Daily Currency Update The Australian dollar tested new lows through trade on Tuesday, unable to extend gains enjoyed through a brief improvement in the underlying risk narrative. Having slipped below US$0.6450, the AUD mounted a recovery through the domestic session clawing its way back above US$0.65 to mark intraday highs at US$0.6510. After two days of hyper volatility, markets appeared content in consolidating positions and investors looked again to risk assets, prompting a short-run improvement in demand for risk through the Asian session. The upturn was, however, short lived. More hawkish Fed commentary, coupled with a string of solid US data sets, fresh concerns surrounding UK economic vulnerability and a surge in gas prices conspired to push investors back toward haven assets, allowing the USD to recoup early losses and enjoy another overnight uptick. Faced with broad based USD strength the AUD drifted back below US$.6450, marking fresh lows at US$0.6415, a new 30 month low. With little of note on today’s macroeconomic ticket our attentions remain with broader market themes. The UK’s inherent vulnerabilities should continue to stifle any real risk on relief, while commentary from key European and US central bank figures and the promise of tighter financial conditions will continue to drive near term AUD downside. Key Movers There was ample price action across currency markets through trade on Tuesday as a short-run improvement in the underlying risk narrative helped offer some respite to the embattled GBP, euro and yen. After two days of hyper volatility markets enjoyed a brief upturn through the Asian session, allowing the euro to claw its way back above US$0.9650, while the GBP poked its head above 1.08, and the yen forced the USD back toward 144. The upturn was however short lived as the focus shifted back to the UK as the epi-centre of recent currency turmoil. Pricing across UK rates continued to surge as markets price in a significant BoE policy response, amid mounting fears a credit crunch will sap even more energy from an economy already struggling under the weight of an energy crisis, fiscal debt crisis and balance of payments crisis. Having touched intraday highs at 1.0850, the GBP slipped back below 1.07 marking session lows at 1.0650. Concern for the UK, coupled with a surge in European gas prices, a string of stronger US data sets and more aggressive fed commentary forced investors back toward haven assets, prompting an overnight USD surge. The DXY dollar index closed higher on the day and with little of note on today’s macro ticket, elevated risk aversion should ensure it maintains much of the recent upturn. Expected Ranges AUD/USD: 0.6380 – 0.6530 ▼ AUD/EUR: 0.6650 – 0.6750 ▼ GBP/AUD: 1.6480 – 1.6920 ▲ AUD/NZD: 1.1370 – 1.1470 ▼ AUD/CAD: 0.8780 – 0.8920 ▼

Summary The Consumer Confidence Index rose to its highest level since April, and now sits more than 12 points higher than where it was just two months ago. Falling gasoline prices and a still-tight labor market are the main reasons we have seen a recent rebound in confidence. But as inflation persists and the Fed lifts rates to combat it, we are unlikely to see confidence approach pre-pandemic levels. Read the full report here

EUR/USD kick-started a new round of declines as flash PMIs figures across Europe pointed at a further fall in business activities with both the EU services and manufacturing PMIs edging lower in the contraction area weaker than expected. As seen on the four-hour chart, a decisive break below the 0.98065 barrier paved the way for euro sellers to try the 0.97434 hurdle, around the 161.8% Fibonacci projection of the last upswing from 0.98065 to 0.99086. If selling pressure intensifies at 0.97434, the price may overcome this obstacle, heading towards the next support at 0.97044. Further push below this level can bring more sellers to join the market and turn their attention towards 0.96412. Otherwise, should buyers retake control, they may keep the pair sideways between 0.97434 and 0.98065. Further traction above the broken support of 0.98065 can put the last top at 0.99086 on the spotlight. Diverging EMAs exhibit accelerating bearish sentiment with the 50-EMA being below the 200-EMA. Short-term momentum oscillators reflect a bearish bias in the market. RSI is floating in the oversold area below the 30-level. That means the price may hang out at the 0.97434 hurdle before clearing that. Momentum is also moving down in the selling territory. Likewise, MACD bars get taller below zero, aiming to cross below the signal line as well.

