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Daily Pivots: (S1) 1.1710; (P) 1.1730; (R1) 1.1744; More...

While EUR/USD is losing some downside momentum, further fall is still expected with 1.1788 minor resistance intact. Fall form 1.1908 would target 1.1663 support. Firm break there will resume the fall from 1.2265, and the pattern from 1.2348, to 1.1602 key support next. On the upside, above 1.1788 minor resistance will turn bias back to the upside for 1.1908 again.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally remains in favors long as 1.1602 support holds, to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again. Deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289 and below.

Daily Pivots: (S1) 1.3636; (P) 1.3665; (R1) 1.3688; More...

GBP/USD is losing some downside momentum, but with 1.3714 minor resistance intact, further fall is expected for 1.3570/3601 support zone. . Larger decline from 1.4248 is likely resuming and break of 1.3570 will target 1.3482 key support level. Sustained break there will carry larger bearish implication and target 1.3163 fibonacci level. On the upside, above 1.3714 minor resistance will turn intraday bias back to the upside for 1.3912 resistance instead.

In the bigger picture, as long as 1.3482 resistance turned support holds, we'd still treat price actions from 1.4248 as a corrective move. That is, up trend from 1.1409 (2020 low) is in favor to resume. Decisive break of 1.4376 key resistance (2018 high) would indeed carry long term bullish implications. However, sustained break of 1.3482 will at least bring deeper fall to 38.2% retracement of 1.1409 to 1.4248 at 1.3164, or even further to 61.8% retracement at 1.2493.

Daily Pivots: (S1) 0.9213; (P) 0.9248; (R1) 0.9272; More....

Intraday bias in USD/CHF stays neutral first as consolidation from 0.9331 is extending. Further rise will remain in favor as long as 0.9162 support holds. On the upside, break of 0.9331 resistance will resume the rise from 0.8925 to 0.9471 key resistance. Sustained break there will carry larger bullish implications. However, break of 0.9162 will turn bias back to the downside for 0.9017 support instead.

In the bigger picture, the strong rally above 55 week EMA (now at 0.9182) now tilts favor to the case of bullish trend reversal. That is, decline from 1.3042 (2016 high) is probably completed at 0.8756 already. Sustained break of 0.9471 resistance should confirm this case and pave the way to retest 1.0342 ahead. However, rejection by 0.9471 will mix up the outlook again and retain some medium term bearishness.

Markets

Markets yesterday took a pause after Monday’s risk-off. European equities rebounded 1%+, but major US indices closed little changed. Too little to conclude that a sustained buy-on-dips is still in vogue. Core yields (less than 1 bp higher for German yields, up to 1.2 bps in the US) also suggest ongoing investors caution after Monday’s substantial decline. The dollar showed no clear directional trend either with DXY closing marginally softer at 93.20. EUR/USD finished the day unchanged at 1.1726.

Asian markets this morning are pondering next steps in the Evergrande sage as Chinese markets reopen. The company reached an agreement on a negotiated coupon payment, suggesting some kind of an orderly process going forward. The PBOC also added ample liquidity. Chinese and Japanese markets show modest losses of <1%. The yuan weakens to USD/CNY 6.47. The BOJ kept its short-term policy rate and the target for the 10-y government yields unchanged at -0.1% and 0% and respectively and continues to buy ETFs. The Bank keeps a guarded assessment on the economy. It still sees the economy "picking up as a trend, although remaining in a severe state due to the impact of the pandemic”. Production and exports are affected by supply chain disruptions. The yen weakened after recent strength, with USD/JPY returning to the 109.50 area.

Data will be overshadowed by ongoing fall-out from Evergrande on global sentiment and even more by markets’ positioning ahead of the Fed. Our preferred scenario is for the Fed to announce the start of tapering for October and providing a clear timeframe on the pace of the reduction. A ‘forward start’ in November to reach a broader consensus is an option. Markets will also keep a close eye at the new dot plot. Powell probably will hold the line that there is no direct link between the end of asset purchases and the start of the rate hike cycle. Still, higher inflation forecast might inspire a majority of individual governors to already signal a first rate hike end 2022 and follow-up increases in 2023 and 2024 (2 or 3?). The start of tapering won’t be a surprise for markets. However, concrete action still might cause a further repositioning at the short and middle segment of the curve (2-y, 5-y sector), driven by higher real yields. Even in a bear flattening move, the 1.37% resistance for the 10-y yield might come under test too. The final ‘go’ for policy normalization might support the dollar at least in the short term. EUR/USD 1.1664 is first key reference on the charts, with 1.1603 (Nov 2020 low) the red line in the sand.

News headlines

The Hungarian central bank (MNB) raised its key interest rates by 15 bps, halving the 30 bps steps at the previous three meetings. The base rate now stands at 1.65% and the MNB intends to stick with the hike cycle until the inflation outlook stabilizes around the central bank target in a sustainable manner and inflation risks become evenly balanced. Inflation will remain above 5% for the remainder of the year, start to fall from the beginning of 2022 and return to the tolerance band in Q2 2022. Inflation will than stabilize around the 3% target in H2 2022. Risks remain to the upside. Hungarian GDP will rise between 6.5% and 7% in 2021 and by 5%-6% next year, but the fourth wave of the pandemic increases downside risks and justifies the slower hiking pace. Weekly bond purchases will decrease from HUF 50bn to HUF 40bn in Q4 with a next evaluation in December. The forint initially lost ground as consensus expected a 25 bps rate hike, but the local currency was comforted later by the MNB’s commitment to rein in inflation. EUR/HUF closed below 353 after testing 355 intraday and ending a 3-day losing streak.

