France Torn Between Morocco and Algeria

Political

Summary:

Energy needs and historical ties have pulled France toward Algeria. Meanwhile, relations with Morocco have grown strained, but this might change.

Following the devastating earthquake in the High Atlas Mountains on September 8, 2023, which resulted in thousands of fatalities and the destruction of numerous villages, Morocco declined an offer of emergency aid from France. This refusal was the starkest indication yet of the deepening diplomatic rift between France and its former protectorate. For most of 2023, the Moroccan embassy in Paris had been without an ambassador. In March, in response to an attempt by French President Emmanuel Macron to de-escalate tensions, a Moroccan official stated that the "relationship is neither friendly nor good, neither between both governments nor between the Royal palace and the Elysee" – a straightforward, undiplomatic slap in the face of the old power.

To understand the roots of the growing chill in Franco-Moroccan relations, besides recent public disputes, one must consider Morocco's shifting alliances, France's diplomatic challenges and both nations' interactions with Algeria. The disruption of the longtime friendship between France and Morocco likely reflects new geopolitical trends, as evidenced by Paris' diminishing influence in Mali, Burkina Faso and Niger.

Morocco's metamorphosis

Morocco's transformation under the reign of King Mohammed VI – who acceded to the throne in July 1999 after the death of his father, King Hassan II – is striking. From 2000 to 2021, gross domestic product (GDP) per capita has more than doubled, soaring from $1,492 to $3,795. The United Nations Development Programme reports that between 2011 and 2018, the kingdom halved its multidimensional poverty index.

Cities like Tangiers or Casablanca have become modern economic powerhouses thanks to a business-friendly climate, strategic international alliances that draw in foreign direct investment (FDI) and massive efforts to improve youth education. Morocco is steadily establishing itself as an African hub, leveraging its prime position bordering both the Atlantic Ocean and the Mediterranean Sea and increasingly pivoting toward the African continent.

France has benefited from Morocco's development, with the kingdom its top commercial partner in Africa. In 2022, French exports to Morocco amounted to 6.6 billion euros, making France the country's second-largest exporter with a 10 percent market share. French FDI stock in the same year stood at 8.1 billion euros, 30 percent of all FDI, with 1,300 subsidiaries in the kingdom, while Moroccan FDI in France was also notable, with a stock of 1.8 billion euros, up from 370 million euros in 2013.

In light of this robust economic bond, the severity of the diplomatic crisis is particularly puzzling.

Diminishing diplomatic clout

A key factor to consider is the waning influence of French diplomatic power. First, its loss of momentum is likely tied to diminished foreign policy independence following Nicolas Sarkozy's decision to rejoin NATO's integrated military command in 2009. Earlier, from the 1960s when General Charles De Gaulle withdrew France from NATO command structures up to Jacques Chirac's firm condemnation of the invasion of Iraq, France's unique diplomatic position held a certain allure for the Global South. By adopting an Atlanticist approach, it forfeited this appeal.

Second, French diplomacy is in a state of crisis due to internal reforms. Two elements are particularly significant: the gradual erosion of the French Foreign Ministry's influence through past decades and President Macron's ambition to further reform diplomacy, allowing any high-ranking civil servant to function as a diplomat. This "de-specialization" of the diplomatic corps is widely viewed as imprudent, as foreign service demands on-the-ground knowledge and a skill set honed through overseas experience.

The outcome has been a centralization of diplomacy in the hands of a small group of decision-makers around the president. Consequently, French diplomacy now suffers from a lack of expertise and is driven by Mr. Macron's impulsive and often overly optimistic actions. His approach has oscillated between clumsiness – as in Algeria in 2021 when he accused the country's leadership of capitalizing on the legacy of the Franco-Algerian war – and naive hopes that dictatorial regimes can easily be transformed.

French diplomacy has struggled to adjust to new global realities. But specific events in Franco-Moroccan relations also shed light on the heightened tensions.

Grievances on both sides

Paris's decision to halve the number of visas issued to Moroccans between October 2021 and December 2022 was met with displeasure in Rabat. The measure, which also applied to Algerians and Tunisians, aimed to pressure these nations to repatriate citizens residing illegally in France. However, the strategy was not particularly effective and even caused logistical issues (with truck drivers, for example).

