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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".

Full release here.

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."

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."

Full speech here.

Key Highlights

• AUD/USD declined below the key support at 0.6780.
• It is facing resistance near 0.6750 and 0.6780 on the 4-hours chart.
• Gold and crude oil price is showing signs of bearish continuation.
• The Fed interest rate decision is scheduled today (forecast 3.25%, versus 2.5% previous).

AUD/USD Technical Analysis

The Aussie Dollar started a fresh decline from the 0.6920 zone against the US Dollar. AUD/USD declined below the 0.6840 support to move into a bearish zone.

Looking at the 4-hours chart, the pair extended losses below the 0.6780 support, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours).

The pair even spiked below the 0.6700 level and a low was formed near 0.6669. The pair started a consolidation phase above the 0.6670 level. On the upside, an initial resistance sits near the 0.6750 zone.

The first major resistance is near the 0.6780 level and the 100 simple moving average (red, 4-hours). A clear move above the 0.6750 and 0.6780 levels could open the doors for a decent increase.

In the stated case, the pair might rise towards the 0.6820 resistance zone. Any more gains might send the pair towards the 0.6880 level and the 200 simple moving average (green, 4-hours).

On the downside, an initial support is near the 0.6670 level. A downside break below the 0.6670 support might send the pair towards the 0.6620 level. The next major support is near the 0.6580 level, below which the pair could even test the 0.6500 level in the coming days.

Looking at gold price, the price is facing an increase in selling interest and there is a risk of a move below the $1,650 support zone.

Economic Releases

• Fed Interest Rate Decision - Forecast 3.25%, versus 2.5% previous.

The Dollar Index ($USDX) shows five waves since the low on 03.01.2008, which will provide many signals across the Marketplace. Below is a monthly chart of the Dollar Index

$USDX Monthly Elliott Wave

The monthly chart above shows the five waves advance from 3.1.2008 and the different degrees within the cycle. The idea is overall bullish for the USDX. However, there are two possibilities for the Dollar Index. It can make a significant correction soon and drop hard to correct the whole cycle. Alternatively, it will just correct the cycle since the lows at 02.01.2018 and continue higher.

We have found out at EWF that the most significant advantage of the Theory is the understanding of the sequence. Every time wave five appears, there is a clear right side and, consequently, opportunities. As we can see in the chart, since the lows at 03.01.2008, there are five swings in Blue. This gives a temporary warning for the $USDX buyers. It has also reached 61.8%-76.4% fiboancci extension between (I) and (II), which is usually an area where wave five can end. As we said, there are two outcomes. The first one is the classic pattern in the Elliott Wave Theory, which is presented in the following chart:

Elliott Wave Impulse and Zigzag Cycle

The above chart shows after five waves, a big sell-off of the Dollar can happen soon. If we downgrade the cycle since 02.01.2018 it looks to be missing wave IV and V. But this does take away the warning across the Market that Dollar can soon pullback.

The Second scenario is from the same lows at 03.01.2008, the Index is showing the same five waves. But in this case, we call them five swings, which is a huge difference. The following chart shows the structure:

The above chart shows a WXY structure. It combines two cycles of three waves or two ABCs in the Elliott Wave Theory. In this second scenario, the Index should end swing five off the lows at 02.01.2018, but the pullback should be less than scenario one.

Professional traders understand the whole market and always look for the instrument showing clear structures. They then look for opportunities to buy/sell what we call Elliott Wave hedging, which is when both sides of the Market (i.e. buyers and sellers), agree on a reaction. Looking at the USDX structure and analyzing both scenarios, 2023 can see a pullback in the USDX. The Elliott Wave structure is however clear that the higher degree right side is bullish. The Index should be supported for a long time. Commodities lead the USDX pairs, trading in the second dimension when they agree in the swing direction but not the overall direction. It is evident in the following chart:

The $USDX Monthly charts overlay with $XAGUSD (Silver); as we can see, the metal should not be trading below zero and has been holding the lows, while the USDX is close to a peak. Understanding and reading the market makes a huge difference in being on the right side and knowing which instruments to trade.

In Conclusion: 2023 might provide a pullback in the USDX, which means higher $EURUSD, $AUDUSD, $NZDUSD, $GBPUSD, and higher commodities. Commodities should hold stronger against the $USDX, and provide a better buying into 2023.

Short term Elliott Wave view on DAX suggests the decline from 3.29.2022 high is unfolding as a 5 waves diagonal. Down from 3.29 high, wave 1 ended at 13386.32 and rally in wave 2 ended at 14709.38. Index then resumes lower in wave 3 towards 12390.95, and rally in wave 4 ended at 13939.02. Wave 5 lower is currently in progress with subdivision a 5 waves impulse in lesser degree.

Down from wave 4, wave (i) ended at 13085.20 and rally in wave (ii) ended at 13375.05. Wave (iii) lower ended at 12758.44, wave (iv) rally ended at 13154.15, and final leg lower wave (v) ended at 12603.58 which completed wave ((i)). Wave ((ii)) corrective rally ended at 13564.83 with internal subdivision as a zigzag structure. Up from wave ((i)), wave (a) ended at 13051.57, wave (b) ended at 12617.40 and wave (c) ended at 13564.83. Index has turned lower again in wave ((iii)) of 5. Down from wave ((ii)), wave (i) ended at 12606.64 and wave (ii) rally ended at 12936.57. Near term, as far as pivot at 13939.02 high stays intact, expect rally to fail in 3, 7, or 11 swing for further downside.

