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Daily Pivots: (S1) 0.9764; (P) 0.9781; (R1) 0.9801; More....

EUR/CHF is staying in consolidation above 0.9697 temporary low. Intraday bias stays neutral first. While further fall cannot be ruled out, some support might be seen from 0.9650 long term projection level to bring rebound. Break of 0.9948 resistance will indicate short term bottoming. Nevertheless, firm break of 0.9650 will target 100% projection of 1.1149 to 0.9970 from 1.0513 at 0.9334.

In the bigger picture, long term down trend from 1.2004 (2018 high) is expected to target 100% projection of 1.2004 to 1.0505 to 1.1149 at 0.9650. Firm break there will target 138.2% projection at 0.9033. On the upside, break of 1.0513 resistance is needed to indicate medium term bottoming. Otherwise, outlook will stay bearish in case of strong rebound.

BoE Governor Andrew Bailey said at the Today Programme that the real risks is import inflation from energy and food becomes "embedded". As firms are not struggling to raise prices, inflation would be comes worse when its embedded.

"The first thing they (businesses) want to talk to me about is that businesses have trouble hiring people, and that is still going on. They're also saying to us actually they're not finding it difficult to raise prices at the moment. That can't go on," he said.

Bailey also said the interest rates are not going to go back to pre-2008 financial crisis levels. Additionally, "we don't think that the rolling back of QE and the sale of assets is going to have a big impact on market interest rates".

USDCAD shifted to the sidelines immediately after charting a new lower low at 1.2766 in the short-term picture, unable to reach the constraining 20-day simple moving average (SMA).

The technical indicators state a bearish-to-neutral bias as the RSI keeps flattening marginally below its 50 neutral mark and the MACD is extending its short horizontal move slightly below zero around its red signal line.

Hence, traders may keep directing the market sideways unless they see a break above the 20-day SMA at 1.2900, and more importantly, a close above the 1.2963 restrictive zone. If that turns out to be the case, the bullish correction could ramp up to 1.3026, where the flattening 200-weekly SMA has been ceasing upside pressures over the past two months. Higher, a rally above the 1.3077 – 1.3120 resistance region could clear the way towards the 1.3222 top.

Should sellers retake control, initial limitations could occur around the 1.2800 level. A successful step lower may then halt around the 200-day SMA at 1.2740, a break of which could re-test the restrictions within the 1.2960 – 1.2940 zone before stretching towards the 2021 support trendline seen at 1.2612.

Summarizing, USDCAD is in a wait-and-see mode ahead of the US and Canadian jobs data due at 12:30 GMT. A close above 1.2900 or below 1.2800 could set the next tone in the market.

Daily Pivots: (S1) 1.2829; (P) 1.2853; (R1) 1.2887; More...

Consolidative trading continues in USD/CAD and intraday bias remains neutral. Further decline is mildly in favor with 1.2945 minor resistance intact. Below 1.2766 will resume the fall from 1.3222 to 1.2818 support next. On the upside, above 1.2945 minor resistance will revive near term bullishness, and turn bias back to the upside for retesting 1.3222 instead.

In the bigger picture, down trend from 1.4667 (2020 high) should have completed at 1.2005, after defending 1.2061 long term cluster support. Rise from there should target 61.8% retracement of 1.4667 to 1.2005 (2021 low) at 1.3650. This will remain the favored case now as long as 1.2516 support holds.

Daily Pivots: (S1) 0.6940; (P) 0.6965; (R1) 0.6995; More...

Intraday bias in AUD/USD remains neutral and outlook is unchanged. On the upside, break of 0.7045 will resume the rebound from 0.6680 to 0.7282 key resistance next. On the downside, however, break of 0.6858 minor support will argue that the rebound is over. Intraday bias will then be back on the downside for retesting 0.6680 low.

In the bigger picture, price actions from 0.8006 (2021 high) could still be a corrective pattern to rise from 0.5506 (2020 low). But current downside acceleration, as seen in weekly MACD), is raising the chance that it's a bearish impulsive move. In either case, outlook will remain bearish as long as 0.7282 resistance holds. Next target is 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

Daily Pivots: (S1) 132.31; (P) 133.37; (R1) 133.97; More...