Morocco's grievances also stem from legal actions initiated against its high-ranking officials in France during the mid-2010s and more recently. As a result, Rabat suspended judicial cooperation with France in 2014-2015.

The situation was further exacerbated in the summer of 2021 when France accused Moroccan intelligence of espionage using Israeli-made Pegasus software. The surveillance allegedly targeted a vast number of individuals, including the Moroccan king, French politicians and President Macron himself. Despite Moroccan authorities denying involvement, the incident strained the relationship between President Macron and King Mohammed VI.

In December 2022, a scandal involving allegations of corruption of European Parliament (EP) officials by Qatar actually also implicated Morocco. Italian EU lawmaker Pier Antonio Panzeri and several associates were linked to Moroccan diplomat Abderrahim Atmoun and Moroccan intelligence, according to investigations by Belgian authorities. The lobbying efforts were reportedly designed to sway the EP in Morocco's favor.

Subsequently, on January 19, 2023, the EP passed a resolution denouncing Morocco for the unfair trial and imprisonment of journalists and regime critics based on what human-rights NGOs called "fabricated evidence." The Moroccan parliament responded on January 23 with a vote to "reconsider its relations with the European Parliament," with Moroccan media insisting that France had influenced the EP's decision.

Western Sahara

Western Sahara, a vast territory along North Africa's Atlantic coast, has been the subject of Moroccan sovereignty claims since Spain withdrew in 1973. Rabat's quest for control over the area has been a persistent point of contention with Algeria, which has supported the Sahrawi independence movement, the Polisario Front, since its declaration of independence in 1976. In Rabat, Algeria's support for the Polisario Front is seen as a strategic move to curb Moroccan territorial expansion and secure Algerian access to the Atlantic.

The United Nations, through its mission MINURSO, has sought to mitigate hostilities and has advocated for a self-determination referendum since 1991. As an alternative, Morocco offered "extended autonomy" for the region under Moroccan sovereignty. However, the proposed referendum has stalled, with both sides attempting to sway the demographic balance in their favor, leading to a stalemate. France, while backing the UN's efforts, has historically supported Morocco's position at the UN, countering Algerian-led destabilization attempts.

Things changed in December 2020. United States President Donald Trump, in a complete reversal of the U.S. position, recognized Morocco's sovereignty over Western Sahara in exchange for its signing of the Abraham Accords on Arab-Israeli normalization. Some 60 other countries, including Germany, Spain and Israel, followed suit. But not France.

It gave Rabat more leeway, and it more openly supported self-determination of the Algerian province of Kabylia. Algiers broke its diplomatic relations with Rabat in December 2021. In a speech in August 2022, King Mohammed VI stated that the Western Sahara question was "the prism through which Morocco considers its international environment and … the measure of sincerity of friendships and the efficiency of partnerships it would establish." The message was clearly aimed at France.

French leadership may have an ulterior motive in their dealings with Morocco, aiming to curb its ascent. The French elite might harbor discomfort over the emergence of their former protectorate as an independent and assertive player on the international stage, particularly in light of Morocco's burgeoning ties with the U.S. and its strengthened security relationship with Israel.

Morocco's critics occasionally label it a "narco state" due to its significant production of cannabis, a major source for European markets. Positioned at the northern gateway to Africa at the Strait of Gibraltar, Morocco is also perceived by some as leveraging its strategic location as a bargaining chip in managing migrant flows to Europe.

Source: GIS

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Economic

Global demand concerns

Traders are starting the week on a negative note due to concerns about global demand, causing declines in stock markets.

Oil is currently at its lowest in four months, which is causing a drop in shares in London. In addition, retail sales for the month of October have been lower than expected. Despite this, volatility is down, indicating that there is a higher appetite for risk in the market.

However, experts suggest that Friday's trading may not be particularly optimistic. Money continues to be invested in the equity markets, with London and Germany showing potential gains, while the French CAC 40 is experiencing negative trading.

In the Asia-Pacific markets, the Nikkei 225 has seen gains, but the Hang Seng and the S&P 500 have suffered losses.