The vision of ever-increasing interest rate hikes in the US, along with worse macroeconomic data readings in the form of PMI indexes, may have negatively affected stock indexes on Friday 23.09.22. An addition Added to this was the UK's tax cut plan, which in the current situation could send investors into a tailspin. As of 12:52 GMT+3, Germany's DAX is losing more than 2%. Britain's FTSE100 is down nearly 2% to 7036 points. (the lowest in 10 weeks) the broad Stoxx Europe 600 index of European companies has fallen 20 percent from its November 2021 peak to 391 points, indicating a potential downswing. The EU50 index hit its lowest level in 22 months at 3356 points, while Germany's DAX fell to 12354 points, its lowest in 22 months. Announcements of more hikes, UK plan and weak data There seems to be no good news in the markets today, only bad or even worse news, which may be reflected in the behaviour of stock indices. Stock market investors face the prospect of increasingly expensive capital on both sides of the Atlantic, as ECB President Christine Lagarde has said that Eurozone policymakers will continue to raise interest rates over the next few meetings, and markets are betting that the ECB deposit rate could reach 3% by June 2023. On top of that, there may be increasingly weak macroeconomic data, such as today's series of PMI index readings. They show that soaring energy prices continued to hamper economic activity in the eurozone, and September PMI data showed that the eurozone and German private sectors contracted for the third consecutive month. The S&P Global Flash Eurozone Composite PMI fell to 48.2 points in September 2022 from 48.9 in August. Excluding pandemic shocks, the reading was the lowest since May 2013. New orders fell the most since April 2013, excluding periods of pandemic restrictions, and the backlog of unfilled orders fell for the third consecutive month. The UK with a fiscal plan Financial markets may have been dealt another blow with the announcement of the implementation of the UK's £161 billion fiscal plan over 5 years, Bloomberg reported, which under the current circumstances could be a breakneck task with an unknown outcome. On the one hand, the Bank of England has announced the possibility of selling £80 billion worth of bonds within 12 months and further interest rate hikes and the government may also raise funds from bond sales for its plans. This could lead to a bump in the British financial market, where bonds, stocks and the British pound seemed to cheapen even simultaneously. Investors in the interest rate market now seem to be pricing in the possibility of a 1 percentage point increase in the Bank of England's main interest rate by November, in just over a month. To summarize the events in the UK in recent hours, per Bloomberg: the Truss economic plan is causing UK markets to collapse, the UK is planning the biggest tax cuts since 1972 to spur economic growth, and UK bonds are falling as the government will increase borrowing more than expected, the UK is likely already in recession as the pound's weakness increases inflation. What's next after such a sharp plunge in the markets? It seems that financial markets need stabilization in expectations of central banks' actions. Currently, there seems to be a chase for higher and higher possible interest rates in the future. Investors do not know where this race and festival of hikes will actually end. None of us probably wants a situation in which a loan one month is at a given interest rate, the next month at a different one, and in six months the interest rate may still be different. In such a situation, businesses cannot function properly, and neither can the financial markets.

The Dow Jones was sharply down on Friday, losing around 1.5% for the day until the mid-US session and extending sharp fall into fifth straight day. The index is also on track for a big weekly loss of over 4% and also for a second consecutive week in red. Strong risk aversion on growing fears of a recession as well as concerns about the strength of the impact of aggressive Fed’s policy tightening on corporate earnings, was the main driver of the price. Fresh weakness pressures key supports at 29654/29638 (Fibo 38.2% of 18044/36830, 2020/2022 rally / 2022 low of June 17), break of which would generate strong bearish signal for further acceleration lower and expose targets at 28875 / 27437 (55MMA / 50% retracement of 18044/36830). Bearish studies complement to weak sentiment and only substantial change in fundamentals could slow or reverse the current steep fall. Meanwhile, limited corrective upticks on oversold conditions and profit-taking would provide better levels to re-join strong downtrend. Res: 30000; 30107; 30238; 30395 Sup: 29000; 28875; 28000; 27437

Central banks were front and center this week, as major institutions such as the Federal Reserve, Bank of Japan (BoJ) and Bank of England (BoE) met to assess monetary policy in their respective economies. At a high level, policymakers generally communicated a hawkish outlook for monetary policy, although the Fed's updated “Dot Plot” garnered the most attention and resulted in renewed volatility across global financial markets. However, the BoJ's commitment to accommodative monetary policy and FX intervention from the Ministry of Finance were also notable, while U.K. financial markets tumbled in the aftermath of the BoE announcement and government fiscal stimulus. Heading into this week, we believed the U.S. dollar would continue to strengthen through the end of this year. After the events of this week, we have increased conviction in that view, and now believe dollar strength could continue into the early part of 2023. We will make a more formal assessment of currency markets and provide updated exchange rate forecasts in our September International Economic Outlook, although as of now, we are likely to extend our dollar strength view into Q1-2023. Read the full report