Intraday bias in USD/JPY stays neutral at this point and outlook is unchanged. Correction from 139.37 could still extend through 130.38. But downside should be contained above 126.35 support, at least on first attempt, to bring rebound. On the upside, firm break of 134.58 will turn bias to the upside for stronger rally to retest 139.37 high.

In the bigger picture, a medium term top should be in place at 139.37, on bearish divergence condition in daily MACD. Fall from there could be correcting whole 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 121.84) holds. Long term up trend is expected to resume through 139.37 at a later stage, after the correction finishes.

Daily Pivots: (S1) 0.9522; (P) 0.9572; (R1) 0.9601; More...

USD/CHF retreated after hitting 0.9650 and intraday bias is turned neutral. On the upside, break of 0.9650, and sustained trading above 55 day EMA (now at 0.9650) will raise the chance that corrective pattern from 1.0063 has completed. Further rally should then be seen to 0.9884 resistance next. However, decisive break of 0.9471 support will carry larger bearish implication.

In the bigger picture, medium term up trend from 0.8756 (2021 low) is still in progress. On resumption, next target is 1.0342 (2016 high). Sustained break there will resume long term up trend from 0.7065 (2011 low). This will remain the favored case as long as 0.9471 resistance turned support holds. However, firm break of 0.9471 will raise the chance that such up trend is over. Sustained trading below 55 week EMA (now at 0.9424) could bring deeper medium term fall back to 0.9149 support and below.

Daily Pivots: (S1) 1.2080; (P) 1.2146; (R1) 1.2225; More...

Intraday bias in GBP/USD remains neutral for the moment and further rise is in favor with 1.2062 minor support intact. Above 1.2292 will target 1.2405 resistance first. Firm break there will target 1.2666 key resistance next. On the downside, however, break of 1.2062 minor support will argue that the rebound from 1.1759 is over, and turn bias back to the downside for retesting 1.1759 low instead.

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 1.2666 resistance holds. Next target is 1.1409 low. However, firm break of 1.2666 will bring stronger rise back to 55 week EMA (now at 1.2957).

The Euro started a fresh upward move above the 1.0165 zone against the US Dollar. The EUR/USD pair climbed above the 1.0220 resistance to move into a short-term bullish zone.

The pair climbed above the 1.0240 level and settled above the 50 hourly simple moving average. A high is formed near 1.0253 and the pair is now consolidating. An immediate resistance on the upside is near 1.0250 on FXOpen.

The first major resistance is near the 1.0265 level. A break above the 1.0250 and 1.0265 resistance levels could start a decent upward move. In the stated case, it could even surpass 1.0300.

If not, the pair might drop below 1.0220. The next key support is near 1.0200, below the pair could decline towards the 1.0165 level in the near term. Any more losses might send the pair towards the 1.0120 level.

Key insights from the week that was.

50bp rate hikes were seen in Australia and the UK this week, with both central banks also signalling that additional tightening is likely to be required in the months ahead. However, the economic situation faced by these two nations differs greatly, as do the risks.

In explaining their decision to raise the cash rate by another 50bps at the August meeting, the RBA highlighted that inflation had been stronger than anticipated (the 2022 forecast for headline inflation revised up from 5.9%yr in May to 7.75%yr in August’s projections) and could prove more persistent (annual inflation is now seen at 4.0%yr in 2023, and to only be back at the top of the 2-3%yr target range by end-2024). As discussed by Chief Economist Bill Evans after Tuesday’s decision, the RBA continue to view the activity and labour market impact of tighter policy and the loss of real income as manageable. In short, growth in 2022 is now seen at 3.25% instead of 4.25% (inclusive of the 0.5% ‘miss’ for Q1 GDP which was released after the RBA’s May forecasts) and 1.75% in 2023 and 2024, just a touch lower than the prior 2.0%yr forecast. Moreover, the unemployment rate is only expected to rise to 4.0% through 2023 and 2024, effectively keeping the labour force fully employed over the period.

