Dollar is starting to reverse recent gains, probably in a more persistent way. Australian Dollar is leading the way higher today, as supported by extended improvement in risk sentiment. But for the week, Swiss Franc and Euro are the strongest ones, followed by Canadian. Yen is still the worst performer, even though it’s in recovery against the greenback.
Technically, much focus is now on 1.0078 minor resistance in EUR/USD, and 1.1608 minor resistance in GBP/USD. Firm break of these levels will indicate short term bottoming at 0.9863 and 1.1404 respectively. In this case, EUR/USD should be considered regaining parity for now while GBP/USD should have defended 2020 low. Both would have more upside potential for the near term then.
In Asia, at the time of writing, Nikkei is up 0.46%. Hong Kong HSI is up 2.59%. China Shanghai SSE is up 0.70%. Singapore Strait Times is up 0.84%. Japan 10-year JGB yield is down -0.0128 at 0.239. Overnight, DOW rose 0.61%. S&P 500 rose 0.66%. NASDAQ rose 0.60%. 10-year yield rose 0.027 to 3.292.
Fed Evans: We need to be increasing interest rates up to a substantially higher level
Chicago Fed President Charles Evans said yesterday, “I think that we’ve got a good plan in place. We could very well do 75 in September. My mind is not made up. I do know that we need to be increasing interest rates up to a substantially higher level than where they are now.”
“I think the precise path is less important than just constantly telling people, we’re on this path, this is what we’re going to do, inflation is job one, we’re going to handle this,” Evans said.
“Unemployment is 3.7% right now. I’m optimistic that we’re going to be able to navigate this and keep unemployment to about 4.5% by the time we’re done,” he said. “That would still be a pretty good outcome, although it will be costly for some.”
“I would prefer to find an appropriate spot to pause and monitor how things are going, rather than go much higher — potentially overshoot,” he said. “I wouldn’t say that I’m advocating sort of pausing at 3.5%, because I think 4 is more likely.”
SNB Jordan: At the moment, franc appreciation tends to help rather than hurt
SNB Chairman Thomas Jordan said yesterday, “you cannot say we have passed the zenith and now it is certainly heading lower. If it comes to a power shortage situation, to a complete gas shortage in Europe, then it cannot be excluded that inflation pressure rises again. You have to be very cautious.”
Jordan declined to comment on currency interventions. But he added, “at the moment it is rather so that given the inflationary pressure an appreciation of the franc tends to help rather than hurt.”
BoC Rogers: We need a period of lower growth to balance things out
BoC Senior Deputy Governor Carolyn Rogers said yesterday, “our primary focus will be to judge how monetary policy is working to slow demand, how fast supply challenges are resolved, and most importantly, how both inflation and inflation expectations respond.”
“Because we are in a period of excess demand, we need a period of lower growth to balance things out and bring demand back in line with supply,” Rogers said.
“By front-loading interest rates now, we’re trying to avoid the need for even higher rates down the road and a more pronounced slowing of the economy,” she said.
BoJ Kuroda: We will watch exchange rate moves carefully
BoJ Governor Haruhiko Kuroda said, “When the yen is moving 2 to 3 yen per day, that’s a rapid move. We will watch exchange rate moves carefully.” The comment came after Kuroda met Prime Minister Fumio Kishida, where currency matters were discussed.
Separately, Finance Minister Shunichi Suzuki said the the government would not rule out any options on foreign exchange moves.
On the data front
Japan M2 rose 3.4% yoy in August, matched expectations. China CPI slowed from 2.7% yoy to 2.5% yoy, below expectation of 2.8% yoy. PPI slowed from 4.2% yoy to 2.3% yoy, below expectation of 3.1% yoy.
Looking ahead, France industrial output will be released in European session. Later in the day, Canada employment data will take center stage.
EUR/USD Daily Outlook
Daily Pivots: (S1) 0.9944; (P) 0.9986; (R1) 1.0042; More…
EUR/USD’s break of 1.0078 resistance suggests short term bottoming at 0.9863, on bullish convergence condition in 4 hour MACD. Intraday bias is back on the upside 55 day EMA (now at 1.0170). Sustained break there will raise the chance of larger reversal, and target 1.0368 resistance. On the downside, firm break of 0.9863 will resume larger down trend.
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, even in case of strong rebound.
Economic Indicators Update
Money Supply M2+CD Y/Y Aug
CPI Y/Y Aug
PPI Y/Y Aug
France Industrial Output M/M Jul
Consumer Inflation Expectations
Net Change in Employment Aug
Unemployment Rate Aug
Capacity Utilization Q2
Wholesale Inventories Jul F