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Risk appetite is poor into today’s Federal Reserve (Fed) decision, and after Riksbank shocked the market with a 100bp hike yesterday. That was the most aggressive rate move in Sweden in three decades. The Swedish policymakers said that ‘inflation is too high’, where it’s going is difficult to assess, and further steps will be taken to bring it back to the 2% target level. The announcement couldn’t get the SEK appreciate against the US dollar; it rather got many investors more uncomfortable, and worried that the Fed would do the same today: deliver a 100bp hike.

But it may not

Activity on Fed funds futures still assesses less than 20% probability for a 100bp hike from the Fed today. And more importantly, the FOMC doesn’t have a modern history of making abrupt moves, except for dovish moves which have a sudden positive impact on the markets, like the ones we saw during the pandemic. The 'whatever it takes' is clearly easier when pushing money in the system.

So, the expectation is that the Fed will deliver a 75bp hike today. We could see a relief rally in equity and bond markets, if, of course, the dot plot doesn’t show projections going above market expectations.

Tense, tense

We certainly have a couple of tense hours before the Fed decision falls. The S&P500 fell another 1.13% yesterday, to around 3855 mark. Nasdaq lost less than a percent, as the US 2-year yield remained flat a touch below 4%.

One good news in all this is that inflation in Canada eased more than expected last month, both the headline and the core inflation softened. But the data obviously revived the BoC doves and sent the Loonie lower against a broadly stronger US dollar. The USDCAD spiked to 1.3375 as a result. And cheaper oil didn’t help.

Crude oil fell below $85 per barrel, as the US announced it would sell 10 million barrels more from the Strategic Reserves for delivery in November to help keeping a negative pressure on oil prices, after the 180 million barrel release comes to an end in October AND before midterm elections – as the falling gasoline prices in the US have been so benefic to Joe Biden’s popularity in the recent polls.

Else, the EURUSD consolidates below parity, as Cable slipped below 1.14 mark. Christine Lagarde said that the European Central Bank (ECB) may need to ‘raise interest rates to a level that restricts economic growth in order to cool demand and combat unacceptably high inflation’, but in vain. There is no seat left for the ECB hawks, before the Fed hawks decide to make some space.

Across the Channel, the Bank of England (BoE) is expected to raise its policy rate by 50bp tomorrow, as the energy package is expected to have a cooling effect on inflation, which means that the BoE could afford to do less on the rate front.

Good thing about dovish expectations is that there is space for some hawkishness, but would the BoE dare going against Liz Truss and declare war to her?

Gold remains under a decent selling pressure due to strong dollar and rising US yields, that increase the opportunity cost of holding the non-interest-bearing gold. A post-FOMC rally should also benefit to gold, yet be reminded that if risk appetite improves, there is a chance that investors rush toward higher risk, but better yielding assets, such as equities.

Daily Pivots: (S1) 0.9933; (P) 0.9992; (R1) 1.0029; More...

EUR/USD falls notably today but stays above 0.9863 support. Intraday bias stays neutral first not outlook remains bearish too. On the downside, firm break of 0.9863 support will resume larger down trend. Next target is 100% projection of 1.0368 to 0.9863 from 1.0197 at 0.9296. On the upside, break of 1.0197 resistance will now raise the chance of larger trend reversal, and target 1.0368 resistance.

In the bigger picture, down trend from 1.6039 (2008 high) is still in progress. Next target is 100% projection of 1.3993 to 1.0339 from 1.2348 at 0.8694. In any case, outlook will stay bearish as long as 1.0368 resistance holds, in case of strong rebound.

Daily Pivots: (S1) 1.1338; (P) 1.1400; (R1) 1.1442; More...

GBP/USD's down trend resumed after brief consolidations. Intraday bias is back on the downside. Current fall should now target 61.8% projection of 1.3748 to 1.1759 from 1.2292 at 1.1063 next. On the upside, above 1.1459 minor resistance will turn intraday bias neutral first. But outlook will stay bearish as long as 1.1737 resistance holds, in case of recovery.

In the bigger picture, based on current momentum, fall from 1.4248 (2018 high) is probably resuming long term down trend from 2.1161 (2007 high). Sustained break of 1.1409 will target 61.8% projection of 1.7190 (2014 high) to 1.1409 (2020 low) from 1.4248 (2021 high) at 1.0675. This will remain the favored case for now as long as 1.2292 resistance holds.