To our mind, the language and forecasts included in the August decision statement support our call for another 50bp hike in September and 25bp increases in October through February, taking the cash rate to a peak of 3.35% at February 2023. We expect growth and the labour market will prove stronger in 2022 than the RBA currently forecast, but anticipate inflation to be broadly in line with their expectation. Looking further ahead however, we see a marked deterioration in growth in 2023 (to 1.0%yr) and a much larger rise in the unemployment rate over 2023 and 2024 to around 5.0%. As a result, we believe 100bps of easing will be required through 2024 to bring GDP growth back to 2.0%yr and to stabilise the labour market. Note, a full view of the RBA’s baseline forecasts and assessment of risks is available in the just released August Statement on Monetary Policy. A detailed exploration of our own views on Australia and the world will also be released today in the August edition of Westpac’s Market Outlook on Westpac IQ.

Data released for Australia this week was mixed but consistent with our overall view of the economy. Retail sales volumes continued to show strength in Q2 despite large price gains, activity up 1.4% on Q1 which itself saw a 1.2% gain. The trade surplus also beat expectations in June, widening to $17.7bn as exports jumped 5.1% on gains for commodity prices and volumes as well as improved tourism activity. Against these positives, the correction in house prices was shown to have deepened and broadened across the country in July, capital city prices falling another 1.4%; and housing finance approvals weakened sharply in June, more than reversing the surprise gain of May. While dwelling approvals held up in June, it is likely just a matter of time before weakening demand for housing hits the construction pipeline.

Turning then to New Zealand. The Q2 labour market data showed unemployment and underutilisation at-or-near historic lows despite a second consecutive quarter of no employment growth. More significant for inflation and the stance of policy however was a material upside surprise for private sector wage growth, up 1.3% in the quarter and 3.4%yr – the latter the fastest pace since early 2009. The breadth of wage gains was also notable in Q2. On the back of these results, our New Zealand team has revised up its peak for the cash rate to 4.0% by the end of 2022.

For the US this week, the data has been mixed. The ISM services survey provided a positive surprise on activity in the sector, particularly relative to the S&P Global services PMI which reported a contractionary reading. Also taken as a positive for the outlook was another material step down in the price sub-index of both the manufacturing and services ISMs, these results implying a working though of global supply disruptions and dissipating inflation pressures.

Also acting against inflation in the US is the rebalancing of their labour market. At the moment, this is occurring at the margin through a moderate deceleration in employment growth. However, given the recent weakness in activity as well as the mounting impact of historic inflation on real household income and tight financial conditions, US labour market slack is likely to become significant over the coming 12 to 18 months. As it impacts activity and inflation, we expect the market to price in a cutting cycle which we believe will commence at the end of 2023 and continue through 2024.

Over in the UK, the Bank of England followed the lead of the FOMC and other major central banks by deciding to raise the bank rate by an outsized 50bps from 1.25% to 1.75%, their first move of such scale in this tightening cycle. Additionally, the Committee intends to begin quantitative tightening in September via GBP40bn of asset sales and by letting GBP40bn of maturing securities run off the portfolio over 12 months. Neither outcome surprised the market, and so the focus of participants was on the Committee’s updated projections. These paint a bleak picture for the UK’s economic outlook.

Inflation is now expected to peak at 13.1%yr in Q4 2022 (prev. 10.25%yr) and to persist at a more elevated level throughout 2023 (9.5%yr at Q3; prev. 5.9%yr) before declining towards the 2.0%yr target by Q3 2024. This higher profile for inflation and a weakening labour market has led to a materially lower outlook for activity growth as higher prices erode household real post-tax income by 8% over 2022 and 2023. Overall, the Committee now anticipate the UK to enter recession in Q4 2022, with output to decline in each quarter thereafter until the end of 2023, marking annual GDP growth at -1.5% in 2023 and -0.25% in 2024.

The Bank of England now find themselves in a tight bind between inflation and growth risks, but given the severity of the inflation challenge and concerns over inflation expectations, it is clear that they are willing to accept weakness in activity. We now expect the Bank of England to raise the bank rate by 50bp in September before slowing to a 25bp pace in November and December to reach a peak of 2.75% by year end. Given this aggressive contractionary stance, we believe 175bp of rate cuts will prove necessary from Q3 2023 to Q4 2024 to correct the growth trend as inflation returns to target. Risks remain to the upside for inflation and may require holding the peak bank rate of 2.75% through to end-2023 or into early-2024 at the expense of further weakness in activity.