In the US, there were losses on the Dow, but gains on the S&P 500 and NASDAQ composite.

One company that saw a 15% increase in traded shares is Gap. This rise was due to better-than-expected earnings. However, the company remains cautious about the future, as concerns about consumer affordability persist.

UK retail sales

Other notable events include a drop in British retail sales volume for October, attributed to reduced footfall and wet weather. This has also led to a decline in the value of the British pound against the US dollar and the euro.

Additionally, producer prices in Canada are expected to fall, while raw material prices are expected to rise. US building permits and housing starts are also anticipated to decline.

FOMC minutes

Next week, the trading market is expected to experience volatility due to the release of the FOMC minutes and flash eurozone consumer confidence.

The European Central Bank (ECB) is facing challenges related to inflation and weak economic growth. Oil prices are also a concern, with Brent experiencing a significant slump.

On a positive note, gold continues to rise and experts predict that it may reach $2,000.

To stay updated on all economic events of today, please check out our Economic calendar

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ING

Bond

U.S. yields consolidate amid competing narratives – and looming holidays

The market is clearly eying a change in the rate cycle. Futures are pricing a 100bp of rate cuts from the Fed over the course of next year, with the first rate cut possibly coming ahead of the summer. As a result, the UST 2Y yield has been testing the 4.8% level over the past sessions. Yesterday, the market was focused on the weekly initial jobless claims data, which has been signalling a cooling trend, although overall figures are still relatively low.

The Fed does not appear ready to give in yet to somewhat softer data and the markets' speculation for earlier rate cuts. More pushback came yesterday from the Fed's Loretta Mester, who said she hadn't decided yet on the need for a further rate hike and that more evidence was needed to see inflation on a clear path to 2%. But others, such as Lisa Cook, were also attuned to the risks of a sharper slowdown.

Further out the curve, the 10Y yield continues its fight with the 4.5% area. The potential rate cycle change is still being weighed against the term premium narrative as a 20Y auction next week and greater uncertainty about next year's presidential elections are not helping either the near or long-term perspective. Reuters also cited Fed officials' letter to a Senator that the central bank's balance sheet could shrink considerably further before levels consistent with the ample reserves framework are reached. The spread of 10Y UST yields over SOFR OIS is at 34bp, still closer to its recent wides.

Bund yields fall alongside the U.S. – and a bit more

European markets have seen Bund yields slip below 2.6%. This is largely driven by the dynamics in the U.S., although we would note that taking the correlation of the 10Y UST-Bund spread with the outright yield over the past couple of months, this spread could have easily been even tighter beyond 180bp instead of the 188bp where it currently stands, i.e., Bund yields have fallen even a tad more than just react to the U.S..

One factor at play is falling inflation expectations/risks, as implied, for instance, by the 5y5y EUR forward inflation. This indicator has continued to drop and now stands close to 2.35%, its lowest since late March. Its downward dynamic also diverges from its U.S. counterpart, already since the past two months. That is reflective of the weaker macro backdrop in Europe, although oil prices continuing to slide will have helped with the latest leg lower as energy prices have been cited by the European Central Bank as one reason to be cautious, especially against the backdrop of geopolitics.

At the margin, the decision by the German constitutional court to invalidate the repurposing of pandemic aid may have also helped as it lowers the prospects of Bund issuance. A look at Bund spreads over swaps shows that the recent underperformance of bonds has halted.

Today's events and market view

It will be a bit busier on the speakers front alongside the European Banking Congress in Frankfurt. Watch for the ECB's Christine Lagarde, Joachim Nagel and Pierre Wunsch, but also the Fed's Mary Daly, who delivers the closing keynote. Today's main risk event for the government bond market will come after the European close with the scheduled rating review of Italy by Moody's – here, Italy is only one notch away from losing its investment grade rating and carries a negative outlook. As we have written on Tuesday morning, markets are going into this event with some confidence.

The data calendar, however, does not have too much to offer today apart from final inflation data for the eurozone and in the U.S. the numbers for building permits and housing starts. This allows for a peak into next week, which will give us the flash PMIs and meeting minutes from both the ECB and Fed. But note that the Thanksgiving holiday will effectively shorten the week for the U.S. by two days.

