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

Intraday bias in USD/JPY remains neutral as sideway consolidations continues. 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.

Euro is sold off broadly, together with Sterling, after Russia announced partial military mobilization. Reactions in European stock markets are muted, nevertheless. For now, Swiss Franc is the strongest one for today, followed by Dollar, Canadian and Yen. Aussie and Kiwi are mixed. Focuses will now turn to FOMC rate decision first, followed by BoJ, SNB and BoE tomorrow.

Technically, EURUSD is looking vulnerable for further selloff. Firm break of 0.9863 will resume larger down trend to 100% projection of 1.0368 to 0.9863 from 1.0197 at 0.9296 next. Such development, if happens, could also help push EUR/CHF through 0.9530 temporary low.

In Europe, at the time of writing, FTSE is up 0.58%. DAX is up 0.14%. CAC is up 0.29%. Germany 10-year yield is down -0.039 at 1.899. Earlier in Asia, Nikkei dropped -1.36%. Hong Kong HSI dropped -1.79%. China Shanghai SSE dropped -0.17%. Singapore Strait Times dropped -0.16%. Japan 10-year JGB yield rose 0.0015 to 0.261.

EUR/CHF holding above 0.9530 temp low after selloff

Euro drops broadly today, in particular against Swiss Franc. The selloff came after Russian President Vladimir Putin announced partial military mobilization for the invasion of Ukraine. That's the first such mobilization since World War II, and would call up 300k reservists. Putin also warned that Russia has "various means of destruction". "If the territorial integrity of our country is threatened, we will certainly use all the means at our disposal to protect" he said, adding that "this is not a bluff!".

For now, EUR/CHF is still holding above 0.9530 temporary low, and down trend resumption is not confirmed yet. On break of 0.9530, EUR/CHF should target 61.8% projection of 1.0512 to 0.9550 from 0.9864 at 0.9269.

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

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."

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".

USD/JPY Mid-Day Outlook

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

Intraday bias in USD/JPY remains neutral as sideway consolidations continues. 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.

Economic Indicators Update

The markets are preparing for the next Fed decision, the publication of which and subsequent Chairman Powell’s comments have the potential to trigger sharp market moves and set the tone for the days or even weeks ahead.

The rate futures market is laying down an 84% chance of a 75-point increase, leaving a 16% chance of a 100-point hike today. This is a very hawkish expectation that the market has been putting into prices since last Tuesday, causing a pull into defensive assets.

The money market has been renewing extremes in previous days, laying higher rates in prices for the longer term.

In the currency market, the dollar index has come close to the extremes set at the beginning of the month, trading now at 110.35, while GBPUSD, EURUSD and USDJPY have rewritten or come close to their multi-year extremums. All it takes is a slight nudge from this point to trigger an avalanche-like move in either direction. Everything will depend on the market’s perception of the Fed’s monetary policy plans.

In the week after the surprising US inflation report for August, the markets seem to have given up entirely on the idea that the Fed would lower the rate hikes. On the contrary, the market now appears to be going from one extreme to the other, expecting a 200-point rate hike before the end of the year. This creates the potential for “positive” surprises.

In our case, this could manifest in corrective sentiment on the dollar and a rebound in the equity market from local lows. For the equity market, a break of the downtrend may not come before a sure return of the S&P500 above 4150. The DXY ascent will not be called into question before a plunge below 107.70.

On the other hand, if the Fed remains adamant about tightening financial conditions despite market turbulence, a further push down in equities and a rise in the dollar could trigger an uncontrollable sell-off like the one we saw in March 2020, a near-freefall.

Such market stress could reverse Fed policy, as it did in 2020, 2018, 2015 and 2011. However, before the Fed makes such a reversal, the S&P500 could lose 7 to 12% from current levels near 3600 (200-week average) and 3400 (pre-pandemic peak).

It is challenging to find meaningful technical levels for the dollar index down to the 120 area, which could take up to five months if the momentum gained since the beginning of the year is maintained.

USD/JPY continues to show limited movement this week. In the North American session, USD/JPY is trading at 144.10, up 0.27%.

