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ECB Inflation Risks Mount as Prices Drop More Than Forecast By Bloomberg

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© Reuters. ECB Inflation Risks Mount as Prices Drop More Than Forecast

(Bloomberg) — Consumer prices in the 19-nation euro area fell more than economists forecast in September, keeping up pressure on the European Central Bank as it debates whether to add stimulus to support the recovery from the coronavirus recession.

The inflation rate came in at -0.3%, slightly below the median estimate in a Bloomberg survey. Prices for services were a particular drag in September, with some food and energy also cheaper than during the previous month. Core inflation fell to a record-low 0.2%.

While weak inflation can in part be explained by technical reasons, such as a temporary sales-tax cut in Germany, it also highlights the risks of subdued demand and an appreciation of the euro, which damps import costs.

ECB President Christine Lagarde has flagged that prices in the region will decline in coming months, but said they should turn up again in early 2021. Earlier this week, she said the anchoring of longer-term market-based inflation expectations might have “softened,” in what might be a signal that more monetary stimulus is in the pipeline.

The ECB sees inflation averaging just 1.3% in 2022, far below its goal of just under 2%. It’s currently looking into adjusting this target as part of its strategic review.

Some policy makers have started to prepare the ground for providing more support. Executive Board member Fabio Panetta argues that the risk of delivering too much stimulus is smaller than being “too shy,” and Bank of Spain Governor Pablo Hernandez de Cos has said weak price pressures show there is “no room for complacency.”

ECB Vice President Luis de Guindos this week downplayed the prospect for imminent action however, saying there’s no need to take a decision immediately. If necessary, the central bank’s 1.35 trillion-euro ($1.58 trillion) emergency bond-purchase program could be recalibrated in the future, he said.

Economists predict the program will be increased by 350 billion this year — most likely in December when new economic projections are announced.

Other recent data have been mixed. While virus infections are picking up and raising the threat of new restrictions, manufacturing in the euro zone is expanding at the fastest pace in more than two years.

 

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Forex

AUD/USD Breaks September Low Ahead of RBA, Fed Rate Decisions

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Australian Dollar Talking Points

AUD/USD takes out the September low (0.7006) ahead of the Reserve Bank of Australia (RBA) interest rate decision on November 3, but the future implications of the US Presidential Election may influence the exchange rate following the interest rate decision as Congress struggles to pass another round of fiscal stimulus.

AUD Forecast

AUD Forecast

Recommended by David Song

Download the DailyFXQuarterly Forecast for AUD

Fundamental Forecast for Australian Dollar: Neutral

AUD/USD slipped to a fresh monthly low (0.7002) as the US Dollar advanced on the back waning investor confidence, and the RBA meeting may produce headwinds for the Australian Dollar as the central bank is expected to implement lower interest rates.

ASX RBA Cash Rate

Source: ASX

The ASX 30 Day Interbank Cash Rate Futures reflect a greater than 80% probability for a rate cut even though Governor Philip Lowe insists that “the recent Budget provided welcome further support to the economy, and the central bank may continue to utilize its non-standard tools as “members discussed the options of reducing the targets for the cash rate and the 3-year yield towards zero, without going negative, and buying government bonds further along the yield curve.

It remains to be seen if the RBA will deploy more non-standard measures ahead of 2021 after tweaking the Term Funding Facility (TFF) in September,but more of the same from the RBA may generate a limited reaction as officials “consider how additional monetary easing could support jobs as the economy opens up further.”

At the same time, the Federal Reserve may follow a similar approach at its interest rate decision on November 5 as the central bank vows to “increase our holdings of Treasury securities and agency mortgage-backed securities at least at the current pace, and the outcome of the US Presidential Election may largely influence the near-term outlook for AUD/USD as the Greenback continues to exhibit an inverse relationship with investor confidence.

As a result, current market trends may remain in place as the lack of urgency to pass another round of fiscal stimulus puts pressure on the Federal Open Market Committee (FOMC) to provide additional assistance, and the threat of a protracted recovery may push Chairman Jerome Powell and Co. to further stretch the limits of monetary policy as the Fed’s balance sheet climbs to a fresh record high in October.

