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AUDUSD is finding strong support near the short-term ascending trend line and the 0.6855 barrier, after it spiked towards a new six-week low at 0.6840. The RSI indicator is gaining some momentum, mirroring the market’s bullish behavior over the past couple of days, flagging that a recovery could reemerge in the short-term. The MACD is also moving with weak momentum near its trigger and zero lines.

In case the pair changes its short-term direction to the upside, the bulls will probably challenge the previous top at 0.7010. A break higher, could carry the pair until the upper boundary of the symmetrical triangle near the 200-day SMA and the 0.7135 resistance level. Further up, the area around 0.7280 could be another potential obstacle for upward movements.

Alternatively, more declines may drive the price towards the 0.6855 barrier again before the 26-month low of 0.6680 comes into view. Beneath the latter, the trough of May 2020 at 0.6570 could be another level in focus.

Turning to the medium-term picture, the pair switched to neutral mode after the drop off 0.7280. The 200-day SMA continues to head south, and the market’s outlook might improve further in the medium-term. Yet there is still some way to go for the lines of the symmetrical triangle to meet each other.

Summarizing, AUDUSD maintains a bullish bias in the short-term picture, whereas in the medium-term it holds a neutral profile.

USD/CHF is up for a third straight day. In the European session, the pair is trading at 0.9717, up 0.36%. The US dollar continues to show strength against most of the majors. The Swiss franc has fallen sharply, with USD/CHF climbing 360 points since August 16th.

KOF Economic Barometer falls again

The KOF Economic Barometer continued its downward trend, declining for a fourth straight month in August. The index dropped to 86.5, down from 90.1 in July and shy of the estimate of 89.0. Much of the August decline was related to consumer consumption, but the manufacturing sector is also showing weakness. Similar to the situation in other major economies, manufacturing activity has been hurt by supply chain disruptions and a lack of employees.

Switzerland will release the August inflation report on Thursday. The estimate for August CPI is 0.2% MoM, after a 0.0% reading in July. The Swiss central bank (SNB), which is not shy about intervening in currency markets, will be watching carefully. Higher inflation means the Swissie has less purchasing power, which suits the SNB as it has a paramount interest in the Swiss currency remaining weak so that Swiss exports are competitive.

In the US, the markets continue to digest Fed Chair Powell’s hawkish speech on Friday. The “read my lips” speech in which Powell firmly stated that there would be no pivot in policy appeared to have hit its mark, as equity markets took a tumble on Friday and again on Monday, although we are seeing a rebound today.

The Federal Reserve holds its next policy meeting on September 21^st and we can expect plenty of discussions as to whether the Fed will hike by 50 or 75 basis points. CME’s FedWatch has pegged the likelihood of a 75bp move at 66.5%, with a 33.5% likelihood of a 50bp move. These numbers are sure to change in the coming weeks, as the markets hunt for clues as to the Fed’s plans.

USD/CHF Technical

• USD/CHF is testing resistance at 0.9720. Next, there is resistance at 0.9760
• There is support at 0.9642 and 0.9524

Richmond Fed President Thomas Barkin said, "we're committed to returning inflation to our 2% target and we'll do what it takes to get there. I'd expect inflation to bounce around on the way back to our target." He didn't expect inflation to "come down immediately".

"A recession is obviously a risk in the process," Barkin said. But, "it doesn't have to be like a 2008 recession, it doesn't have to be calamitous. We're out of balance today...returning to normal might actually mean products on shelves, cars on lots and restaurants fully staffed."

Daily Pivots: (S1) 0.9932; (P) 0.9980; (R1) 1.0047; More...

Range trading continues in EUR/USD and intraday bias stays neutral. On the downside, break of 0.9899 will resume larger down trend to 61.8% projection of 1.0773 to 0.9951 from 1.0368 at 0.9860. Firm break there should prompt downside acceleration to 100% projection at 0.9546. However, firm break of 1.0094 minor resistance will dampen this bearish view, and turn bias back to the upside for 1.0368 resistance instead.

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) 1.1655; (P) 1.1700; (R1) 1.1750; More...

With 1.1899 resistance intact, further decline is expected in GBP/USD. Current down trend should target 1.1409 long term support. On the upside, above 1.1899 minor resistance will turn intraday bias neutral again. But outlook will stay bearish as long as 1.2292 resistance holds, in case of recovery.

In the bigger picture, fall from 1.4248 (2018 high) could be a leg inside the pattern from 1.1409 (2020 low), or resuming the longer term down trend. Deeper decline is expected as long as 1.2292 resistance holds. Next target is 1.1409 low. However, firm break of 1.2292 will bring stronger rise back to 55 week EMA (now at 1.2859).

Daily Pivots: (S1) 0.9655; (P) 0.9682; (R1) 0.9709; More...

Intraday bias in USD/CHF stays on the upside at this point. As noted before, outlook is unchanged that triangle correction from 1.0063 could have completed at 0.9369 already. Further rally should be seen to 0.9884 resistance next. Break there will argue that larger up trend is ready for resumption through 1.0063. On the downside, below 0.9576 minor support will dampen this view and turn bias back to the downside for 0.9369 support instead.

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) 136.67; (P) 137.12; (R1) 137.96; More...

Intraday bias in USD/JPY is turned neutral first as it's losing upside momentum, as seen in 4 hour MACD. Strong resistance could be seen from 139.37 to limit upside, to start the third leg of the corrective pattern from 139.37. Break of 136.17 minor support will turn bias back to the downside for 130.38 support. Nevertheless, decisive break of 139.37 will confirm up trend resumption for 147.68 long term resistance.

