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USD/JPY continues to show limited movement this week. In the North American session, USD/JPY is trading at 144.10, up 0.27%.

BoJ unlikely to change policy

The Japanese yen has depreciated by over 20% this year, and the yen’s slide will be high on the agenda at the Bank of Japan’s meeting on Thursday. We could see some strong rhetoric expressing deep concern about the yen, but the central bank has stayed on the sidelines during the yen’s long slide and I don’t expect that to change. The BoJ is committed to its ultra-accommodative policy, in order to boost Japan’s weak economy. Inflation has been rising, but Governor Kuroda has said he won’t tighten policy until it’s clear that inflation is sustainable, which would mean solid wage growth.

There have been some rumblings about currency intervention by Tokyo, and the yen received a short boost in the arm earlier in September, after a report that the BoJ had conducted a rate check, which could have been a prelude to intervention. Japan hasn’t taken such a drastic move since 2011 and would require the consent of the G-20 to do so. As part of its loose policy, the BOJ has been very firm with its yield curve control, and the yen has borne the brunt of this policy, as the US/Japan rate differential continues to widen. With the Federal Reserve poised to raise rates by 75 or even 100 basis points later today, the outlook for the yen appears grim.

The markets are anxiously awaiting the Fed’s rate announcement, as well as the Fed’s quarterly economic forecast. This will include projections for unemployment, inflation and interest rate levels. If Fed Chair Powell’s message is ‘higher for longer’ with regard to rate levels, investors could respond by sending the US dollar higher.

USD/JPY Technical

• There is resistance at 144.71 and 146.49
• USD/JPY has support at 143.19, followed by 141.88

Euro drops broadly today, in particular against Swiss Franc. The selloff came after Russian President Vladimir Putin announced partial military mobilization for the invasion of Ukraine. That's the first such mobilization since World War II, and would call up 300k reservists. Putin also warned that Russia has "various means of destruction". "If the territorial integrity of our country is threatened, we will certainly use all the means at our disposal to protect" he said, adding that "this is not a bluff!".

Last week, Putin had the first face-to-face meeting with Chinese President Xi Jinping since the pandemic, in Uzbekistan. China's official news agency reported that Xi told Putin China will work with Russia to deepen practical cooperation in trade, agriculture, connectivity and other areas.

For now, EUR/CHF is still holding above 0.9530 temporary low, and down trend resumption is not confirmed yet. On break of 0.9530, EUR/CHF should target 61.8% projection of 1.0512 to 0.9550 from 0.9864 at 0.9269.

The Australian dollar has edged lower today. Earlier, AUD/USD dropped to 0.6654, its lowest level since May 2020.

Risk sentiment has soured after Russia announced that it is moving quickly to annex territories that it has captured in Ukraine. European leaders quickly denounced the move as a “sham”. An annexation would seriously escalate the conflict in Ukraine, as Russia could argue that any fighting in the annexed territory was an attack on sovereign Russian land. President Putin also ordered the mobilization of 300,000 reservists, an indication of how badly the campaign is going for Moscow.

Fed poised to deliver 75bp increase

All eyes are on the Federal Reserve which wraps up its policy meeting later today. The Fed is expected to hike by 0.75%, which would bring the benchmark rate to 3.25%. This move would be significant as rates would move above the neutral rate level of 2.5%, into restrictive territory. There is an outside chance that the Fed will raise rates by a full point, which would unnerve the markets and likely send the US dollar sharply higher.

Aside from the rate hike, investors will be keenly monitoring the Fed’s latest quarterly forecasts for the economy. This will include projections for unemployment and interest rate levels. The Fed is expected to remain hawkish and argue that the price of higher unemployment and a further rise in rates is the painful but necessary price to rein in inflation.

RBA says rates to increase

The RBA minutes of the September meeting didn’t contain any surprises. The minutes reiterated the message that further rate hikes are coming, but the size of the hikes will be data-dependent. At the meeting, members argued over whether to raise rates by 25bp or 50bp – in the end, the Bank went for the latter option, bringing the cash rate to 2.35%. With no inflation or employment data prior to the October meeting, RBA members may again be split over how much to tighten. This should make for an interesting meeting that could trigger volatility from the Australian dollar.

AUD/USD Technical

• AUD/USD has support at 0.6623 and 0.6523
• There is resistance at 0.6769 and 0.6869

XAGUSD seems to be forming a correction wave b of the cycle degree, which is part of the global zigzag.

It is assumed that the correction b is a primary triple zigzag Ⓦ-Ⓧ-Ⓨ-Ⓧ-Ⓩ. The first four parts of it have already been fully completed, now we see the construction of the last wave Ⓩ.

Most likely, the wave Ⓩ will be an intermediate triple zigzag (W)-(X)-(Y)-(X)-(Z). In this pattern, we now see growth in the intermediate intervening wave (X). We can assume that the wave (X) will end in the form of a minor double zigzag W-X-Y to 20.054. At that level, it will be at 50% along the Fibonacci lines of sub-wave (Y).

After reaching this level, we could expect a fall in the intermediate wave (Z) to 15.055. At the specified level, sub-waves (Z) and (Y) will be equal.

However, the bearish primary wave Ⓩ could have already completely ended in the form of a double zigzag (W)-(X)-(Y), and with it the entire correction b.

Thus, in the last section of the chart, we can notice the initial part of the bullish wave c of the cycle degree. It is assumed that it will take the form of an impulse ①-②-③-④-⑤, as shown in the chart.

