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Swiss Franc is stealing the show today as it tumbles broadly and sharply across the board. EUR/CHF is trading up 0.6% at the time of writing and is set to take on key resistance level around 1.12. The selloff in the Franc is believed to be a catch up to a combination of recent developments in the financial markets. Those include surge in risk markets including European stocks, oil and commodities. Market expectations are also firm that ECB is on course to exit stimulus down the road, or least, taper its asset purchase. Such expectation is reinforced by the rally in stocks, energy and commodities that would help lift inflation.

Also importantly, the jump in German yields since yesterday's Ifo release added more fuel to the selloff in the Franc. German 10 year bund yield has indeed doubled since ECB President Mario Draghi's hawkish speech. Meanwhile, Greece successfully held the first bond sales since 2014 yesterday. EUR 5b of its five-year bond was sold at yield at 4.625%, notably lower than 4.95% back in the auction in 2014. A government official was quoted saying that the sales was an "absolute success.

Talking about bonds, the Spanish/German yield spread dropped to the tightest level since 2015. Italian/German yield spread also dropped to the lowest level since December. Recent rally in Euro now encourages investors to borrow money in low-yielding assets and buy the high yield ones, such as European bonds. And that help narrowed the yield spreads with German bunds. Same picture could also be seen as investors borrow Swiss franc and sell them for Euro assets.

Technically, 1.1198 is the key to watch now and a firm break there could open up an medium term long term trend in EUR/CHF for SNB's prior EUR/CHF floor at 1.2. Released from Swiss, UBS consumption indicator dropped to 1.38 in June.

FOMC statement awaited

Still, FOMC rate decision and statement will be closely watched today. The Fed would leave the policy rate unchanged but the key is whether the Fed would turn more dovish on the inflation outlook which might affect the future normalization path. The market consensus remains that there would be one more rate hike in December, which was signalled in the June dot plot. However, more and more voices of doubt about the implementation due to recent disappointment on the data front. Another focus is whether the Fed would announce the kickoff period of the balance sheet reduction plan.

UK GDP showed "notable slowdown"

Released from UK, Q2 GDP grew 0.3% qoq, in line with consensus. Darren Morgan, head of national accounts at the Office for National Statistics, said that "the economy has experienced a notable slowdown in the first half of this year. While services such as retail, and film production and distribution showed some improvement in the second quarter, a weaker performance from construction and manufacturing pulled down overall growth."

Chancellor of Exchequer Philip Hammond tried to talk down the slowdown. He noted that "our economy has grown continuously for four-and-a-half years, delivering record levels of employment. We can be proud of that; but we are not complacent." Meanwhile, he emphasized the need to "focus on restoring productivity growth to deliver higher wages and living standards for people across the country. That is why we are committed to investing in infrastructure, technology and skills to deliver the best possible base for strong future growth."

Also from UK, BBA mortgage approvals dropped to 40.2k in June. Index of services rose 0.3% 3mo3m in May.

BoJ Nakaso: Improving output gap will lift prices

BoJ Deputy Governor Hiroshi Nakaso said that he's still confident that inflation will reach the 2% target around fiscal 2019. And, BoJ should stick with the current stimulus program. He noted that for now, companies have been trying to "absorb higher labour costs by revising their business processes". In such a way, higher labour costs are not being passed on to consumers. However, he emphasized that "the output gap is clearly improving, so companies will become more aggressive in setting wages and prices."

Aussie lower after CPI

Australian Dollar weakens mildly today after lower than expected inflation data. CPI rose 0.2% qoq in Q2, below consensus of 0.4% qoq. Annually, CPI slowed to 1.9% yoy, down from 2.1% yoy and missed expectation of 2.2% yoy. RBA trimmed mean CPI slowed to 1.8% yoy, down from 1.9% yoy. RBA weighted median CPI, however, rose to 1.8% yoy, up from 1.7% yoy. RBA Governor Philip Lowe said today that tightening in global central banks "has no automatic implications for monetary policy in Australia". And RBA "didn't" and "don't need to" move in "lockstep" with others.

Suggested reading on RBA: RBA's Neutral Rate Rhetoric Overstated, Real Rate Similar To Fed's

RBNZ McDermott stays dovish

RBNZ Assistant Governor John McDermott has spoken about the monetary policy outlook, with a dovish stance. He suggested that current estimates the neutral interest rate is around 3.5 % with potential output growth at 2.9% and core inflation at 1.4%. He added that the neutral rate has been slowly falling for some time, due to lower potential output growth. The impact on kiwi was rather muted. NZDUSD continued its sideways trading around a 10-month high. released from New Zealand, trade surplus widened to NZD 242m in June.