BoJ unlikely to change policy

The Japanese yen has depreciated by over 20% this year, and the yen’s slide will be high on the agenda at the Bank of Japan’s meeting on Thursday. We could see some strong rhetoric expressing deep concern about the yen, but the central bank has stayed on the sidelines during the yen’s long slide and I don’t expect that to change. The BoJ is committed to its ultra-accommodative policy, in order to boost Japan’s weak economy. Inflation has been rising, but Governor Kuroda has said he won’t tighten policy until it’s clear that inflation is sustainable, which would mean solid wage growth.

There have been some rumblings about currency intervention by Tokyo, and the yen received a short boost in the arm earlier in September, after a report that the BoJ had conducted a rate check, which could have been a prelude to intervention. Japan hasn’t taken such a drastic move since 2011 and would require the consent of the G-20 to do so. As part of its loose policy, the BOJ has been very firm with its yield curve control, and the yen has borne the brunt of this policy, as the US/Japan rate differential continues to widen. With the Federal Reserve poised to raise rates by 75 or even 100 basis points later today, the outlook for the yen appears grim.

The markets are anxiously awaiting the Fed’s rate announcement, as well as the Fed’s quarterly economic forecast. This will include projections for unemployment, inflation and interest rate levels. If Fed Chair Powell’s message is ‘higher for longer’ with regard to rate levels, investors could respond by sending the US dollar higher.

USD/JPY Technical

• There is resistance at 144.71 and 146.49
• USD/JPY has support at 143.19, followed by 141.88

Euro drops broadly today, in particular against Swiss Franc. The selloff came after Russian President Vladimir Putin announced partial military mobilization for the invasion of Ukraine. That's the first such mobilization since World War II, and would call up 300k reservists. Putin also warned that Russia has "various means of destruction". "If the territorial integrity of our country is threatened, we will certainly use all the means at our disposal to protect" he said, adding that "this is not a bluff!".

Last week, Putin had the first face-to-face meeting with Chinese President Xi Jinping since the pandemic, in Uzbekistan. China's official news agency reported that Xi told Putin China will work with Russia to deepen practical cooperation in trade, agriculture, connectivity and other areas.

For now, EUR/CHF is still holding above 0.9530 temporary low, and down trend resumption is not confirmed yet. On break of 0.9530, EUR/CHF should target 61.8% projection of 1.0512 to 0.9550 from 0.9864 at 0.9269.

The Australian dollar has edged lower today. Earlier, AUD/USD dropped to 0.6654, its lowest level since May 2020.

Risk sentiment has soured after Russia announced that it is moving quickly to annex territories that it has captured in Ukraine. European leaders quickly denounced the move as a “sham”. An annexation would seriously escalate the conflict in Ukraine, as Russia could argue that any fighting in the annexed territory was an attack on sovereign Russian land. President Putin also ordered the mobilization of 300,000 reservists, an indication of how badly the campaign is going for Moscow.

Fed poised to deliver 75bp increase

All eyes are on the Federal Reserve which wraps up its policy meeting later today. The Fed is expected to hike by 0.75%, which would bring the benchmark rate to 3.25%. This move would be significant as rates would move above the neutral rate level of 2.5%, into restrictive territory. There is an outside chance that the Fed will raise rates by a full point, which would unnerve the markets and likely send the US dollar sharply higher.

Aside from the rate hike, investors will be keenly monitoring the Fed’s latest quarterly forecasts for the economy. This will include projections for unemployment and interest rate levels. The Fed is expected to remain hawkish and argue that the price of higher unemployment and a further rise in rates is the painful but necessary price to rein in inflation.

RBA says rates to increase

The RBA minutes of the September meeting didn’t contain any surprises. The minutes reiterated the message that further rate hikes are coming, but the size of the hikes will be data-dependent. 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, RBA members may again be split over how much to tighten. This should make for an interesting meeting that could trigger volatility from the Australian dollar.

AUD/USD Technical

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

XAGUSD seems to be forming a correction wave b of the cycle degree, which is part of the global zigzag.

