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The US dollar consolidates ahead of the FOMC. A tentative break above 1.0190 prompted sellers to cover their bets, easing the downward pressure. The bulls will need to lift offers in this key supply zone before they could hope for a sustained recovery. In the meantime, the price action is consolidating above 0.9930. The narrowing range shows indecision before a catalyst leads to a breakout which would decide whether the euro stays north or south of parity. A fall below 0.9930 may resume the downtrend below 0.9870.

All eyes are on the Fed’s incoming policy signals due later today, with US interest rates set to be raised to their highest levels since 2008.

With a 75bp hike already fully priced in, a dovish, smaller 50bp hike is likely to translate into strong dollar selling while offering some immediate relief for risk assets.

On the flip side, a gargantuan 100bp hike may inject fresh vigour into dollar bulls, while also dragging equities and gold prices even lower.

Market participants will also be looking beyond the size of today’s hike, ready to parse through the latest rates projections.

The Fed’s previous dot plot in June had earmarked a peak of 3.75% for the ongoing rate-hike cycle. Since then, after further evidence of stubbornly high inflation and sustained resilience in the US labour market, money markets are now expecting rates to peak around 4.5% in March.

Should the Fed steer markets into expecting larger salvos of incoming hikes, with rates perhaps moving beyond the 4.5% forecasted peak and staying elevated for longer, then we are likely to see another risk-off wave across global financial markets.

Market movers today

The big focus of the day is the FOMC meeting tonight, where we expect a 75bp hike. Financial markets agree with this view with about 78bp priced in as of yesterday. For more details see our Fed preview Research US - Fed preview: Fast pace hiking cycle continues, 16 September.

The strategic oil reserve release in the US may also attract some attention as the Biden administration has been selling a lot of oil reserves to keep the oil price in check.

Overnight, Bank of Japan announces its policy decisions. We expect the central bank to stick to its yield curve control, highlighting that underlying inflation pressures are still relatively muted, despite the latest uptick in inflation.

The 60 second overview

Riksbank: The Riksbank increased the repo rate by 100bp to 1.75% while QE reinvestment levels were announced to be unchanged for the remainder of the year, in contrast to our expectation of a 75bp hike and a stop of QE reinvestments. The new rate path signals a slowdown in hiking pace for the November meeting (c. 45bp) and the rate path peaks around 2.5% in Q2 2023. Market is unlikely to buy into that story (FRA curve peaks around 3.6%) and we for now stick to our forecast of 75bp in November. As we said earlier, a February 2023 hike cannot be ruled out but it is not our base case for the moment.

Fed: While longer UST yields continued to move higher yesterday, the market seems well priced for a 75bp hike by the Fed this evening. Despite the high August CPI print, real yields have already risen clearly over the past weeks following Powell's hawkish Jackson Hole speech, and last Friday the easing in University of Michigan's consumers' longer-term inflation expectations further decreased the likelihood of a 100bp move. Despite this, we think Fed cannot yet afford to signal a 'pivot', as the economy is still performing relatively strongly, and the tight labour markets continue to support broad-based price pressures. Instead of a larger 100bp hike, we see risks tilted towards Fed continuing the streak of 75bp hikes also in the coming meetings.

War in Ukraine: The Russian-installed administrations in four Eastern Ukrainian areas announced plans to hold referendums on joining Russia over the next week. The announcements come after several weeks of Ukraine making progress towards recapturing areas in the east. Ukrainian foreign minister Kuleba commented that the plans have little effect on Ukraine's efforts, saying that "Ukraine has every right to liberate its territories and will keep liberating them whatever Russia has to say". Yesterday, the Russian Duma also passed laws increasing penalties for desertion in case of a general mobilisation, and the referendums could be used to justify an all-out war towards Ukraine, compared to what Russia continues to call a 'special military operation'. Russia would likely face several practical challenges with a mass mobilisation, given that implementing martial law would likely be a highly unpopular move among the general public. In any case, it is clear that it would mark a significant escalation in the war in Ukraine. Read our latest take from Research Russia-Ukraine: The underdog has the upper hand now - what's next? 12 September.

FI: The main event today is the Federal Reserve meeting tonight and whether they will tighten by 100bp rather than 75bp. Currently, the consensus forecast is 75bp, but the risk is clearly a 100bp rate hike given the solid US inflation data and despite the risk of recession. However, the continued front-loading of tighter monetary policy is increasingly becoming the consensus among central banks as shown by the 100bp rate hike by the Riksbank yesterday. Hence, we continue to favour 2-5Y flatterners especially for the Euro swap curve as it is still lagging both US and Sweden, where the 2-5Y curves are significantly more "inverse" as the central banks keep frontloading rate hikes.