EUR/CHF Mid-Day Outlook

Daily Pivots: (S1) 1.1035; (P) 1.1064; (R1) 1.1119; More...

EUR/CHF's rally accelerates to as high as 1.1173 so far. Intraday bias remains on the upside for 1.1198 key resistance next. Sustained break there will carry larger bullish implication. In such case, next near term target will be 161.8% projection of 1.0652 to 1.0986 from 1.0830 at 1.1370. On the downside, below 1.1106 minor support will turn intraday bias neutral first. But retreat should be contained by 1.1006 to bring rise resumption.

In the bigger picture, the price actions from 1.1198 are seen as a corrective move. Such correction could have completed after defending 38.2% retracement of 0.9771 to 1.1198 at 1.0653. Decisive break of 1.1198 will resume the long term rise from SNB spike low back in 2015. In such case, EUR/CHF could eventually head back to prior SNB imposed floor at 1.2000. We'll favor this bullish case as long as 1.0830 support holds. However, rejection from 1.1198 will extend the multi-year range trading with another fall.

Economic Indicators Update

EUR/GBP - 0.8921

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term up

Original strategy  :

Buy at 0.8875, Target: 0.8995, Stop: 0.8835

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.8875, Target: 0.8995, Stop: 0.8835

Position : -

Target :  -

Stop : -

 
As the single currency has retreated after last week’s rally to 0.8995, retaining our view that consolidation below this level would be seen and pullback to 0.8900 cannot be ruled out, however, reckon downside would be limited to 0.8875-80 and bring another rise later, above psychological resistance at 0.9000 would extend recent rise to 0.9020 and possibly towards 0.9050 but overbought condition should prevent sharp move beyond latter level, risk from there has increased for a retreat later.

In view of this, would not chase this rise here and would be prudent to buy euro on pullback as 0.8870-75 should limit downside. Only break of support at 0.8829 would abort and confirm top is formed instead, bring correction to 0.8800 first. 

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

USD/CAD - 1.2527

 
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway with wave iii ended at 1.4690, wave v of C may bring one more marginal rise probably in 2018

Trend:  Down

 
Original strategy       :

Sell at 1.2690, Target: 1.2490, Stop: 1.2750

Position: -

Target:  -

Stop: -

 
New strategy             :

Sell at 1.2690, Target: 1.2490, Stop: 1.2750

Position: -

Target:  -

Stop:-

As the greenback has recovered after marginal fall to 1.2481, suggesting consolidation above this level would be seen and corrective bounce to 1.2555-60 and then 1.2600 is likely, however, reckon upside would be limited to 1.2690-00 and bring another decline, below said support at 1.2481 would add credence to our view that recent downtrend is still in progress, we are keeping our count that wave v as well as wave (C) ended at 1.3794 and impulsive wave (i ii, i ii) is now unfolding with minor wave iii still in progress, hence bearishness remains for this fall to extend weakness to 1.2450, however, oversold condition should prevent sharp fall below 1.2400-10 and reckon 1.2350-60 would hold, risk from there is seen for a rebound later.

In view of this, would not chase this fall here and would be prudent to sell the pair again on recovery as 1.2690-95 should limit upside. Above 1.2745-50 would defer and risk a stronger rebound to 1.2800-10 but only break of latter level would signal a temporary low is formed instead, bring retracement of recent decline to 1.2850, then 1.2900, however, price should falter below 1.3000 and the greenback shall head south again from there.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

EURUSD: With the pair backing off higher price to close almost flat on Tuesday, more corrective pullback is envisaged in the days ahead. Resistance comes in at 1.1700 level with a cut through here opening the door for more upside towards the 1.1750 level. Further up, resistance lies at the 1.1800 level where a break will expose the 1.1850 level. Conversely, support lies at the 1.1600 level where a violation will aim at the 1.1550 level. A break of here will aim at the 1.1500 level. All in all, EURUSD faces further corrective downside pressure on price rejection.