In the bigger picture, price actions from 139.37 medium term top are seen as a corrective pattern to up trend from 101.18 (2020 low). While deeper decline cannot be ruled out, outlook will stays bullish as long as 55 week EMA (now at 123.72) holds. Long term up trend is expected to resume through 139.37 at a later stage, after the correction finishes. Next target is 147.68 (1998 high).

Daily Pivots: (S1) 0.9629; (P) 0.9664; (R1) 0.9714; More....

Break of 0.9698 resistance confirms short term bottoming in EUR/CHF at 0.9550, on bullish convergence condition in 4 hour MACD. Intraday bias is now on the upside for 55 day EMA (now at 0.9840) and above. But upside should be limited by 38.2% retracement of 1.0512 to 0.9550 at 0.9917 to bring down trend resumption. On the downside, below 0.9664 minor support will turn bias back to the downside for retesting 0.9950 low.

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 0.9970 support turned resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish in case of strong rebound.

Euro is trying to extend recent rally, but the gains also so far concentrated against Sterling and Swiss Franc. Persistent flow of hawkish comments from ECB official is support the common currency nevertheless. Australian Dollar and Yen are currently the stronger ones for the day. The Pound, Franc and Dollar are the weaker ones.

Technically, EUR/CHF's break of 0.9698 resistance should confirm short term bottoming at 0.9550, on bullish convergence condition in 4 hour MACD. EUR/GBP's rally is continuing and break of 0.8585 resistance would set the stage for retesting 0.8720 high. However, EUR/USD is still struggling in established range of 0.9899/1.0094. Downside breakout remains in favor in EUR/USD, but let's see.

In Europe, at the time of writing, FTSE is up 0.08%. DAX is up 1.64%. CAC is up 0.88%. Germany 10-year yield is down -0.011 at 1.495. Earlier in Asia, Nikkei rose 1.14%. Hong Kong HSI dropped -0.37%. China Shanghai SSE dropped -0.42%. Singapore Strait Times rose 0.53%. Japan 10-year JGB yield dropped -0.0155 to 0.227.

ECB Knot: Swift normalization of interest rates is essential

ECB Governing Council member Klaas Knot said, "a swift normalization of interest rates is an essential first phase, and some front-loading should not be excluded. The broadening and deepening of our inflation problem generates the need to act forcefully."

Knot saw upside risks to inflation, including from higher food and energy prices, a weaker euro, copious budget spending and rising expectations. He added that even if the slowdown in the economy were to materialize, "this in itself is unlikely to bring inflation back to our objective over the medium term."

Knot said earlier last week that a rate hike of at least 50bps is needed next week.

Eurozone economic sentiment dropped to 97.6 in Aug

Eurozone Economic Sentiment Indicator dropped from 98.9 to 97.6 in August, well below expectation of 102.0. Employment Expectation Indicator rose from 107.2 to 108.0. Industry confidence dropped from 3.4 to 1.2. Services confidence dropped from 10.4 to 8.7. Consumer confidence improved from -27.0 to -24.9. Retail trade confidence rose from -7.1 to -6.3.

EU Economic Sentiment Indicator dropped from 97.5 to 96.5. Amongst the largest EU economies, the ESI plummeted in the Netherlands (-4.8) and posted significant declines in Germany (-2.5), France and Poland (both -1.8), as well as Italy (-1.2). Spain stood out with a mild increase (+0.8).

Swiss KOF dropped to 86.5 in Aug, economic outlook appears less than encouraging

Swiss KOF Economic Barometer dropped from 90.5 to 86.5 in August, below expectation of 88.6. KOF said the reading is "quite considerably below its long-term average". Accordingly, "for the near future the outlook for the Swiss economy appears less than encouraging."

KOF added: " The decline is primarily due to indicators broadly associated with private consumption, but the manufacturing sector and the construction industry are emitting negative signals, too. The other indicators included in the barometer show hardly any changes."

EUR/GBP Mid-Day Outlook

Daily Pivots: (S1) 0.8503; (P) 0.8526; (R1) 0.8566; More...

EUR/GBP's rise from 0.8338 continues today and the break of near term channel resistance is a sign of upside acceleration. Intraday bias stays on the upside for 0.8585 resistance first. Decisive break there should confirm that whole pattern from 0.8720 has completed, and bring further rally to retest this high. On the downside, below 0.8520 minor support will mix up the outlook and turn intraday bias neutral first.

In the bigger picture, medium term bearishness is maintained with prior rejection by 38.2% retracement of 0.9499 to 0.8201 at 0.8697. Break of 0.8201 will resume larger down trend from 0.9499 (2020 high). Nevertheless, sustained break of 0.8697 will affirm the case that rise from 0.8201 is a medium term up trend itself.

Economic Indicators Update

Daily Pivots: (S1) 0.8503; (P) 0.8526; (R1) 0.8566; More...

EUR/GBP's rise from 0.8338 continues today and the break of near term channel resistance is a sign of upside acceleration. Intraday bias stays on the upside for 0.8585 resistance first. Decisive break there should confirm that whole pattern from 0.8720 has completed, and bring further rally to retest this high. On the downside, below 0.8520 minor support will mix up the outlook and turn intraday bias neutral first.

In the bigger picture, medium term bearishness is maintained with prior rejection by 38.2% retracement of 0.9499 to 0.8201 at 0.8697. Break of 0.8201 will resume larger down trend from 0.9499 (2020 high). Nevertheless, sustained break of 0.8697 will affirm the case that rise from 0.8201 is a medium term up trend itself.