Dollar Rebounding, But Yen Still the Strongest

Markets are generally in cautious mode today. While Asian markets tumbled, major European indexes are just in slight red. Dollar rebounds notably after US House Speaker Nancy Pelosi finally took the flight from Malaysia to Taiwan. Investors are still awaiting whether China would take any “retaliation”. Meanwhile, Yen remains the strongest one, followed by Dollar and then Canadian. Aussie is the runaway looser, followed by Kiwi and Sterling. Euro is mixed for now, underwhelming Swiss Franc slightly.

Technically, just as EUR/USD is attempting an upside breakout, it’s quickly knocked down. For now, further rise will remain in favor as long as 1.0095 support holds. There is still a second chance for EUR/USD. Nevertheless, USD/CHF is recovering after touching 0.9471 key support holds. Further rise and break of 0.9598 resistance will confirm short term bottoming. If that happens, EUR/USD could be dragged down together.

In Europe, at the time of writing, FTSE is up 004%. DAX is down -0.59%. CAC is down -0.46%. Germany 10-year yield is down -0.065 at 0.712. Earlier in Asia, Nikkei dropped -1.42%. Hong Kong HSI dropped -2.36%. China Shanghai SSE dropped -2.26%. Singapore Strait Times rose 0.01%. Japan 10-year JGB yield dropped -0.0092 to 0.177.

Swiss SECO consumer sentiment dropped to -42, worse than pandemic low

Swiss SECO Consumer Sentiment dropped sharply from -27 to -42 in Q3, worse than expectation of -34. It’s even below the -39 reading after the onset of the pandemic in April 2020. Expected economic development dropped further from -31.4 to -53.5, far below its long-term average at -9. Expected financial situation dropped from -24.9 to -34.8, undershooting previous low of -26 in January 1995.

Also released, SVME PMI dropped slightly from 59.1 to 58.0 in July, above expectation of 57.9.

RBA hikes 50bps, normalization to continue but not on pre-set path

RBA raises the cash rate target by 50bps to 1.85% as widely expected. It also maintains hawkish bias, and noted, “the Board expects to take further steps in the process of normalising monetary conditions over the months ahead”.

Nevertheless, the normalization is “not on a pre-set path”. “The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market,” it added.

RBA forecasts inflation to hit around 7.75% over 2022, then slow to a little above 4% over 2023, and then around 3% in 2024. GDP growth is projected to be at 3.25% over 2022 and 1.75% over the next two years. Unemployment rate is forecast to climb from current 3.5% to around 4% at the end of 2024.

“Behaviour of household spending” continues to be a “key source of uncertainty”. The central bank will “paying close attention to how these various factors balance out as it assesses the appropriate setting of monetary policy.”

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9473; (P) 0.9505; (R1) 0.9528; More…

USD/CHF recovers slightly today after touching 0.9471 resistance turned support. Strong support should be seen around current level to bring a strong rebound. On the upside, above 0.9598 minor resistance will turn bias back to the upside for recovery towards 55 day EMA (now at 0.9651) and above. However, sustained break of 0.9471 will carry larger bearish implication and target 0.9193 support next.

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.

Economic Indicators Update