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Daily Pivots: (S1) 1.1380; (P) 1.1411; (R1) 1.1466; More...

Intraday bias in GBP/USD stays neutral for consolidation above 1.1349 temporary low. Break of 1.1737 resistance is needed to indicate short term bottoming. Otherwise, outlook stays bearish. On the downside, break of 1.1349 will resume larger down trend to 61.8% projection of 1.3748 to 1.1759 from 1.2292 at 1.1063.

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) 142.71; (P) 143.17; (R1) 143.70; More...

Intraday bias in USD/JPY stays neutral and consolidation from 144.98 could extend. 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) 0.9615; (P) 0.9655; (R1) 0.9684; More

No change in USD/CHF's outlook and intraday bias stays mildly on the upside. Rise 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.

Canadian Dollar falls broadly in early US session after weaker than expected inflation reading. Yet, it's still undecided on which currency is worst. Dollar is current in the driving seat, as lifted by extended rally in treasury yield. 10-year yield is trading up above 3.5 handle for the first time in more than a decade. Swiss Franc and Yen are steady on risk aversion. But Sterling is more resilient with help from buying against Euro.

Technically, immediate focus in on 1.3343 temporary top in USD/CAD. Firm break there will resume larger up trend to medium term fibonacci level at 1.3650. That would be a leading signal of more rally in Dollar elsewhere.

In Europe, at the time of writing, FTSE is down -0.37%. DAX is down -0.88%. CAC is down -1.14%. Germany 10-year yield is up 0.115 at 1.919. Earlier in Asia, Nikkei rose 0.44%. Hong Kong rose 1.16%. China Shanghai SSE rose 0.22%. Singapore Strait Times rose 0.33%. Japan 10-year JGB yield rose 0.0028 to 0.260.

Canada CPI slowed to 7% yoy in Aug

Canada CPI dropped -0.3% mom in August, below expectation of -0.1% mom. That's the largest monthly decline since early months of the pandemic.

For the 12-month period, CPI slowed from 7.6% yoy to 7.0% yoy, below expectation of 7.3% yoy. That's also the second consecutive slowdown in the year-over-year rate, largely driven by lower gasoline prices. CPI excluding gasoline slowed from 6.6% yoy to 6.3% yoy, first deceleration since June 2021.

CPI common rose from 5.5% yoy to 5.7% yoy, above expectation of 5.6% yoy. CPI median dropped from 5.0% yoy to 4.8% yoy, below expectation of 5.1% yoy. CPI trimmed dropped from 5.4% yoy to 5.2% yoy, below expectation of 5.5% yoy.

From the US, building permits dropped to 1.52m annualized rate in August, below expectation of 1.62m. Housing starts rose to 1.58m, above expectation of 1.46m.

SECO downgrades Swiss GDP forecasts, upgrades CPI

SECO downgraded Swiss GDP growth forecasts for 2022 from 2.6% to 2.0%. For 2023, GDP growth projection was also lowered from 1.9% to 1.1%. CPI forecasts for 2022 was raised from 2.5% to 3.0%, and for 2023 up from 1.4% to 2.3%.

It said, "after a positive first half of the year 2022, the Swiss economy now faces a deteriorating outlook. A tense energy situation and sharp price increases are weighing on economic prospects, especially in Europe."

It also warned of risks from "serious gas or electricity shortages" in Europe, and "large-scale production stoppages and a marked downturn". Such a negative scenario would likely lead to "high domestic price pressures" and "downward trend in the economy economy. With rising interest rates, " risks associated with the surge in global debt are intensifying.

Japan CPI core rose to 3% yoy in Aug, highest in 31 years

Japan CPI accelerated from 2.6% yoy to 3.0% yoy in August, above expectation of 2.6% yoy. CPI core (ex-fresh food), rose from 2.4% yoy to 2.8% yoy, above expectation of 2.7% yoy. CPI core-core (ex-fresh food, energy), also rose from 1.2% yoy to 1.6% yoy, but missed expectation of 1.7% yoy.

CPI core, the BoJ watched reading, hit the highest level in 31 years since 1991, excluding the effect of sales tax hike. Even including the impact of sales tax, the reading was still the highest in nearly 8 years.

BoJ is widely expected to continue to stand pat, and maintain negative interest rate later this week. But there are expectations that core inflation could hit 3% later in the year, and stay above the 2% target in the near term. That might start to change BoJ's view on prices and policy at a later stage.