Daily Pivots: (S1) 0.9616; (P) 0.9649; (R1) 0.9675; More

Despite some loss of upside momentum, further rise is still in favor in USD/CHF with 0.9554 minor support intact. Rebound from 0.9478 would target 0.9868 resistance. Break there will argue that larger up trend is ready to resume through 1.0063. Overall, the corrective pattern from 1.0063 high could still extend. Below 0.9554 minor support will turn bias back to the downside for 0.9478 and below.

In the bigger picture, current development suggests that up trend from 0.8756 (2021 low) is still in progress. Sustained break of 1.0063 will target 100% projection of 0.9149 to 1.0063 from 0.9369 at 1.0283, and then 1.0342 (2016 high). For now, this will remain the favored case as long as 0.9369 support holds, even in case of deep pull back.

Daily Pivots: (S1) 143.13; (P) 143.53; (R1) 144.11; More...

USD/JPY is still bounded in sideway consolidation from 144.98 and intraday bias stays neutral. Deeper retreat cannot be ruled out, but downside should be contained by 139.37 resistance turned support. On the upside, break of 144.98 will resume larger up trend to 147.68 long term resistance. Break there will target 161.8% projection of 126.35 to 139.37 from 130.38 at 151.44 next.

In the bigger picture, up trend from 101.18 is still in progress, as part of the whole up trend from 75.56 (2011 low). Further rise should be seen to 147.68 (1998 high). For now, break of 130.38 support is needed to be the first indication of medium term topping. Otherwise, outlook will stay bullish even in case of deep pull back.

Daily Pivots: (S1) 0.6662; (P) 0.6705; (R1) 0.6732; More...

AUD/USD's break of 0.6680 support should now confirm down trend resumption. Intraday bias is back on the downside this week. Next target is 0.6461 long term fibonacci level. On the upside, above 0.6746 minor resistance will turn intraday bias neutral and bring consolidations. But outlook will now remain bearish as long as 0.6915 resistance holds, in case of recovery.

In the bigger picture, price actions from 0.8006 (2021 high) is seen more as a corrective pattern to rise from 0.5506 (2020 low). Or it could also be a bearish impulsive move. In either case, outlook will remain bearish as long as 0.7135 resistance holds. Next target is 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

USD/JPY:

On the H4 chart, price is still respecting the ascending momentum. We are still bullish bias- Price is testing above the previous low and if bullish momentum continues, it should bring price to first resistance at 144.918 where the 161.8% extension sits. If it breaks this level, it should bring price to 147.269 where the previous swing high sits. Alternatively it could pull back to the first support at 141.652 where the 23.6% retracement and 100% projection sits then to the second support at 139.387 where the 38.2% retracement, 61.8% projection and overlapping support sits.

Areas of consideration:

• H4 time frame, 1st resistance at 144.918
• H4 time frame, 1st support at 141.652

DXY:

On the H4, price is still respecting the bullish channel and has failed to break the first support- we are bullish bias. Price has bounced off the first support at 109.323 where the 23.6% retracement sits. If bullish momentum continues, it should bring price toward the first resistance at 110.698 levels where the 127.2% extension and previous swing high sits. Alternatively, it could break the first support to bring price to the second support at 108.007 where the 61.8% projection, 50% retracement and previous swing low sits

Areas of consideration:

• H4 time frame, 1st resistance at 110.698
• H4 time frame, 1st support at 109.323

EUR/USD:

On the H4, price is moving within the channel, we are currently bullish bias as price fails to break the first support. Price is currently testing the first support at 0.9954 where the 100% projection and previous swing low sits. If price breaks this level, it will bring prices to the second support at 0.9878 where the 61.8% projection sits. Alternatively if bullish momentum continues, it should bring price to first resistance at 1.0112 level where the 50% retracement and previous swing low sits then to the second resistance at 1.0274 where the 78.6% retracement and previous swing high sits.

Areas of consideration :

• H4 1st resistance at 1.0112
• H4 1st support at 0.9954

GBP/USD:

On the H4, prices are still moving in a bearish momentum hence we are bearish biassed. Prices have pulled back slightly but if bearish momentum continues, it should test the first support again at 1.1350 levels where the previous swing low sits then the second support at 1.1197 where the 161.8% extension and 61.8% projection sits. Alternatively, price could pull back to test the first resistance at 1.1441 where the 23.6% retracement and overlapping support sits then the second resistance at 1.1605 where the 61.8% retracement and previous swing high sits

Areas of consideration:

• H4 1st resistance at 1.1441
• H4 1st support at 1.1350

USD/CHF:

On the H4, prices have broken the ascending channel and we are currently bearish bias. Price is currently ranging and testing around the first support at 0.9623 where the overlapping resistance sits. If price continues with the bearish momentum, it should bring price to the second support at 0.9473 where the 78.6% projection and 78.6% retracement sits. Alternatively, price could pull back to test the first resistance at 0.9688 where the 50% retracement sits then the second support at 0.9856 where the swing high sits

Areas of consideration

• H4 1st support at 0.9623
• H4 1st resistance at 0.9688

XAU/USD (GOLD):

On the H4, with the price moving within the descending channel and below ichimoku cloud, we have a bearish bias that the price may drop to the 1st support at 1659.388, which is in line with the 161.8% fibonacci extension and 100% fibonacci projection. If the 1st support is broken, we can expect the price to drop to the 2nd support at 1637.989, which is in line with the 78.6% fibonacci projection, 127.2% fibonacci extension and 200% fibonacci extension. Alternatively, the price may test the 1st resistance at 1681.778, which is in line with the overlap resistance and 38.2% fibonacci retracement.

Areas of consideration:

• H4 time frame, 1st support at 1659.388
• H4 time frame, 2nd support at 1637.989

AUD/USD:

On the H4, with the price moving within the descending trendline and below ichimoku cloud, we have a bearish bias that the price may drop to the 1st support at 0.66717, which is in line with the swing low, 78.6% fibonacci projections. If the 1st support is broken, the 2nd support could be at 0.66415, where the 127.2% fibonacci extension. Alternatively, the price may rise to the 1st resistance at 0.67260, where the 23.6% fibonacci retracement is. If the 1st resistance is broken, the 2nd resistance could be at 0.67796, where the 50% fibonacci retracement and 23.6% fibonacci retracement are.

Areas of consideration

• H4, 1st support at 0.66717
• H4, 2nd support be at 0.66415

NZD/USD:

On the H4, with the price moving within the descending channel, below ichimoku cloud, RSI is showing a descending trendline. If the price can break the previous key support level at 0.58929, which is in line with the 100% fibonacci projection and 161.8% fibonacci retracement successfully, we can expect the price drop to the 1st support at 0.58348, which is in line with the 127.2% fibonacci extension and 161.8% fibonacci retracement. Alternatively, the price may pull back to the 1st resistance at 0.59909, where the 23.6% fibonacci retracement and overlap resistance are.

Areas of consideration:

• H4 time frame, current price
• H4 time frame, 1st support at 0.58348

USD/CAD:

On the H4, with the price breaking the ascending channel and testing the previous key resistance at 1.33640, which is in line with the 127.2% fibonacci extension and 161.8% fibonacci projection. If the price can break this level successfully, we can expect the price to rise to the 1st resistance at 1.34343, where the 100% fibonacci projection, 127.2% fibonacci extension and 141.4% fibonacci extension are. Alternatively, as the price may pull back from the key resistance level and drop to the 1st support at 1.32077, which is in line with the 38.2% fibonacci retracement.

Areas of consideration:

• H4 time frame, current price
• H4 time frame, 1st resistance at 1.34343

OIL:

On the H4, with the price moving within the descending trendline and below ichimoku cloud, we have a bearish bias that the price may drop to the 1st support at 88.316, where the 78.6% fibonacci projection and swing low are. Alternatively, the price may pull back and rise to test the 1st resistance at 92.832, which is in line with the 50% fibonacci retracement and overlap resistance.

Areas of consideration:

• H4 time frame, current price
• H4 time frame, 1st support at 88.316

Dow Jones Industrial Average:

On the H4, price is reflected off nicely at the first resistance at 32500.85 where the 50% Fibonacci retracement is and broke right through the first support at 31029.34 where the 78.6% Fibonacci retracement is. Price might continue heading downwards towards the second support at 29833.47 where the previous swing low is.

Areas of consideration:

• H4 time frame, 1st support at 31029.34
• H4 time frame, 2nd support at 29833.47

DAX:

On the H4, price has reflected of the first resistance at 13505 where the 61.8% retracement is and got a big reaction breaking through the first support at 13084. Price might continue going down towards the second support at 12422 where the swing low is.

Areas of consideration:

• H4 time frame, 1st support at 13084
• H4 time frame, 2nd support at 12422

ETHUSD:

On the H4, price has pushed through the 1st Resistance at 1420.81 where the previous swing low sat. Price has also pushed through the 1st support at 1356.35 where the 127.2% Fibonacci extension lies and reflected off the second support at 1281.37 where the 138.2% Fibonacci Extension lies. Price could possible head back down below the second support and head lower.