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Forex

USD: A glimpse of the future?

The dollar has entered a consolidative phase, but yesterday’s price action gave us a glimpse of what could be more regular price action in 2024. US initial claims were a little stronger than expected, the US 2-10 year yield curve bull steepened by 3-4bp and DXY sold off around 0.4%. This is the kind of price action we expect to see more frequently next year as tight US rates finally play catch up with the US economy and employment trends start to deteriorate. Before then, however, the FX market will be looking at US two-year yields bouncing around in a perhaps 4.75-5.00% range and dragging the dollar with it.

For today, the focus will be on US housing starts and another batch of Fed speakers. Recent Fed speakers have barely moved the needle on expectations of the Fed policy cycle and instead, it has been the data doing the talking. Perhaps the next big opportunity for Fed-speak will be the release of the minutes of the 1 November FOMC meeting – minutes released next Tuesday. DXY may trade well trade in a tight 104.00-104.85 range before then.

EUR: Italy ratings event risk

EUR/USD got a brief lift yesterday from the initial claims data, but a clear and immediate catalyst for a further upside break is not obvious. After the close today there is an event risk of a Moody’s rating decision on Italy. Moody’s has the Italian sovereign rating at one notch above junk and on a negative outlook. Having initiated the negative outlook last August, there may be pressure to resolve it. However, we doubt Moody’s will cut Italy to junk today since it would not want to be seen to be initiating turmoil in the European government bond markets. A ratings cut would be a surprise, however, and renew interest in a potential stand-off between Italy and Brussels early next year were the eurozone debt-brake to be introduced. This would be euro negative and in our view send EUR/CHF back to 0.95 again.

PLN: On the way to pre-Covid levels

The zloty moved to new record highs yesterday. The main story here remains the same, with markets liking the positive sentiment following the election and the change in the central bank's cutting cycle. EUR/PLN touched 4.365 yesterday and then moved back higher a bit. As mentioned earlier, we like PLN and it remains our highest conviction call for now, but yesterday's move seems a bit premature to us. The front of the IRS curve didn't move much and the only positive momentum could have been a higher EUR/USD, but that didn't last long yesterday either. But we believe this is the direction for EUR/PLN in the coming days. In particular, rates have a lot to offer to support PLN. The market is still pricing in too much in terms of rate cuts in our view and the short end move up will push EUR/PLN down. Thus, for today we see levels at around 4.380, but later we should test 4.360 again.

CZK: Rates once again point to a weaker koruna

EUR/CZK has been in a range of 24.400-650 since the last Czech National Bank (CNB) meeting but we believe a move higher is imminent. Yesterday's rate move showed that the market is ready to start pricing in CNB rate cuts again, and we see that there is still room to move lower. Purely based on yesterday's rally in CZK rates, we expect EUR/CZK to return to 24.550 today and we think more to come later. The CNB board should be more active in the media again indicating a close call for the next meeting, which should once again open up the discussion about the start of the cutting cycle.

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Swissquote

Energy

This week could hardly be better in terms of economic, political, and geopolitical news. The US inflation slowed more than expected, the US politicians inked a short-term deal to avert a shutdown. On top, the US retail sales fell last month, but fell less than expected, the initial jobless claims rose, and the US unemployment benefits reached the highest level in almost two years, factory production fell more than expected and homebuilder sentiment fell to the lowest level for the year.

The US 2-year yield fell again to test the 4.80% level for the third time since the beginning of this month and the 10-year yield slipped below 4.50%, again. The S&P500 consolidated gains above the 4500 psychological level, and Nasdaq 100 remained bid a few points below the summer peak. Small stocks in the Russell 2000 however fell 1.50% yesterday, and the Chinese stocks couldn't extend gains after the Biden-Xi summit. Nasdaq's Golden Dragon China index spent just one day above its 50-DMA -thanks to fresh stimulus measures announced by China earlier in the week, then returned below this level.

Alibaba called off its much-expected cloud division spin off this week because the company serves Chinese tech and AI companies and needs advanced chips – the kind of chips that Nvidia makes – to compete with Amazon Web Services, or Microsoft's Azure. And with the US chip export ban looming, it's certainly not the best timing to take on a new challenge. Investors are not ready to go back to Chinese tech names in the middle of a chip war between the US and China.