FX: Another red day in equity space amid higher yields where US10Y breached 3.50% by a margin pulled EUR/USD below parity, pushed USD/JPY from low to high 143 while NOK and SEK were under pressure through the European session and most of the US session. EUR/SEK dropped instantaneously after the Riksbank but soon reversed while, for instance, further tightening is perceived to have adverse effects on real assets and the economy.

Credit: Credit markets were increasingly negative yesterday with new iTraxx series active, Main going 8.1bp wider to 120.4bp. In addition, Xover was 44bp wider ending the session at 596.8bp.

Risk appetite is poor into today’s Federal Reserve (Fed) decision, and after Riksbank shocked the market with a 100bp hike yesterday. That was the most aggressive rate move in Sweden in three decades. The Swedish policymakers said that ‘inflation is too high’, where it’s going is difficult to assess, and further steps will be taken to bring it back to the 2% target level. The announcement couldn’t get the SEK appreciate against the US dollar; it rather got many investors more uncomfortable, and worried that the Fed would do the same today: deliver a 100bp hike.

But it may not

Activity on Fed funds futures still assesses less than 20% probability for a 100bp hike from the Fed today. And more importantly, the FOMC doesn’t have a modern history of making abrupt moves, except for dovish moves which have a sudden positive impact on the markets, like the ones we saw during the pandemic. The 'whatever it takes' is clearly easier when pushing money in the system.

So, the expectation is that the Fed will deliver a 75bp hike today. We could see a relief rally in equity and bond markets, if, of course, the dot plot doesn’t show projections going above market expectations.

Tense, tense

We certainly have a couple of tense hours before the Fed decision falls. The S&P500 fell another 1.13% yesterday, to around 3855 mark. Nasdaq lost less than a percent, as the US 2-year yield remained flat a touch below 4%.

One good news in all this is that inflation in Canada eased more than expected last month, both the headline and the core inflation softened. But the data obviously revived the BoC doves and sent the Loonie lower against a broadly stronger US dollar. The USDCAD spiked to 1.3375 as a result. And cheaper oil didn’t help.

Crude oil fell below $85 per barrel, as the US announced it would sell 10 million barrels more from the Strategic Reserves for delivery in November to help keeping a negative pressure on oil prices, after the 180 million barrel release comes to an end in October AND before midterm elections – as the falling gasoline prices in the US have been so benefic to Joe Biden’s popularity in the recent polls.

Else, the EURUSD consolidates below parity, as Cable slipped below 1.14 mark. Christine Lagarde said that the European Central Bank (ECB) may need to ‘raise interest rates to a level that restricts economic growth in order to cool demand and combat unacceptably high inflation’, but in vain. There is no seat left for the ECB hawks, before the Fed hawks decide to make some space.

Across the Channel, the Bank of England (BoE) is expected to raise its policy rate by 50bp tomorrow, as the energy package is expected to have a cooling effect on inflation, which means that the BoE could afford to do less on the rate front.

Good thing about dovish expectations is that there is space for some hawkishness, but would the BoE dare going against Liz Truss and declare war to her?

Gold remains under a decent selling pressure due to strong dollar and rising US yields, that increase the opportunity cost of holding the non-interest-bearing gold. A post-FOMC rally should also benefit to gold, yet be reminded that if risk appetite improves, there is a chance that investors rush toward higher risk, but better yielding assets, such as equities.

Daily Pivots: (S1) 0.9933; (P) 0.9992; (R1) 1.0029; More...

EUR/USD falls notably today but stays above 0.9863 support. Intraday bias stays neutral first not outlook remains bearish too. On the downside, firm break of 0.9863 support will resume larger down trend. Next target is 100% projection of 1.0368 to 0.9863 from 1.0197 at 0.9296. On the upside, break of 1.0197 resistance will now raise the chance of larger trend reversal, and target 1.0368 resistance.

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) 1.1338; (P) 1.1400; (R1) 1.1442; More...

GBP/USD's down trend resumed after brief consolidations. Intraday bias is back on the downside. Current fall should now target 61.8% projection of 1.3748 to 1.1759 from 1.2292 at 1.1063 next. On the upside, above 1.1459 minor resistance will turn intraday bias neutral first. But outlook will stay bearish as long as 1.1737 resistance holds, in case of recovery.