Most likely, the first half of the actionary impulse wave will end near the maximum of 26.978, which is marked by the primary intervening wave Ⓧ, it is not visible on this marking.

The Euro extends fresh bearish acceleration into second straight day, after disappointing EU data on Tuesday soured the mood, with announcement from Russian President Putin about the partial mobilization, further worsening the sentiment.

The latest action also added to concerns about the economic outlook for the bloc, as significantly reduced gas supplies to the EU from Russia, might be stopped completely if the situation deteriorates that would lead to a catastrophic scenario for the European economies.

Germany, as the largest EU economy is the most exposed and top officials already warned that industry will be hit badly and some parts likely to be shut down due to the cut of gas supplies.

The news from Russia come just hours before the key event – US Federal Reserve rate decision , with wide expectations that the central bank will raise interest rate by 75 basis points for a third straight time, in their continuous efforts to bring soaring inflation under control.

With the size of rate hike being known (although some economists do not rule out even more aggressive action in raising rate by 1%) markets turn focus towards signals of Fed’s steps in the near future, looking for more clues about the pace and the length of policy tightening process.

With the latest inflation data showing that consumer prices rose above expectations in August, the US policymakers are likely to keep an aggressive stance for some time that will keep the dollar inflated, along with safe-haven flows and weigh on Euro.

Today’s fresh weakness signaled an end of limited correction in past five days and also generated negative signal on break of pivotal Fibo support at 0.9942 (76.4% of 0.9864/1.0197 upleg), with close below this level to confirm bearish stance for retest of 20-year low at 0.9864 (Sep 6), violation of which would open way for a deeper fall.

Res: 0.9975; 1.0000; 1.0031; 1.0050.
Sup: 0.9884; 0.9864; 0.9785; 0.9736.

Daily Pivots: (S1) 0.9584; (P) 0.9633; (R1) 0.9663; More....

EUR/CHF drops notably today but stays above 0.9530 support. Intraday bias remains neutral first. Also, outlook remains bearish with 0.9864 resistance intact. On the downside, break of 0.9530 will extend larger down trend to 61.8% projection of 1.0512 to 0.9550 from 0.9864 at 0.9269.

In the bigger picture, long term down trend from 1.2004 (2018 high) is still in progress. Next target is 138.2% projection of 1.2004 to 1.0505 to 1.1149 at 0.9033. On the upside, break of 0.9864 resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish in case of strong rebound.

Daily Pivots: (S1) 0.8747; (P) 0.8768; (R1) 0.8788; More...

Intraday bias in EUR/GBP remains neutral for consolidation below 0.8786. Some consolidations could be seen but downside should be contained by 0.8624 support to bring another rally. On the upside, break of 0.8786 will resume larger rise from 0.8201 to 100% projection of 0.8201 to 0.8720 from 0.8338 at 0.8857.

In the bigger picture, current development suggests that the down trend from 0.9499 has (2020 high) has completed at 0.8201. Rise from there is developing into a medium term up trend. Further rally would be seen to 61.8% retracement of 0.9499 to 0.8201 at 0.9003 next. This will now remain the favored case as long as 55 day EMA (now at 0.8545) holds.

Daily Pivots: (S1) 1.4870; (P) 1.4910; (R1) 1.4947; More...

Intraday bias in EUR/AUD is turned neutral first, but further rise is in favor as long as 1.4663 minor support holds. On the upside, break of 1.4965 will resume the rise from 1.4281 towards 1.5396 resistance. On the downside, however, break of 1.4663 minor support will turn bias back to the downside for retesting 1.4281 low.

In the bigger picture, down trend from 1.9799 is still in progress. Break of 1.4318 low will target 61.8% projection of 1.9799 to 1.5250 from 1.6434 at 1.3623, which is close to 1.3624 long term support (2017 low). This will remain the favored case now as long as 1.5396 resistance holds.

Daily Pivots: (S1) 142.89; (P) 143.46; (R1) 143.91; More....

EUR/JPY dips notably as correction from 145.62 extends. Intraday bias stays neutral at this point. Deeper pull back cannot be ruled out. But downside should be contained above 138.38 resistance turned support bring another rally. On the upside, decisive break of 145.62 will pave the way to 149.76 long term resistance, and then 100% projection of 124.37 to 144.26 from 133.38 at 153.27.

In the bigger picture, up trend from 114.42 (2020 low) is seen as the third leg of the pattern from 109.30 (2016 low). Further rally is in favor as long as 133.38 support holds. Next target is 149.76 (2015 high). However, sustained break of 133.38 will be a sign of medium term bearish reversal and turn focus to 124.37 support for confirmation.

Daily Pivots: (S1) 163.03; (P) 163.73; (R1) 164.33; More...

GBP/JPY's fall from 169.10 resumed after brief consolidations. Intraday bias is back on the downside for 159.42. . But downside should be contained there to bring rebound. On the upside, above 164.42 minor resistance will turn intraday bias neutral again. Overall, consolidation from 168.40 is still extending. Firm break of 169.91 will resume larger up trend. However, break of 159.42 support will now be a sign of bearish reversal and target 155.57 support next.

In the bigger picture, up trend from 123.94 (2020 low) is still in progress. Sustained break of 61.8% retracement of 195.86 (2015 high) to 122.75 (2016 low) at 167.93 will be a long term bullish signal, and could pave the way back to 195.86 high. This will remain the favored case as long as 155.57 support holds, even in case of deep pull back.