Euro falls on Russian military mobilization, dollar and Swiss franc gain

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The euro is widely sold, as well as the pound sterling, after Russia announced a partial military mobilization. Reactions on European stock markets are, however, mixed. For now, the Swiss Franc is the strongest for today, followed by the Dollar, Canadian and Yen. Aussie and Kiwi are mixed. Focuses will now turn to the FOMC rate decision first, followed by BoJ, SNB and BoE tomorrow.

Technically, the EURUSD looks vulnerable to further sell-offs. The firm break of 0.9863 will resume a larger downtrend towards a 100% projection from 1.0368 to 0.9863, 1.0197 to 0.9296 next. Such a development, if it occurs, could also help lift EUR/CHF to the temporary low of 0.9530.

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

EUR/CHF Holds Above 0.9530 Temporary Low After Selloff

The Euro is falling significantly today, especially against the Swiss Franc. The sale came after Russian President Vladimir Putin announced a partial military mobilization for the invasion of Ukraine. It is the first mobilization of its kind since the Second World War, and it would call up 300,000 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 it”, he said, adding that “this is not a bluff!”.

For now, EUR/CHF is still holding above the temporary low of 0.9530, and the resumption of the downtrend is yet to be confirmed. On the break of 0.9530, EUR/CHF should aim for a 61.8% projection from 1.0512 to 0.9550 from 0.9864 to 0.9269.

Fed to hike 75 basis points as 10-year yield resumes uptrend

The FOMC rate decision is the main focus of the day and another giant rate hike is expected. Based on current market prices, there is an 82% chance of a 75 basis point hike at 3.00-3.25% and only an 18% chance of a 100 basis point hike at 3.25-3.50%. Thus, the Fed has little chance of upsetting the markets.

The general rhetoric should remain unchanged, namely that the tightening should continue while the Fed is committed to bringing inflation back to its target. The biggest questions are about the new economic projections and the dot chart. Some hawkish surprise could be seen there, indicating a higher terminal rate for the current cycle and a longer period to stay there.

Here are some previews:

RBA Bullock: interest rate not yet restrictive

RBA Deputy Governor Michele Bullock said the 2.35% interest rate was not yet restrictive. But the powerhouse 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 noise and probably wouldn’t have much impact on the deliberations at the October meeting.

Regarding the asset purchased under the pandemic bond purchase programme, Bullock said the RBA suffered a mark-to-market loss of A$33.9 billion in 2021/22. This would leave the central bank in a negative net equity position of AUD 12.4 billion. But she added that since it has the ability to create money, the Bank can continue to meet its obligations as they come due and therefore is not insolvent… The equity position negative will therefore not affect the ability of the Reserve Bank to do its job.

AfDB cuts growth forecast for developing Asia to 4.3% and China to 3.3%

The Asian Development Bank has cut its growth forecast for developing Asia from 5.2% (April forecast) to 4.3% in 2022, and from 5.3% to 4.9% in 2023. She said: “The revised outlook is shaped by the slowing global economy, the fallout from Russia’s protracted invasion of Ukraine, more aggressive monetary tightening in advanced economies, and lockdowns resulting from the zero COVID policy of the People’s Republic of China.

As for China, growth forecasts have been revised down sharply from 5.0% to 3.3% in 2022, and from 4.8% to 4.5% in 2023. India were also revised downwards from 7.5% to 7.0% in 2022, and from 8.0% to 7.2% in 2023.

On the other hand, inflation forecasts have been raised from 3.7% to 4.5% in 2022, and from 3.1% to 4.0% in 2023, “due to the rise in energy prices and foodstuffs”.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 143.13; (P) 143.53; (R1) 144.11; After…

The intraday bias on USD/JPY remains neutral as sideways consolidations continue. A deeper pullback cannot be ruled out but the decline should be contained by 139.37 resistance turned support. On the upside, the breakout of 144.98 will resume a larger uptrend towards the long-term resistance at 147.68. The breakout there will target 161.8% projection from 126.35 to 139.37 from 130.38 to 151.44 next.

Overall the uptrend from 101.18 is still ongoing, part of the overall uptrend from 75.56 (2011 low). Further upside should be seen at 147.68 (1998 high). For now, the break of the 130.38 support is needed to be the first indication of a medium-term overshoot. Otherwise, the outlook will remain bullish even in the event of a deep pullback.

Economic Indicators Update

GMT Ccy Events Real Provide Previous amended
00:30 USD Westpac Leading Index M/M August -0.10% -0.15%
06:00 GBP Public Sector Net Borrowing (GBP) August 11.1B 7.5B 4.2B 2.1B
14:00 USD Existing Home Sales August 4.70M 4.81M
2:30 p.m. USD crude oil inventories 2.0M 2.4M
6:00 p.m. USD Fed interest rate decision 3.25% 2.50%
6:30 p.m. USD FOMC press conference
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