It is assumed that the correction b is a primary triple zigzag Ⓦ-Ⓧ-Ⓨ-Ⓧ-Ⓩ. The first four parts of it have already been fully completed, now we see the construction of the last wave Ⓩ.

Most likely, the wave Ⓩ will be an intermediate triple zigzag (W)-(X)-(Y)-(X)-(Z). In this pattern, we now see growth in the intermediate intervening wave (X). We can assume that the wave (X) will end in the form of a minor double zigzag W-X-Y to 20.054. At that level, it will be at 50% along the Fibonacci lines of sub-wave (Y).

After reaching this level, we could expect a fall in the intermediate wave (Z) to 15.055. At the specified level, sub-waves (Z) and (Y) will be equal.

However, the bearish primary wave Ⓩ could have already completely ended in the form of a double zigzag (W)-(X)-(Y), and with it the entire correction b.

Thus, in the last section of the chart, we can notice the initial part of the bullish wave c of the cycle degree. It is assumed that it will take the form of an impulse ①-②-③-④-⑤, as shown in the chart.

Most likely, the first half of the actionary impulse wave will end near the maximum of 26.978, which is marked by the primary intervening wave Ⓧ, it is not visible on this marking.

The Euro extends fresh bearish acceleration into second straight day, after disappointing EU data on Tuesday soured the mood, with announcement from Russian President Putin about the partial mobilization, further worsening the sentiment.

The latest action also added to concerns about the economic outlook for the bloc, as significantly reduced gas supplies to the EU from Russia, might be stopped completely if the situation deteriorates that would lead to a catastrophic scenario for the European economies.

Germany, as the largest EU economy is the most exposed and top officials already warned that industry will be hit badly and some parts likely to be shut down due to the cut of gas supplies.

The news from Russia come just hours before the key event – US Federal Reserve rate decision , with wide expectations that the central bank will raise interest rate by 75 basis points for a third straight time, in their continuous efforts to bring soaring inflation under control.

With the size of rate hike being known (although some economists do not rule out even more aggressive action in raising rate by 1%) markets turn focus towards signals of Fed’s steps in the near future, looking for more clues about the pace and the length of policy tightening process.

With the latest inflation data showing that consumer prices rose above expectations in August, the US policymakers are likely to keep an aggressive stance for some time that will keep the dollar inflated, along with safe-haven flows and weigh on Euro.

Today’s fresh weakness signaled an end of limited correction in past five days and also generated negative signal on break of pivotal Fibo support at 0.9942 (76.4% of 0.9864/1.0197 upleg), with close below this level to confirm bearish stance for retest of 20-year low at 0.9864 (Sep 6), violation of which would open way for a deeper fall.

Res: 0.9975; 1.0000; 1.0031; 1.0050.
Sup: 0.9884; 0.9864; 0.9785; 0.9736.

Daily Pivots: (S1) 0.9584; (P) 0.9633; (R1) 0.9663; More....

EUR/CHF drops notably today but stays above 0.9530 support. Intraday bias remains neutral first. Also, outlook remains bearish with 0.9864 resistance intact. On the downside, break of 0.9530 will extend larger down trend to 61.8% projection of 1.0512 to 0.9550 from 0.9864 at 0.9269.

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 0.9864 resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish in case of strong rebound.

Daily Pivots: (S1) 0.8747; (P) 0.8768; (R1) 0.8788; More...

Intraday bias in EUR/GBP remains neutral for consolidation below 0.8786. Some consolidations could be seen but downside should be contained by 0.8624 support to bring another rally. On the upside, break of 0.8786 will resume larger rise from 0.8201 to 100% projection of 0.8201 to 0.8720 from 0.8338 at 0.8857.

In the bigger picture, current development suggests that the down trend from 0.9499 has (2020 high) has completed at 0.8201. Rise from there is developing into a medium term up trend. Further rally would be seen to 61.8% retracement of 0.9499 to 0.8201 at 0.9003 next. This will now remain the favored case as long as 55 day EMA (now at 0.8545) holds.