FX and commodities

The US dollar index held ground at the 100-DMA, but remains offered near the major 38.2% Fibonacci retracement, as the softening Fed expectations increase bets against the greenback. The EURUSD consolidates gains after being propelled into the medium-term bullish consolidation zone. Earlier this week, the EU revised its 2023 growth forecast for Europe down to 0.6%, but it said that it sees growth return to the old continent by next year. Even Germany, which is suffering from a severe economic slowdown, could grow. Recession or not, the European Central Bank (ECB) is not expected to cut its interest rates until, at least, July next year. The ECB's slight hawkish note could support a further rise to the 1.10 mark. Cable, on the other hand, returned below its 200-DMA after a softer-than-expected inflation report released earlier this week revived the Bank of England (BoE) doves as well.

In commodities, gold surfs on falling yields and high tensions in the Middle East. The yellow metal extended its gains to $1988 yesterday but should see resistance into the $2000 level in the absence of any major news.

American crude sank to $72pb yesterday, after having tested and failed to clear the $78/80 resistance earlier this week. The 3.6-mio-barrel increase in the US inventories last week served as a good excuse to sell the top, along with the rising worries of global slowdown. No one cares about the Middle East carnage or OPEC cuts. At the current levels, oil is oversold, and we could see another correction attempt, but gains will likely remain limited.

Could OPEC do anything about it? Yes, but not now. The market focus has heavily shifted to the weakening demand outlook from tightening supply If Saudi announces further supply cuts, and if the market doesn't react, its finances will take a bigger hit. As such, the selloff could extend below the $70 mark. Key support stands at $63.50, the May dip.

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Owen Li

Commodity

Oil prices edged slightly higher on Friday following a nearly 5 per cent drop the previous day, with futures set to decline for the fourth straight week as growing crude demand concerns offset prospects of tighter supply.

Brent, the benchmark for two thirds of the world's oil, was trading 0.12 per cent higher at $77.51 a barrel at 9.04am UAE time. West Texas Intermediate, the gauge that tracks U.S. crude, was up 0.12 per cent at $72.99 a barrel.

On Thursday, Brent settled 4.63 per cent lower at a four-month low of $77.42 a barrel. WTI closed 4.90 per cent down at $72.90 a barrel.

Oil Prices Set for Fourth Straight Weekly Drop Amid Growing Demand Concerns_1

New selling emerged after "prices failed to reach safer grounds earlier in the week when global stock markets and general risk appetite surged following an unexpected slowdown in U.S. inflation", Ole Hansen, head of commodity strategy at Saxo Bank, said in a research note.

"The oil market focus has instead been turning to the short-term demand outlook, which according to the futures market is showing signs of weakening."

Futures also came under pressure from an unexpected rise in U.S. crude stocks.

U.S. crude inventories, an indicator of fuel demand, increased by 3.6 million barrels in the week that ended on November 10, according to the U.S. Energy Information Administration (EIA).

Analysts polled by Reuters expected a build of 1.8 million barrels.

Meanwhile, total petroleum inventories decreased by 1.5 million barrels last week, while distillate stocks fell by 1.4 million barrels in the same period, the EIA data showed.

The decline in prices came despite predictions of a tight crude market in the fourth quarter by Opec and the International Energy Agency this week.

On Tuesday, the IEA raised its oil demand growth forecast for 2023 and 2024 on record demand in China and "resilient" U.S. crude deliveries.

Opec also raised its forecast for oil demand growth for 2023 and said it expected record demand from China and India in the fourth quarter.

Goldman Sachs on Thursday said the fall in oil prices had been driven by "one-off" factors, concentrated in the U.S., Iran and Russia, but added that demand growth would remain "solid" in 2024.

"We expect the oil market to tighten at a moderate pace, but preserve significant spare capacity to handle tightening shocks, which effectively delays the super cycle," the U.S. investment bank said.

It expects the Opec+ alliance to ensure Brent in a $80 to $100 range by "leveraging its pricing power".