Areas of consideration:

• H4 time frame, 1st resistance of 1420.81
• H4 time frame, 1st support at 1356.35

BTCUSD:

On the H4, price has broke through the second support 18540.00 where the previous swing low sits and reflected back up above the first support at 19557.00 where the 78.6% Fibonacci retracement sits. Price could possibly head back back to the second support area where the previous swing low is.

Areas of consideration:

• H4 time frame, 1st resistance of 22600.00
• H4 time frame, 1st support at 19557.00

S&P 500:

On the H4, the price reversed from the 4100 price area forming a bearish channel, with the price falling towards the 1st support are of 3900. With our bearish bias still valid, as price trades back towards the 61.8% Fibonacci retracement, look for price to test the 1st support area. Price has broken below the 1st support level, the price could fall towards the 78.6% Fibonacci retracement level of 3784.19. As the price falls towards the 2nd support, it could find some pullback towards the 78.6% Fibonacci retracement pullback support area.

Areas of consideration:

• H4 time frame, 1st support at 3900
• H4 time frame, 2nd support at 3636.87

Daily Pivots: (S1) 1.3272; (P) 1.3324; (R1) 1.3419; More...

USD/CAD's rally resumed after brief consolidations and intraday bias is back on the upside. Current up trend should target medium term fibonacci level at 1.3650. On the downside, break of 1.3225 minor support is needed to indicate short term topping. Otherwise, outlook will stay bullish in case of retreat.

In the bigger picture, down trend from 1.4667 (2020 high) should have completed at 1.2005, after defending 1.2061 long term cluster support. Rise from there should target 61.8% retracement of 1.4667 to 1.2005 (2021 low) at 1.3650. This will remain the favored case now as long as 1.2716 support holds.

Dollar is staying as the strongest one for the week as markets await FOMC rate hike. Yet, the greenback is still held below last week's high against most counter parts except Loonie and Kiwi. Swiss Franc is also resilient while markets are speculation a larger than expected hike by SNB later on Thursday. Commodity currencies are generally weak on risk aversion while Yen is pressured by rising major yields. Euro and Sterling are mixed for now.

Technically, USD/CAD's break of 1.3343 temporary top overnight was a sign of rally resumption in Dollar. But more breakouts are needed to confirm the greenback's strength. The immediate levels to watch are 144.98 resistance in USD/JPY, and 1.1349 temporary low in GBP/USD, and 0.6680 support in AUD/USD. A more distant level is 0.9863 low in EUR/USD.

In Asia, at the time of writing, Nikkei is down -1.17%. Hong Kong HSI is down -1.24%. China Shanghai SSE is down -0.04%. Singapore Strait Times is up 0.06%. Japan 10-year JGB yield is down -0.0042 at 0.256. Overnight, DOW dropped -1.01%. S&P 500 dropped -1.13%. NASDAQ dropped -0.95%. 10-year yield rose 0.081 to 3.571.

ADB slashes developing Asia growth forecast to 4.3%, China to 3.3%

The Asian Development Bank slashed growth forecasts for developing Asia from 5.2% (April forecast) to 4.3% in 2022, and 5.3% to 4.9% in 2023. It said, "The revised outlook is shaped by a slowing global economy, the fallout from Russia's protracted invasion of Ukraine, more aggressive monetary tightening in advanced economies, and lockdowns resulting from the People's Republic of China's zero-COVID policy."

As for China, growth forecasts was downgraded sharply from 5.0% to 3.3% in 2022, and from 4.8% to 4.5% in 2023. India's growth forecast was also cut from 7.5% to 7.0% in 2022, and from 8.0% to 7.2% in 2023.

On the other hand, inflation forecast was raised from 3.7% to 4.5% in 2022, and from 3.1% to 4.0% in 2023, "due to higher energy and food prices".

ECB Lagarde: We will reassess whether a normalization strategy is sufficient

In a speech, ECB President Christine Lagarde said, discussed two considerations for monetary policy, the "destination" and the "pace" to get there.

As for the "destination", she said, "as we move forward, we will reassess whether a normalization strategy is sufficient to bring us back to 2% inflation over the medium term," hinting that interest rate could go into restrictive region.

Meanwhile, the "appropriate pace of future rate increases will be decided on a meeting-by-meeting basis."