USD/CHF - 0.9581

Original strategy :

Sold at 0.9570, target: 0.9470, Stop: 0.9605

Position : - Short at 0.9570

Target :  - 0.9470

Stop : - 0.9605

New strategy  :

Hold short entered at 0.9570, target: 0.9470, Stop: 0.9605

Position : - Short at 0.9570

Target :  - 0.9470

Stop : - 0.9605

As the greenback has maintained a firm undertone after staging a strong rebound from 0.9438 late last week, suggesting near term upside risks remains for this corrective bounce to extend marginal gain from here, however, reckon upside would be capped at 0.9600-05 (61.8% Fibonacci retracement of 0.9701-0.9438) and bring retreat later, below 0.9520 would suggest an intra-day top is possibly formed but break of 0.9450-55 is needed to signal the rebound from 0.9438 has ended, bring retest of this level first.

In view of this, we are holding on to our short position entered at 0.9570. Above 0.9600-05 (61.8% Fibonacci retracement of 0.9701-0.9438) would suggest a temporary low is formed instead, bring a stronger rebound towards resistance area at 0.9622-35.

GBP/USD - 1.3049

Original strategy :

Sell at 1.3100, Target: 1.2980, Stop: 1.3135

Position : - 

Target :  -

Stop : -

New strategy  :

Sell at 1.3100, Target: 1.2980, Stop: 1.3135

Position : -

Target :  -

Stop : -

Although cable retreated after rising to 1.3084 yesterday, break of 1.2980-85 is needed to signal top is formed, bring further fall to 1.2950-55 but only below there would confirm the rebound from 1.2933 has ended, then another test of this support would follow, once this level is penetrated, this would add credence to our view that early fall from 1.3126 top has resumed for further weakness to previous support at 1.2912 which is likely to hold on first testing. 

In view of this, would not chase this fall here and we are looking to sell cable on subsequent recovery as 1.3100-10 should limit upside. A firm break above 1.3100 would abort and suggest the fall from 1.3127 has ended instead, bring retest of this level but only break there would shift risk back to upside for further gain to 1.3150-60.

EUR/USD - 1.1643

Original strategy  :

Sell at 1.1680, Target: 1.1580, Stop: 1.1715

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.1680, Target: 1.1580, Stop: 1.1715

Position : -

Target :  -

Stop : -

Although the single currency moved higher to 1.1712 yesterday, the subsequent retreat suggests consolidation below this level would be seen and as long as 1.1712 holds, mild downside bias is seen for test of 1.1617-20 support, break there would signal a temporary top is formed, bring retracement of recent rise towards previous resistance at 1.1583 but price should stay above 1.1550, bring another rally later.

In view of this, we are looking to turn short on recovery but one should exit on such fall. Above said resistance at 1.1712-14 would signal the rise from 1.0340 low is still in progress and may extend headway towards 1.1750, then 1.1775-80. 

USD/JPY - 111.81

Original strategy  :

Sold at 112.00, Target: 111.00, Stop: 112.35

Position :  - Short at 112.00

Target :  - 111.00

Stop : - 112.35

New strategy  :

Hold short entered at 112.00, Target: 111.00, Stop: 112.35

Position :  - Short at 112.00

Target :  - 111.00

Stop : - 112.35

Although yesterday’s rally suggests near term rise from this week’s low at 110.62 may extend marginal gain from here, as this move is viewed as retracement of recent decline, reckon upside would be limited to 112.10 (50% Fibonacci retracement of 113.58-110.62) and bring another retreat later. Below previous resistance at 111.34 (now support) would suggest top is possibly formed but break of 111.10-15 is needed to add credence to this view, bring test of 110.80, break there would signal the rebound from 110.62 has ended, bring retest of this level first.

In view of this, we are holding on to our short position entered at 112.00. Above 112.08-10 would risk a stronger rebound to 112.42-45 (previous resistance and 61.8% Fibonacci retracement of 113.58-110.62) but only break there would signal recent decline has ended, bring headway towards resistance at 112.87 would follow. 

USD/CAD changed little today and is waiting for the FOMC Statement to bring some action, we'll see how will react after this main event. Price remains under massive selling pressure, the next downside target is at the 1.2460 static level, this represents a long term support. Only a significant accumulation will signal a reversal.

The yellow metal is trading in the red again and resumes the yesterday's bearish candle, is going down as the USDX has managed to force the USD to appreciate a little ahead the FOMC.

Price decreased after the failure to reach and retest the outside sliding line (SL) of the major descending pitchfork and now is pressuring the 38.2% retracement level and the warning line (Wl1). Could come even to retest the upper median line (UML) and the sliding line (ascending dotted line) before will climb much higher. Only a drop below the SL and inside the major descending pitchfork's body will confirm a larger drop in the upcoming weeks. I believe that only the fundamental factors could force the rate to drop sharply.