While higher non-Opec supply or lower gross domestic product are "downside risks" to prices, Goldman Sachs expects Brent to remain close to $80.

Opec+ is set to hold its next ministerial meeting on November 26 in Vienna to decide oil production policy for the first half of 2024.

The Israel-Gaza war, which last month caused oil price volatility, appears to be contained, but risks of a regional conflagration remain, MUFG said.

"The key concern remains on how the U.S. can skilfully navigate pressure to tighten the enforceability of its sanctions on Iranian barrels without antagonising China's growing appetite for discounted Iranian crude," the Japanese lender said.

U.S. President Joe Biden and Chinese President Xi Jinping met in California this week amid disputes between their countries over military and economic issues.

Source: The National News

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Samantha Luan

Forex

Commodity

As the trading week draws to a close, the forex markets are experiencing a period of relative calm in today's Asian session. Key developments include Euro's attempted resurgence against Dollar overnight, which, despite initial signs of a rally, lost its momentum and settled back into familiar range. This pattern of indecisiveness is mirrored by Swiss Franc, which, after a period of gains against Dollar, is now in a similar phase of consolidation, aligning with other European majors. Commodity currencies displaying a softer stance overall. However, Australian Dollar stands out for its resilience.

For the week, Dollar remains the weakest performer overall. However, it's noteworthy that Dollar is managing to stay above the previous week's low against most currencies, except for Euro and Swiss Franc. This observation suggests that Dollar is still in the process of digesting its recent losses. Canadian Dollar and Japanese Yen follow as the next weakest, whereas Australian Dollar stands out as the strongest for the week. However, Aussie's position is somewhat precarious, as it hasn't surpassed last week's high against other rivals, indicating a lack of strong buying momentum. Euro and the British Pound are trailing as the next strongest, while Swiss Franc shows mixed performance.

Technically, Gold's rally from 1931.39 is still in progress. Correction from 2009.26 should have completed after drawing support from 38.2% retracement of 1810.26 to 2009.26 at 1933.24. Further rise is expected as long as 1956.21 support holds. Retest of 2009.26 should be seen next. Firm break there will resume whole rally from 1810.26 to key resistance zone at 2062/74.

Forex Markets in a Lull, Gold Extending Rally, Oil Tumbles_1

In Asia, Nikkei closed up 0.48%. Hong Kong HSI is down -1.98%. China Shanghai SSE is down -0.03%. Singapore Strait Times is down -0.39%. Japan 10-year JGB yield is down -0.030 at 0.761. Overnight, DOW dropped -0.13%. S&P 500 rose 0.12%. NASDAQ rose 0.07%. 10-year yield dropped -0.090 to 4.445.

Fed's Cook: Soft landing is possible but not assured

Fed Governor Lisa Cook addressed the delicate balance between sustaining economic growth and managing inflation in her conference remarks overnight. Cook acknowledged the possibility of achieving a "soft landing" for the US. economy, highlighting the ongoing disinflationary trends and robust labor market conditions. However, she was quick to note that such an outcome is not guaranteed.

"A 'soft landing' is possible, with continued disinflation and a strong labor market, but it is not assured," Cook stated. She elaborated on the complexities noting, "I see risks as two-sided, requiring us to balance the risk of not tightening enough against the risk of tightening too much."

She also pointed out the current economic resilience, saying, "The economy is still growing and consumers are still spending," which could potentially maintain demand-driven pressures in the market. Such momentum, according to Cook, could keep the economy and labor market tight, consequently slowing the disinflation process.

However, Cook also expressed concern over the potential negative impacts of aggressive policy measures, adding, "But I am also attuned to the risk of an unnecessarily sharp decline in economic activity and employment."

Mester's perspective from Fed's crow's nest: Disinflation progress made, yet more evidence needed

In a CNBC interview overnight, Cleveland Fed President Loretta Mester acknowledged, "We're making progress on inflation, discernible progress. We need to see more of that."

But she also highlighted the necessity of observing more concrete data to confirm that inflation is indeed on a timely path back to the desired level.

In her metaphorical reference to the "crow's nest", a vantage point on a ship used for spotting distant objects, Mester likened Fed's current position.