RBA minutes: Slower tightening comes with higher rates

Minutes of RBA's September 6 meeting revealed that there were discussions on whether to hike by 25bps or 50bps. But, "given the importance of returning inflation to target, the potential damage to the economy from persistent high inflation and the still relatively low level of the cash rate, the Board decided to increase the cash rate by a further 50 basis points."

RBA reiterated that there will be further interest rate hikes "over the months ahead", but it's it "not on a pre-set path". The full effects of higher interest rates were "yet to be felt" on mortgages, activity and inflation.

The board was "mindful" that the path to bring inflation back to target "needed to account for the risks to growth and employment. RBA is seeking to return inflation to target "while keeping the economy on an even keel".

Size of timing of future rate hikes will be "guided by the incoming data" and outlook for inflation and job market, and risks. "All else equal, members saw the case for a slower pace of increase in interest rates as becoming stronger as the level of the cash rate rises".

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9615; (P) 0.9655; (R1) 0.9684; More

No change in USD/CHF's outlook and intraday bias stays mildly on the upside. Rise 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.

Economic Indicators Update

Canada CPI dropped -0.3% mom in August, below expectation of -0.1% mom. That's the largest monthly decline since early months of the pandemic.

For the 12-month period, CPI slowed from 7.6% yoy to 7.0% yoy, below expectation of 7.3% yoy. That's also the second consecutive slowdown in the year-over-year rate, largely driven by lower gasoline prices. CPI excluding gasoline slowed from 6.6% yoy to 6.3% yoy, first deceleration since June 2021.

CPI common rose from 5.5% yoy to 5.7% yoy, above expectation of 5.6% yoy. CPI median dropped from 5.0% yoy to 4.8% yoy, below expectation of 5.1% yoy. CPI trimmed dropped from 5.4% yoy to 5.2% yoy, below expectation of 5.5% yoy.

Full release here.

GBPJPY seems to be forming a global corrective trend, taking the form of a double zigzag. On the 1H timeframe, the final part of this pattern is visible, that is, the actionary wave y of the cycle degree.

It is assumed that the wave y takes the form of a triple zigzag Ⓦ-Ⓧ-Ⓨ-Ⓧ-Ⓩ of the primary degree, which may soon be fully completed. After the end of the second intervening wave Ⓧ, which took the form of a triple combination, the price began to move up.

Most likely, the wave Ⓩ takes the form of a standard zigzag, in which the first two parts are completed. In the next coming trading weeks, growth is expected within the intermediate correction wave (C), as shown in the chart.

The completion of the entire wave Ⓩ is possible near 182.92. At that level, wave Ⓩ will be at 61.8% of wave Ⓨ.

According to an alternative scenario, the market builds not a double, but a triple zigzag w-x-y-x-z of the cycle degree. And now its fourth part is being formed.

Thus, in the last section of the chart, we see a corrective movement in the cycle wave x. This wave, judging by its structure, may take the form of a triple zigzag Ⓦ-Ⓧ-Ⓨ-Ⓧ-Ⓩ.

It is possible that the market will fall in the last wave Ⓩ to 146.44. At that level, cycle wave x will be at 50% along the Fibonacci lines of actionary wave y. The probability of achieving this coefficient is high.

Near-term ranges are narrowing, and trading is quieter, as markets await the verdict from the Fed’s two-day policy meeting that ends tomorrow.

The US central bank has not much space to maneuver, as inflation remains high and over four times above the 2% target and Fed’s main task is to restore price stability, with main tool being tightening its monetary policy.

The Fed already raised its benchmark rate to 2.25%-2.50% range, on the way towards 4.5% that is seen as a likely target to be reached in early 2023.

In its September’s meeting, the Fed is expected to raise rates by another 75 basis points, with possibility of a massive 1% hike, being also on the table.

Aggressive central bank’s stance continues to lift the dollar, also strongly supported by safe-haven buying over growing economic and geopolitical concerns, as many large economies are on the way to recession.

Hawkish Fed in line with expectations is likely to be supportive for dollar, due to widening divergence of the monetary policies of Fed and other central banks, while Fed’s decision above expectations would strongly accelerate greenback’s rally.

Sustained break of cracked psychological 110 barrier would open way towards Fibo projections at 111.12 and 112.85 initially, but stronger rise cannot be ruled out on Fed’s surprise.

Initial support at lays at 109.51 (10DMA), followed by 109.17 (20DMA) , guarding pivotal support at 107.65 (Sep 13 trough).

Res: 110.00; 110.77; 111.12; 112.85.
Sup: 109.51; 109.17; 108.21; 107.65.