With that said, the outcome of the US Presidential Election may influence investor confidence amid the future implications for monetary policy, and swings in risk appetite may continue to sway AUD/USD as Vice Chair Richard Claridawarns that “additional support from monetary—and likely fiscal—policy will be needed.”

AUD Forecast

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— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong





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WTI Crude Oil Sinks to Fresh Four-Month-Lows

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Crude Oil Price Forecast Talking Points:

  • WTI Crude Oil fell to a fresh four-month-low this morning.
  • This fresh low broke through range support that’s held for the better part of two months.
  • The sell-off has so far found support at a key Fibonacci level plotted around 35.66.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

Crude Oil Sell-Off Breaks Range to Set Fresh Four-Month-Lows

The earlier-year break below the zero level looms large in Crude Oil prices, but, for the past two months, WTI has been in a fairly consistent range with about $4 of deviation from support to resistance. The support-side of that range was violated earlier this morning as sellers pushed prices down to a fresh four-month-low, eventually finding some support at a key Fibonacci level.

{{GUIDE| OILTRADINGFUND}}

The price of 35.66 is the 38.2% retracement of the 2020 major move, as taken from the CL2 chart. Given the outlier event of prices breaking below-zero in April, many crude oil charts show obfuscated long-term technical criteria. But, by looking at CL2, which is the next month’s contract rather than the current months, we can strip out that outlier event to, ideally, get a more clear look at what today’s moves mean in terms of the bigger picture. Normally, I’d be hesitant to embark on such retrofitting but, given the outlier event as well as the 50% level from that same Fibonacci study helping to set recent range resistance, I’m a bit more open to following CL2 than I might be otherwise.

Crude Oil Daily Price Chart (CL2)

WTI Crude Oil Daily Price Chart

Chart prepared by James Stanley; CL2 on Tradingview

Taking a shorter-term look at the matter, and Crude Oil prices are bouncing from that Fibonacci support into the prior zone of range support. The prior swing-low that was set yesterday, at around 37.32, could open the door for resistance plays for those looking to trade short-side continuation scenarios. Also of interest for resistance potential inside that zone of prior range support – the October 2nd low at 36.93 could also provide some usable context for bears.

Oil Forecast

Oil Forecast

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WTI Crude Oil Four-Hour Price Chart

WTI Crude Oil Four Hour Price Chart

Chart prepared by James Stanley; CL2 on Tradingview

— Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX





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US Election the Main Risk, BoE to Boost QE

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GBP/USDFUNDAMENTAL HIGHLIGHTS:

  • Resurgent USD Pressures GBP/USD
  • US Election the Main Risk, BoE to Boost QE

Resurgent USD Pressures GBP/USD

A marginal drop in GBP/USD to close week with losses stemming from a resurgence in dollar demand as global uncertainties pick-up. Idiosyncratic factors had been somewhat muted for GBP and I for one have rather enjoyed the small amount of headlines regarding Brexit as negotiations are in the tunnel phase. That said, there had been some reports signalling that progress had been made with both parties inching towards a possible early November agreement. In turn, this has helped EUR/GBP crack 0.90 with fresh lockdown measures in France and Germany also adding to the downside, thus the bias is to fade rallies in the cross. Next week, it is expected that both EU’s Barnier and UK’s Frost will come out of the negotiating tunnel on November 3rd and likely provide an update on the latest state of play.



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily -15% 8% -4%
Weekly -6% -17% -12%

US Election the Main Risk, BoE to Boost QE

The obvious risk in the very short-term is the US election, in which the outcome will guide sentiment, thus while there are key domestic factors for the UK, taking the specific events in isolation, volatility will be dwarfed by the election. That said, the Bank of England will be on tap, where expectations are for an increase in QE by £100bln. At the current purchase rate, a £100bln increase can see gilts until H1 2021. However, focus will also be on whether the committee has lowered the bar any further for taking rates sub-zero.

Gilt purchases

Lockdown Measures in London is a Question of When Not If

Another factor that GBP has to contend with is the continued rise in coronavirus cases with PM Johnson on under increasing pressure to implement fresh lockdown measures. In turn, with the r-rate in the capital showing little signs of easing, further measures in London is a question of when, not if.





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