"We're at the crow's nest. What does the crow's nest let you do? It lets you look out on the horizon and see where the data is coming in, where the economy is evolving."

As for her personal stance on the direction of monetary policy, "I haven't assessed that yet. Where I think we are right now is we're basically in a very good spot for policy."

BoE's Ramsden signals extended period of restrictive monetary policy ahead

BoE's Deputy Governor Dave Ramsden emphasized the need for a prolonged phase of restrictive monetary policy to achieve the central bank's inflation target. Speaking on the future direction of the BoE's approach, Ramsden stated, "Monetary policy is likely to need to be restrictive for an extended period of time."

Ramsden further elaborated on the Monetary Policy Committee's stance, noting, "The MPC have communicated that monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term."

Additionally, Ramsden, who oversees BoE's quantitative tightening program, discussed the uncertainty surrounding the optimal size of the central bank's balance sheet. The ongoing assessment of the necessary reserves supply aims to meet both monetary policy objectives and ensure financial stability.

"We continue to work towards assessing what our future steady state reserves supply looks like, both to meet our monetary policy objectives through quantitative tightening, while ensuring our financial stability objective is also supported," he explained.

BoJ's Ueda reiterates patience in maintaining ultra-loose policy

BoJ Governor Kazuo Ueda has once again underscored the central bank's commitment to maintaining its ultra-loose monetary policy, emphasizing the need for patience in the face of uncertain inflation dynamics.

Speaking to the parliament, Ueda noted, "Trend inflation is likely to gradually accelerate toward our 2% inflation target through fiscal 2025. But this needs to be accompanied by a positive wage-inflation cycle."

"Uncertainty on whether Japan will see such a positive wage-inflation cycle is high," he added.

Addressing the behavior of 10-year JGB yields, Ueda expressed that he does not foresee a sharp rise above the 1% reference level, even under upward pressure.

Looking ahead, Ueda clarified the bank's position on potentially ending its Yield Curve Control and negative interest rate policies, stating, "We will consider ending YCC, negative rate if we can expect inflation to stably, and sustainably hit the price target."

He added that the order of adjustments to the policy would be contingent on various factors, including economic conditions, price movements, and market developments.

WTI crude oil nosedives to four-month low, more downside ahead

WTI crude oil experienced a significant tumble this week, dropping around -5% yesterday and reaching its lowest point in four months, marking a trajectory for its fourth consecutive week of decline. This marks the commodity's potential fourth consecutive week of decline.

Despite OPEC and IEA's predictions of supply tightness in Q4, a confluence of disappointing global economic data and a surge in US crude inventories, coupled with sustained record-level production, has fueled the sharp selloff.

From a technical analysis perspective, the bearish sentiment was cemented earlier this week when WTI failed to reclaim psychological level. The ongoing decline from 95.50 is now expected to continue to 161.8% projection of 95.50 to 81.77 from 91.07 at 68.85. However, we anticipate significant support emerging in 63.67/66.94 support zone, which to trigger reversal.

Overall, WTI is seen as encapsulated in a long-term range-bound pattern, oscillating between the 63/64 and 95/96 zones.

Looking ahead

UK retail sales is the main highlight in European session, while Eurozone will release CPI final. Later in the day, Canada will release IPPI and RMPI. US will release building permits and housing starts.

USD/CHF Daily Outlook

A temporary low is formed at 0.8853 and intraday bias in USD/CHF is turned neutral for consolidations. Stronger recovery cannot be ruled out. But upside should be limited by 0.8952 support turn resistance to bring another fall. Break of 0.8852 will resume the decline from 0.9243 to 100% projection of 0.9243 to 0.8886 from 0.9111 at 0.8754. Forex Markets in a Lull, Gold Extending Rally, Oil Tumbles_3

Forex Markets in a Lull, Gold Extending Rally, Oil Tumbles_3

In the bigger picture, price actions from 0.8551 are currently seen as a correction to the decline from 1.0146. Fall from 0.9243 is seen as the second leg for now. Deeper fall would be seen to 61.8% retracement of 0.8551 to 0.9243 at 0.8815. Sustained break there will bring retest of 0.8551 low. For now, this will remain the favored case as long as 0.9111 resistance holds.