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) 0.9616; (P) 0.9649; (R1) 0.9675; More

Despite some loss of upside momentum, further rise is still in favor in USD/CHF with 0.9554 minor support intact. Rebound 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.

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

USD/JPY is still bounded in sideway consolidation from 144.98 and intraday bias stays neutral. 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) 0.6662; (P) 0.6705; (R1) 0.6732; More...

AUD/USD's break of 0.6680 support should now confirm down trend resumption. Intraday bias is back on the downside this week. Next target is 0.6461 long term fibonacci level. On the upside, above 0.6746 minor resistance will turn intraday bias neutral and bring consolidations. But outlook will now remain bearish as long as 0.6915 resistance holds, in case of recovery.

In the bigger picture, price actions from 0.8006 (2021 high) is seen more as a corrective pattern to rise from 0.5506 (2020 low). Or it could also be a bearish impulsive move. In either case, outlook will remain bearish as long as 0.7135 resistance holds. Next target is 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

USD/JPY:

On the H4 chart, price is still respecting the ascending momentum. We are still bullish bias- Price is testing above the previous low and if bullish momentum continues, it should bring price to first resistance at 144.918 where the 161.8% extension sits. If it breaks this level, it should bring price to 147.269 where the previous swing high sits. Alternatively it could pull back to the first support at 141.652 where the 23.6% retracement and 100% projection sits then to the second support at 139.387 where the 38.2% retracement, 61.8% projection and overlapping support sits.

Areas of consideration:

• H4 time frame, 1st resistance at 144.918
• H4 time frame, 1st support at 141.652

DXY:

On the H4, price is still respecting the bullish channel and has failed to break the first support- we are bullish bias. Price has bounced off the first support at 109.323 where the 23.6% retracement sits. If bullish momentum continues, it should bring price toward the first resistance at 110.698 levels where the 127.2% extension and previous swing high sits. Alternatively, it could break the first support to bring price to the second support at 108.007 where the 61.8% projection, 50% retracement and previous swing low sits

Areas of consideration:

• H4 time frame, 1st resistance at 110.698
• H4 time frame, 1st support at 109.323

EUR/USD:

On the H4, price is moving within the channel, we are currently bullish bias as price fails to break the first support. Price is currently testing the first support at 0.9954 where the 100% projection and previous swing low sits. If price breaks this level, it will bring prices to the second support at 0.9878 where the 61.8% projection sits. Alternatively if bullish momentum continues, it should bring price to first resistance at 1.0112 level where the 50% retracement and previous swing low sits then to the second resistance at 1.0274 where the 78.6% retracement and previous swing high sits.

Areas of consideration :

• H4 1st resistance at 1.0112
• H4 1st support at 0.9954

GBP/USD:

On the H4, prices are still moving in a bearish momentum hence we are bearish biassed. Prices have pulled back slightly but if bearish momentum continues, it should test the first support again at 1.1350 levels where the previous swing low sits then the second support at 1.1197 where the 161.8% extension and 61.8% projection sits. Alternatively, price could pull back to test the first resistance at 1.1441 where the 23.6% retracement and overlapping support sits then the second resistance at 1.1605 where the 61.8% retracement and previous swing high sits

Areas of consideration:

• H4 1st resistance at 1.1441
• H4 1st support at 1.1350

USD/CHF:

On the H4, prices have broken the ascending channel and we are currently bearish bias. Price is currently ranging and testing around the first support at 0.9623 where the overlapping resistance sits. If price continues with the bearish momentum, it should bring price to the second support at 0.9473 where the 78.6% projection and 78.6% retracement sits. Alternatively, price could pull back to test the first resistance at 0.9688 where the 50% retracement sits then the second support at 0.9856 where the swing high sits

Areas of consideration

• H4 1st support at 0.9623
• H4 1st resistance at 0.9688

XAU/USD (GOLD):

On the H4, with the price moving within the descending channel and below ichimoku cloud, we have a bearish bias that the price may drop to the 1st support at 1659.388, which is in line with the 161.8% fibonacci extension and 100% fibonacci projection. If the 1st support is broken, we can expect the price to drop to the 2nd support at 1637.989, which is in line with the 78.6% fibonacci projection, 127.2% fibonacci extension and 200% fibonacci extension. Alternatively, the price may test the 1st resistance at 1681.778, which is in line with the overlap resistance and 38.2% fibonacci retracement.