The US House of Representatives passed a bill to extend the US debt limit suspension until December next year and to avert a government shutdown on October 1st. In a party-line vote, 220 Democrats voted in favour and 211 Republicans against. The real battle will be in the US Senate because the legislation needs 60 votes to pass, which seems impossible at this stage in the 50-50 split Senate. Republicans see it as an implicit approval of US President Biden’s spending spree and said that Democrats better use special legislation to bypass the necessary 60 votes in Senate.

On Tuesday, the US Dollar surged by 84 pips or 0.66% against the Canadian Dollar. The currency pair breached the upper line of an ascending channel pattern at 1.2850 during Tuesday's trading session.

As for the near future, the exchange rate could continue to edge higher. A breakout through the upper boundary of the channel pattern could occur within Wednesday's trading session.

However, if the ascending channel pattern holds, sellers could pressure the currency exchange rate lower in the shorter term.

On Tuesday, the British Pound fell by 106 pips or 0.71% against the Japanese Yen. The currency pair breached a one-month low at 149.19 during Tuesday's trading session.

Technical indicators suggest that selling signals on 4H and daily time-frame charts. Most likely, the exchange rate could continue to trend lower during Wednesday's trading session.

However, the lower line of a descending channel pattern could provide support for the GBP/JPY currency exchange rate within this session.

During Tuesday's trading session, the Australian Dollar declined by 57 pips or 0.78% against the US Dollar. The currency pair was pressured lower by the 50– hour simple moving average on Tuesday.

Everything being equal, the AUD/USD exchange rate could continue to edge lower in a descending channel pattern during the following trading session. The potential target for sellers will be near the 0.7180 area.

However, bearish traders could encounter support at 0.7227 within Wednesday's trading session.

During Tuesday's trading session, the common European currency fell by 70 pips or 0.54% against the Japanese Yen. The currency pair tested the 128.00 level on Wednesday.

All things being equal, the EUR/JPY exchange rate could continue to edge lower. A breakout through the lower line of a descending channel pattern could occur within this session.

However, if the channel pattern holds, buyers could pressure the currency exchange rate higher towards the 200– hour SMA at 129.21 during the following trading session.

Technical analysis

The price is above EMA(24) and EMA(120), suggesting a prevailing uptrend

The RSI(14) and the RSI(3) point to a possible upwards movement.

The Ichimoku indicator displays a prevailing uptrend.

Most likely scenario - BUY

Target prices: 1,778 1,783

Alternative scenario - SELL

Target prices: 1,771 1,766

Key levels

Support 1,778 1,783

Resistance 1,771 1,766

The Japanese yen remained in a tight range in early trading as the market reflected on the latest Bank of Japan (BOJ) interest rate decision. The bank decided to leave interest and its asset purchase program unchanged. It also reiterated its inflation target of 2.0%, which is getting relatively difficult to attain. While most developed countries have inflation of more than 2%, Japan’s CPI is still below 1.0%. It maintained its policy ahead of a key election that will see the country have a new leader. Most candidates have said that they would like the BOJ to continue its policies.

The US dollar gained ground in the overnight session as the focus remained on the Federal Reserve meeting. The bank’s FOMC is expected to leave interest rates and the quantitative easing policy unchanged. At the same time, the bank will likely provide guidance about its asset repurchases program and when it will start hiking rates. The decision comes at a time when the US economy is doing relatively well. Data published on Tuesday showed that building permits and housing starts rose in August.

US stocks erased some of the earlier gains as investors remained concerned about the Evergrande situation. The Dow Jones rose by just 30 points, down from the session high of more than 300 points. Investors are concerned about Evergrande, the second-biggest real estate company in China. After decades of expansion, the company’s debt accumulated to more than $300 billion. It has now appointed restructuring experts to map a way forward. In a statement this week, S&P Ratings said that Beijing will likely avoid bailing the company out.

EURUSD

The EURUSD pair resumed its downward trend in the overnight session after it formed a bearish flag pattern yesterday. The pair is trading at 1.1722, which was slightly below Tuesday’s high of 1.1750. On the three-hour chart, the pair has moved below the short and longer-term MAs and formed a bearish flag pattern. Therefore, there is a possibility that the pair will maintain a bearish trend ahead of the FOMC decision.

USDJPY

The USDJPY pair held steady after the latest Bank of Japan interest rate decision. The pair is trading at 109.25, which is lower than this week’s high of 110.10. On the four-hour chart, the pair moved below the key support level at 109.45. It also moved between the lower and the middle line of the Bollinger Bands while the MACD and the Demarker indicator have declined. The pair will likely maintain the bearish trend.

XAUUSD

The XAUUSD pair rose to a high of 1,782 as investors moved to safe havens. This jump was higher than this week’s low of 1,682. On the four-hour chart, the pair is along the upper side of the Bollinger Bands while the Average True Range (ATR) has been in an upward trend. The Relative Strength Index (RSI) has moved from the oversold level. Therefore, the pair will likely keep rising ahead of the FOMC decision.