DAX 60 Minutes Elliott Wave Chart

• AUDNZD broke resistance level 1.3200
• Likely to rise to resistance level 1.1400

AUDNZD currency pair recently broke above the resistance level 1.3200 (which has been reversing the price from the end of April).

The breakout of the resistance level 1.3200 coincided with the breakout of the extended up channel from April, which accelerated the active impulse waves 3 and (3).

AUDNZD can be expected to rise further toward the next resistance level 1.1400 (target for the completion of the active impulse wave 3).

• NZDUSD broke round support level 0.6000
• Likely to fall to support level 0.5800

NZDUSD currency pair recently broke below the round support level 0.6000 (which stopped the earlier minor impulse wave (i) at the start of this month).

The breakout of the support level 0.6000 accelerated the active impulse waves 3 and (iii) – which belong to the sharp downward impulse sequence (C) from April.

Given the strong daily downtrend, NZDUSD can be expected to fall further toward the next support level 0.5800 (forecast price for the completion of the active impulse wave 3).

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The Swiss National Bank is expected to step up its fight against inflation when it sets its benchmark interest rate on Thursday at 07:30 GMT. The consensus points to a full percentage point increase and policymakers may have a good reason to listen to investors and boost the already strong swissie.

Currency advantage

Excluding the US dollar, the Swiss franc has been outperforming other major currencies since the start of the year, beating the euro and the pound by 6% and 10% respectively. Given that the eurozone market accounts for 55% of Swiss exports, a strengthening currency would normally motivate some negative verbal intervention from SNB policymakers to balance the unwanted appreciation in FX markets and keep products competitive abroad.

Circumstances, however, are different now. Inflation keeps trending at multi-decade highs around the globe in the face of post-pandemic supply constraints and the war in Ukraine, and a dynamic currency is something every nation would desperately like to own as a sort of defence mechanism to high imported prices. Another explanation for the relatively milder inflation is the different technologies used in Switzerland to generate electricity. Only 1.0% of the Swiss electricity relies on oil and natural gas, while almost 60% depends on hydroelectric and 35% on nuclear power.

Super-sized rate hike likely

Nevertheless, with the headline CPI further distancing above the central bank’s 2.0% target, unlocking a three-decade high of 3.5% in August, the SNB will probably fasten its tightening plans after delivering a surprising 50 bps rate hike in June ahead of the European Central Bank.

Commenting at the Jackson Hole, the SNB chief admitted that inflation has become a broad-based phenomenon and increases in consumer prices are now more easily acceptable. What was even more striking, is that he unexpectedly opened the case for a full percentage point rate increase at a time when the Fed chair was downplaying a similar action in the US, with futures markets currently providing a probability of almost 70% for such a scenario.

Why investors might be right to be hawkish

Well, although this type of aggressive action has been rare so far among major central banks, with the Bank of Canada and Riksbank being the only to move forward with a quadruple-sized rate hike, one might wonder why such a scenario would not materialize in Switzerland as well.

Monetary divergence has been a major booster for currencies this year, and the SNB is still lacking behind the ECB and other major peers, as global inflation is not expected to ease anytime soon. Hence, a bold increase in borrowing costs could narrow the gap between the Swiss and Eurozone 10-year bond yields, helping the Swiss franc to secure some footing against the euro.

Of course, the central bank could intervene in FX markets to protect the swissie. The strong correlation between the falling SNB sight deposits and the steep downfall in euro/swissie, if not accidental, suggests that the central bank has already proceeded with intervention. In any case, that could be another evidence that an overvalued swissie is not causing headaches to the SNB anymore.

As regards the outlook for the economy, the latest release from the State Secretariat for Economic Affairs (SEKO) revised its GDP projections to the downside. The expert group is now seeing a 2.0% expansion for 2022 and 1.1% for 2023 from 2.6% and 1.9% respectively, citing the tense energy situation in the eurozone, which could consequently result in production stoppages and weigh on the Swiss export business.

That said, growth is not a priority in the central bank world and the latest data releases are far from concerning at the moment, showing a strong trade surplus, a tight labor market, and a persisting recovery in retail sales following the plunge in April. Hence, a hawkish policy announcement cannot be ruled out.

Swiss franc outlook

Turning to FX markets, the Swiss franc could advance in the wake of an extraordinary 100bps rate hike and signals of additional bigger moves, especially against the battered yen, which is suffering from the BoJ’s stubborn dovish stance. Euro/swissie could be interesting to watch too, as the pair is trying to return above the 2015 trough of 0.9649. A hawkish rate decision could leave the pair below the 20-day simple moving average (SMA) at 0.9683, bringing the double bottom pattern around 0.9580 under examination. Breaking lower, the focus would turn to the 0.9500 psychological mark.

Alternatively, a more conservative 75 bps rate increase could disappoint investors, helping the pair to crawl up to the 50-day SMA at 0.9725, unless the central bank uses a strong verbal intervention to cancel any selling pressures in the currency. If not, the recovery could get congested higher near the 0.9828 barrier. If not, the bulls would head for the 0.9950 - 1.000 resistance region.