ASX 200 managed a gain of 0.70%.

Inflation Trends in Southeast Asia

Indonesia saw its inflation rate hit a near three-year low, falling to 1.84% in September, down from 2.09% in August. This marked the lowest level since November 2021 and kept inflation within the central bank’s target range of 1.5% to 3.5%. However, core inflation rose slightly to 2.09%, up from August’s 2.02%.

In Australia, retail sales in August increased by 0.7% month-on-month, the fastest pace since January and significantly higher than market expectations of 0.4%. This stronger-than-expected data reduced the chances of a rate cut by the Reserve Bank of Australia (RBA) in November. Currently, the market has ruled out an RBA rate cut next month, but the probability of a December cut stands at around 71%.

Manufacturing Activity Across Asia and Europe

Manufacturing activity remains a concern in both Asia and Europe. Australia’s Manufacturing PMI fell to 46.7 in September, marking the fastest contraction since May 2020. Meanwhile, Vietnam’s Manufacturing PMI dropped to 47.3, entering contraction for the first time since March. Typhoon Yagi contributed to the slowdown by causing plant closures and production delays.

Malaysia’s Manufacturing PMI also fell to 49.5 in September, indicating a fourth consecutive month of contraction in the sector. However, the rate of contraction was modest, with output falling steadily.

Germany’s Manufacturing PMI also contracted in September, contributing to the ongoing uncertainty in the European markets. The Eurozone Manufacturing PMI was reported at 11:00 (GMT+3) today, following a series of weak economic indicators across the continent.

Upcoming Key Economic Events

Several important economic reports and indicators are due today, October 1, which could influence global market movements:

• Japan’s Tankan Large Manufacturers Index and Manufacturing PMI reports.
• Switzerland’s Retail Sales and Manufacturing PMI reports.
• Germany’s Manufacturing PMI and Eurozone Consumer Price Index (CPI) report.
• UK Manufacturing PMI.
• US ISM Manufacturing PMI and JOLTs Job Openings.
• Speeches from US FOMC Members Bostic and Cook.

Conclusion

As inflationary pressures in Europe continue to ease, the probability of further rate cuts from the ECB has increased. Lower-than-expected CPI data will likely reinforce market sentiment towards a rate cut in October. The euro could face additional downward pressure if these expectations hold.

In the US, the Fed is closely monitoring the economy, with potential rate cuts still on the table later this year. Investors across global markets remain vigilant, waiting for key economic data releases this week that could influence major market movements.

Don’t miss the opportunity to capitalize on these market shifts. Keep an eye on crucial data and prepare for potential movements in major currency pairs and indices, such as EUR/USD, EUR/JPY, and DE40. Start trading today and turn these economic trends into new opportunities.

By Rana Das, CEO and Founder of Forex Wave Expert