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SNB board member Andrea Maechler said yesterday, "We have tightened monetary policy and raised interest rates to send a clear signal that we will do everything to bring down inflation over time."

"There are ever more signs that price increases are spreading to goods and services which have not been affected so far," she said. "We are acting to make sure that inflation does not become entrenched."

On the question of further rate hike, she said, "I never speak of interest rate expectations. I can only say what the market expects, and it expects the SNB and other central banks to further increase their rates."

Cleveland Fed President Loretta Mester said yesterday, "when there is uncertainty, it can be better for policymakers to act more aggressively because aggressive and pre-emptive action can prevent the worst-case outcomes from actually coming about."

"Further increases in our policy rate will be needed," Mester said. "In order to put inflation on a sustained downward trajectory to 2%, monetary policy will need to be in a restrictive stance, with real interest rates moving into positive territory and remaining there for some time."

"There will be some pain and bumps along the way as the growth in output and employment slow and the unemployment rate moves up," Mester said. "But the current persistent high inflation is also very painful for many households and businesses. "

Atlanta Fed President Raphael Bostic said market reaction to UK government's new growth plan, with sharp volatility in Sterling, was a "real concern". There's "a fear that the new actions will add uncertainty to the economy."

The key question will be what does this mean for ultimately weakening the European economy, which is an important consideration for how the U.S. economy is going to perform," he added.

But for now, Bostic gave no indication on how Fed could respond to the development in the UK. "The more important thing is that we need to get inflation under control," he said. "Until that happens, we're going to see I think a lot of volatility in the marketplace in all directions."

Key Highlights

• GBP/USD traded to a new low at 1.0340 before it corrected higher.
• A major bearish trend line is forming with resistance near 1.1050 on the 4-hours chart.
• EUR/USD corrected higher, but it is facing many hurdles.
• AUD/USD and NZD/USD at risk of more downsides.

GBP/USD Technical Analysis

The British Pound started a major decline from well above 1.1000 against the US Dollar. GBP/USD tumbled over 500 pips to set a new low.

Looking at the 4-hours chart, the pair traded below the 1.0650 support level to move further into a bearish zone. The pair settled well below the 1.1000, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours).

A new low was formed near 1.0340 before the pair started an upside correction. There was a minor increase above the 1.0650 level.

The pair climbed above the 23.6% Fib retracement level of the downward move from the 1.1738 swing high to 1.0340 low. On the upside, an initial resistance sits near the 1.0950 zone.

The first major resistance is near the 1.1000. There is also a major bearish trend line forming with resistance near 1.1050 on the same chart. The trend line is near the 50% Fib retracement level of the downward move from the 1.1738 swing high to 1.0340 low.

A clear move above the trend line resistance could open the doors for a fresh increase to 1.1200. Any more gains might send the pair towards the 1.1400 resistance level.

On the downside, an initial support is near the 1.0650 level. The main support sits at the 1.0550 level. A downside break below the 1.0550 zone might send the pair towards the 1.0500 level. The next major support is near the 1.0340 level, below which the pair could even test the 1.0200 level.

Looking at EUR/USD, the pair started a short-term upside correction from the 0.9550 low, but it is facing many hurdles on the upside near 0.9750 and 0.9850.

Economic Releases

• US New Home Sales for Aug 2022 (MoM) – Forecast -4.9% versus -12.6% previous.
• US Durable Goods Orders for Aug 2022 – Forecast -1.1% versus -0.1% previous.

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• USDCAD rising inside impulse wave (3)
• Likely to reach resistance level 1.3760

USDCAD currency pair continues to rise inside the sharp intermediate impulse wave (3), which previously broke the two intersecting up channels from April and August.

The pair is under the bullish pressure due to the simultaneous strong bullish USD sentiment and the weak CAD sentiment (on oil losses).

USDCAD can be expected to rise further toward the next resistance level 1.3760 (target price for the completion of the active intermediate impulse wave (3)).

• USDJPY reversed from key support level 142.00• Likely to rise to resistance level 148.00

USDJPY currency pair recently reversed up from the key support level 142.00 (lower boundary of the sideways price range inside which the pair has been moving from the start fop September).

The upward reversal from the support level 142.00 started the active short-term impulse wave (v) – which belongs to waves 3 and (5).

Given the powerful daily uptrend, strong USD bullishness seen today, USDJPY can be expected to rise further toward the next resistance level 148.00 (which reversed the pair earlier this month).

Business sentiment in Germany continued its substantial deterioration in September. The Ifo says the business climate index fell from 88.6 to 84.3 this month. The index has only been lower for two months in its history – in April and May 2020. The actual figures were weaker than expected, at 86.9 and marked a deterioration in the current assessment and economic expectations.

As usual, forward-looking markets pay more attention to the development of the expectations component, which recorded its second-lowest fall in history in September from 80.5 to 75.2. However, optimists may note that the current conditions did not deteriorate too sharply. The Index of Current Conditions in September fell from 97.5 to 94.5 against a historical average since 2005 of 96.7.

From the latter, it can be concluded that the brunt of the crisis in Germany is still only in the “heads” of the businessmen but could quickly become a self-fulfilling prophecy if expectations do not turn sharply upwards in the coming months.

The commodity market is now experiencing a huge stress due to concerns of the reduction in demand for energies. Early in the week, Brent dropped to $85.35 and no other negative factors have appeared since then. However, those that are already here are enough for investors to remain worried. The key aspect is a progressive decline in the global economy, which might cause a serious drop in demand for commodities in general, and in oil in particular.

The Dollar index has reached its multi-year highs and may yet continue to improve. For the commodity market, it’s a negative signal.

In addition, there is a technical factor – when the asset was trying to break $90, bears immediately became more active and the price fell.

On the H4 chart, having broken 88.20 to the downside, Brent continues to fall towards 80.50 and may soon reach 83.00. Later, the market may correct to test 88.20 from below and then start another decline with the closest target at 80.50. From the technical point of view, this scenario is confirmed by the MACD Oscillator: its signal line is moving below 0 and may later continue trading to reach new lows.

As we can see in the H1 chart, after forming a new consolidation range around 88.20 and breaking it to the downside, Brent is still moving downwards with the short-term target at 83.00. Later, the market may correct to return to 88.20 and then resume falling towards 80.50. From the technical point of view, this idea is confirmed by the Stochastic Oscillator: its signal line is moving near the lows below 20. Later, the line may grow to rebound from 50 and resume falling to return to 20.

BoE Governor Andrew Bailey said in a statement that it's "monitoring developments in financial markets very closely in light of the significant repricing of financial assets.

He pointed to the UK government's Growth Plan announced on Friday and he "welcome the Government's commitment to sustainable economic growth".

The MPC will make a full assessment "at its next scheduled meeting" of the impact of the plan on demand and inflation, and the fall in Sterling, and "act" accordingly.

Full statement here.