Areas of consideration:

• H4 time frame, 1st support at 1659.388
• H4 time frame, 2nd support at 1637.989

AUD/USD:

On the H4, with the price moving within the descending trendline and below ichimoku cloud, we have a bearish bias that the price may drop to the 1st support at 0.66717, which is in line with the swing low, 78.6% fibonacci projections. If the 1st support is broken, the 2nd support could be at 0.66415, where the 127.2% fibonacci extension. Alternatively, the price may rise to the 1st resistance at 0.67260, where the 23.6% fibonacci retracement is. If the 1st resistance is broken, the 2nd resistance could be at 0.67796, where the 50% fibonacci retracement and 23.6% fibonacci retracement are.

Areas of consideration

• H4, 1st support at 0.66717
• H4, 2nd support be at 0.66415

NZD/USD:

On the H4, with the price moving within the descending channel, below ichimoku cloud, RSI is showing a descending trendline. If the price can break the previous key support level at 0.58929, which is in line with the 100% fibonacci projection and 161.8% fibonacci retracement successfully, we can expect the price drop to the 1st support at 0.58348, which is in line with the 127.2% fibonacci extension and 161.8% fibonacci retracement. Alternatively, the price may pull back to the 1st resistance at 0.59909, where the 23.6% fibonacci retracement and overlap resistance are.

Areas of consideration:

• H4 time frame, current price
• H4 time frame, 1st support at 0.58348

USD/CAD:

On the H4, with the price breaking the ascending channel and testing the previous key resistance at 1.33640, which is in line with the 127.2% fibonacci extension and 161.8% fibonacci projection. If the price can break this level successfully, we can expect the price to rise to the 1st resistance at 1.34343, where the 100% fibonacci projection, 127.2% fibonacci extension and 141.4% fibonacci extension are. Alternatively, as the price may pull back from the key resistance level and drop to the 1st support at 1.32077, which is in line with the 38.2% fibonacci retracement.

Areas of consideration:

• H4 time frame, current price
• H4 time frame, 1st resistance at 1.34343

OIL:

On the H4, with the price moving within the descending trendline and below ichimoku cloud, we have a bearish bias that the price may drop to the 1st support at 88.316, where the 78.6% fibonacci projection and swing low are. Alternatively, the price may pull back and rise to test the 1st resistance at 92.832, which is in line with the 50% fibonacci retracement and overlap resistance.

Areas of consideration:

• H4 time frame, current price
• H4 time frame, 1st support at 88.316

Dow Jones Industrial Average:

On the H4, price is reflected off nicely at the first resistance at 32500.85 where the 50% Fibonacci retracement is and broke right through the first support at 31029.34 where the 78.6% Fibonacci retracement is. Price might continue heading downwards towards the second support at 29833.47 where the previous swing low is.

Areas of consideration:

• H4 time frame, 1st support at 31029.34
• H4 time frame, 2nd support at 29833.47

DAX:

On the H4, price has reflected of the first resistance at 13505 where the 61.8% retracement is and got a big reaction breaking through the first support at 13084. Price might continue going down towards the second support at 12422 where the swing low is.

Areas of consideration:

• H4 time frame, 1st support at 13084
• H4 time frame, 2nd support at 12422

ETHUSD:

On the H4, price has pushed through the 1st Resistance at 1420.81 where the previous swing low sat. Price has also pushed through the 1st support at 1356.35 where the 127.2% Fibonacci extension lies and reflected off the second support at 1281.37 where the 138.2% Fibonacci Extension lies. Price could possible head back down below the second support and head lower.

Areas of consideration:

• H4 time frame, 1st resistance of 1420.81
• H4 time frame, 1st support at 1356.35

BTCUSD:

On the H4, price has broke through the second support 18540.00 where the previous swing low sits and reflected back up above the first support at 19557.00 where the 78.6% Fibonacci retracement sits. Price could possibly head back back to the second support area where the previous swing low is.

Areas of consideration:

• H4 time frame, 1st resistance of 22600.00
• H4 time frame, 1st support at 19557.00

S&P 500:

On the H4, the price reversed from the 4100 price area forming a bearish channel, with the price falling towards the 1st support are of 3900. With our bearish bias still valid, as price trades back towards the 61.8% Fibonacci retracement, look for price to test the 1st support area. Price has broken below the 1st support level, the price could fall towards the 78.6% Fibonacci retracement level of 3784.19. As the price falls towards the 2nd support, it could find some pullback towards the 78.6% Fibonacci retracement pullback support area.

Areas of consideration:

• H4 time frame, 1st support at 3900
• H4 time frame, 2nd support at 3636.87