RBA Bullock: Interest rate not yet restrictive

RBA Deputy Governor Michele Bullock said interest rate at 2.35% is not yet restrictive. But the central was already looking for opportunities to slow the pace of tightening at some point. The monthly inflation data to be released next week would have a lot of statistical noises, and would unlikely be having much impact of the deliberations at the October meeting.

Regarding the asset purchased during the pandemic bond buying program, Bullock said RBA had taken a mark-to-market valuation loss of AUD 33.9B in 2021/22. That would let the central bank in a negative net equity position of AUD 12.4B. But she added, since it has the ability to create money, the Bank can continue to meet its obligations as they become due and so it is not insolvent... The negative equity position will, therefore, not affect the ability of the Reserve Bank to do its job."

Fed to hike 75bps as 10-year yield resumed up trend

FOMC rate decision is the main focus of the day and another jumbo rate hike is expected. Based on current market pricing, there is 82% chance of a 75bps hike to 3.00-3.25%, and just 18% chance of a 100bps hike to 3.25-3.50%. Thus, there is little chance for Fed to upset the markets.

Overall rhetoric should be unchanged that tightening is set to continue while Fed is committed to bring inflation down to target. The bigger questions are on the new economic projections and the dot plot. Some hawkish surprise could be seen there, which indicates higher terminal rate for current cycle, and a longer period to stay there.

Here are some previews:

• FOMC Meeting Preview: 100bps Unlikely, But Longer Rate Hike Path in Play
• Another Fed Hike is Coming; Mind the Dots
• Is the Fed Preparing to Crash the Markets, Or Will it Give Them a Helping Hand?
• Fed Preview: Fast Pace Hiking Cycle Continues
• September Flashlight for the FOMC Blackout Period

US 10 year yields rose another 0.81 to close at 3.571 overnight, break through prior high at 3.483. The development confirmed resumption of up trend from 2020 low at 0.398. Next target will be 61.8% projection of 1.343 to 3.483 from 2.525 at 3.847. Hawkish surprise in today's FOMC projections could accelerate TNX's path to this target.

Elsewhere

UK will release public sector net borrowing. US will also release existing home sales.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3272; (P) 1.3324; (R1) 1.3419; More...

USD/CAD's rally resumed after brief consolidations and intraday bias is back on the upside. Current up trend should target medium term fibonacci level at 1.3650. On the downside, break of 1.3225 minor support is needed to indicate short term topping. Otherwise, outlook will stay bullish in case of retreat.

In the bigger picture, down trend from 1.4667 (2020 high) should have completed at 1.2005, after defending 1.2061 long term cluster support. Rise from there should target 61.8% retracement of 1.4667 to 1.2005 (2021 low) at 1.3650. This will remain the favored case now as long as 1.2716 support holds.

Economic Indicators Update

GMT	Ccy	Events	Actual	Forecast	Previous	Revised
00:30	AUD	Westpac Leading Index M/M Aug	-0.10%		-0.15%
06:00	GBP	Public Sector Net Borrowing (GBP) Aug		7.5B	4.2B
14:00	USD	Existing Home Sales Aug		4.70M	4.81M
14:30	USD	Crude Oil Inventories			2.4M
18:00	USD	Fed Interest Rate Decision		3.25%	2.50%
18:30	USD	FOMC Press Conference

FOMC rate decision is the main focus of the day and another jumbo rate hike is expected. Based on current market pricing, there is 82% chance of a 75bps hike to 3.00-3.25%, and just 18% chance of a 100bps hike to 3.25-3.50%. Thus, there is little chance for Fed to upset the markets.

Overall rhetoric should be unchanged that tightening is set to continue while Fed is committed to bring inflation down to target. The bigger questions are on the new economic projections and the dot plot. Some hawkish surprise could be seen there, which indicates higher terminal rate for current cycle, and a longer period to stay there.

Here are some previews:

• FOMC Meeting Preview: 100bps Unlikely, But Longer Rate Hike Path in Play
• Another Fed Hike is Coming; Mind the Dots
• Is the Fed Preparing to Crash the Markets, Or Will it Give Them a Helping Hand?
• Fed Preview: Fast Pace Hiking Cycle Continues
• September Flashlight for the FOMC Blackout Period

US 10 year yields rose another 0.81 to close at 3.571 overnight, break through prior high at 3.483. The development confirmed resumption of up trend from 2020 low at 0.398. Next target will be 61.8% projection of 1.343 to 3.483 from 2.525 at 3.847. Hawkish surprise in today's FOMC projections could accelerate TNX's path to this target.