WTI oil suffered an intraday drop of more than 4.5% to $81.70 yesterday but managed to regain all losses by the end of the day, trading now at $85.40. The $85 area has repeatedly acted as the Rubicon since 2007.

In 2008, the failure was provided by the near collapse of the financial system. Oil only fell below that level after the bankruptcy of Lehman. At that time, oil didn’t get firm footing until $35.

In 2014, the world feared a then unknown “tapering” from the Fed, but Saudi Arabia had the final knockdown for prices, temporarily switching to fight for oil market share. A return to the firm ‘quota’ policy, but now with Russia, did not occur until early 2016, and prices went as low as $30.

On the other hand, we saw prices steadily above $85 between 2010 and 2014, when the global economy was recovering strongly from oil consumption thanks to stimulus and near-zero interest rates. In 2022, the move above resulted from Europe’s severe energy crisis and fears of production cuts due to Russia’s rapid oil abandonment.

And now, the price remains above that level, despite heightened equity market volatility and a stronger dollar in forex. However, these are the most influential factors affecting the price.

A high-profile event or shock in geopolitics or financial markets could break the steady support of oil buyers on the downturn in the coming days. For example, it could be a new round of tightening Fed rhetoric consisting of a 100-point rate hike at once or a hint of further hikes as long as the rate markedly exceeds inflation.

The converse cannot be ruled out either: the Fed could hint at a move to more fine-tuning policy in the future, promising less harsh decisions. Such a bullish market reversal could validate fundamental price support at current levels.

However, knowing how central bankers like to leave all doors open, it is also worth being prepared for the Fed to try to soften the effect on the markets by extending the period of uncertainty as much as possible.

In the latter case, geopolitics could prove decisive. However, there are still no clear signals of a change in the geopolitical setup around the energy market. Gas prices in Europe and the USA have retreated from their highs; OPEC+ made a symbolic move in early September by limiting production, and the USA continues to sell off reserves.

The Australian dollar is in negative territory today. AUD/USD is trading at 0.6706, down 0.30% on the day.

RBA says rates to increase

The RBA minutes of the September 6^th meeting didn’t shed any new light on the central bank’s rate policy, and the Australian dollar’s response has been muted. The minutes reiterated the message that the markets have already heard from Governor Lowe – additional rate hikes are coming, but the size of the hikes will depend on inflation and growth.

The minutes noted that rates are approaching “normal settings”. 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, the RBA may still be up in the air with regard to the size of the rate hike right up to decision time. This will make for an interesting meeting which could trigger volatility from the Australian dollar.

There are arguments to be made on both sides. Inflation rose to 6.1% in the second quarter, and as the RBA’s number one priority, Lowe may want to keep the pedal on the floor until there are clear signs that inflation is moving lower. On the other hand, inflation expectations have slowed over three straight months, a possible indication that inflation may have peaked or will do so shortly. Lowe would very much like to guide the economy to a soft landing, which would be facilitated by a modest 0.25% hike.

The Federal Reserve meets on Wednesday, with the markets expecting a 0.75% hike. There is about a 20% chance of a massive full-point hike. The markets will be listening carefully to the Fed’s guidance – if it is hawkish, the US dollar should respond with broad gains.

AUD/USD Technical

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

The Euro turned to red in European trading on Tuesday, following a four-day recovery after a sharp post-US inflation report’s drop.

Bounce rose above parity level but failed to register a clear break higher.

Underlying bears received fresh support today from downbeat EU data, which showed the record current account deficit of 19.9 billion euros in July after a surplus of 4.2 billion Euros in June and compared to the same period last year, when the surplus was 28.9 billion Euros.

Deep trade gap was mainly driven by surging costs of imports of oil and gas, as well as raw materials, adding to negative outlook for the bloc’s economy.

Overall picture remains bearish and prolonged consolidation as likely scenario, before bears regain full control.

Conflicting signals from fresh bearish momentum and bullish setup of daily Tenkan-sen / Kijun-sen are likely to keep near-term action in directionless mode until Fed’s announcement late

Wednesday, which would spark stronger volatility.

The US central bank is widely expected to raise rates by another 75 basis points in September that should provide fresh support to the dollar, but some economists do not rule out more aggressive stance and 1% hike, that would accelerate dollar’s larger rally and push the single currency significantly lower.

Res: 1.0050; 1.0087; 1.0076; 1.0105.
Sup: 1.0000; 0.9955; 0.9900; 0.9864.