S&P 500 continued its downswing without much of a respite even though bonds favored stocks to reach higher than they did one hour before the closing bell. Interestingly, VIX has barely moved in spite of the quite meaningful downside continuation – let alone Wednesday‘s reversal that caught so many off guard. Thankfully not you! Today, we‘re already below my direction-setting level described in these two tweets. USD is up, and much of the forex antidollar plays in disarray (beyond the usual suspect, Japan) – this isn‘t yet a dollar top. That‘s a consequence of Treasuries price action – no top in yields, not enough fresh buyers to make up for the vacated Fed place, is putting and will put even more serious pressure on asset prices. Keep enjoying the lively Twitter feed serving you all already in, which comes on top of getting the key daily analytics right into your mailbox. Plenty gets addressed there, but the analyses (whether short or long format, depending on market action – today short) over email are the bedrock, so make sure you‘re signed up for the free newsletter and that you have Twitter notifications turned on so as not to miss any tweets or replies intraday. Let‘s move right into the charts. S&P 500 and Nasdaq outlook This is still a really bearish S&P 500 chart – not even volume is increasing on the downswing. Both cyclicals and tech are suffering, but the market generals (AAPL and beyond) have still quite some catching to do. After Wednesday, the selling is quite orderly still, no panic yet, but I am unwilling to chase prices here, this Friday – we‘re likely to see a temporary stabilization above 3,730, and quite possibly another buying spree approximately of yesterday‘s potency. Credit markets As stated yesterday, bonds are risk-off, and reflecting foremost the upcoming real economy realities, the inevitable consequence of aggressive tightening while the effects of tightening already in, haven‘t yet played out. It‘s only when TLT turns that we can get some meaningful respite in stocks beyond a few days‘ counter trend upswings here and there – in the week(s) to come.

Summary United States: Whatever It Takes As widely expected, the FOMC raised the target range for the fed funds rate by 75 bps for the third consecutive time. The housing market continues to buckle under the pressure of higher mortgage rates, while the Leading Economic Index has signaled a broader loss of momentum across the economy. Next week: Durable Goods (Tue), Consumer Confidence (Tue), Personal Income & Spending (Fri) International: Bank of Japan's Policy Actions Offset Each Other Aside from the Fed, the central bank that caught the attention of market participants this week was the Bank of Japan (BoJ). As expected, the BoJ left monetary policy settings unchanged; however, the communication around the decision was widely interpreted as dovish. Next week: Central Bank Speakers (Mon-Fri), China PMIs (Thu), Eurozone Inflation (Fri) Interest Rate Watch: Aggressive Fed Path Boosts Inflation-Fighting Credibility The FOMC delivered its third straight 75 bps hike and a hawkish message for rates going forward at its meeting this week. The FOMC now sees it likely the fed funds target range will rise to 4.4% by the of this year and 4.6% by the end of next year as inflation is expected to be more intractable than previously believed. Credit Market Insights: Reading the Pulse of the Corporate Bond Market The Federal Reserve Bank of New York's Corporate Bond Market Distress Index (CMDI) tracks corporate bond market functioning using a variety of metrics from the market at large, including the investment grade and high yield markets. The latest release of the CMDI indicated that the corporate bond market was in good health through August. Topic of the Week: Shot Across the Bow, Japan Intervenes Against Surging Dollar On Thursday, in a surprise move Japan's Ministry of Finance intervened in FX markets to strengthen the yen for the first time since 1998. The beleaguered yen has declined over 20% against the dollar this year, briefly hitting a 24-year low of JPY145.89 on Thursday after BoJ policymakers signaled they plan to keep monetary policy settings accommodative. Read the full report here

With the Fed meeting out of the way, a quieter week is on the horizon, barring of course any flare up of tensions between Russia and Ukraine. Either way, the spotlight will probably fall on the euro as far-right parties are expected to gain ground in Italy’s parliamentary election on Sunday, while preliminary inflation readings will come to the fore at the end of the week. In the US, the highlight will be on the PCE inflation figures, though it’s doubtful whether it will change much regarding the Fed policy outlook.

Daily Currency Update There is plenty to digest as we return from the public holiday in observance of the Queen’s passing with the AUD testing a break below $0.66 US cents. The AUD plunged through key supports in the wake of the FED and FOMC policy update Thursday morning, giving up $US0.6680 to mark fresh intraday and 24-month lows at $US0.6570. As expected, policymakers lifted rates by 75 basis points while significantly revising interest rate forecasts. The Fed’s dot plot implies policymakers will add another 125 points to the Fed Funds cash rate before the year is up, lifting expectations for the peak cash rate to 4.6%. With inflation pressures largely unchecked the Fed seems hell-bent on extending the current tightening cycle deeper into restrictive territory. The maintenance of this aggressive monetary policy program will likely continue to weigh on the AUD as risk appetite sours and the USD enjoys sustained demand both on haven and yield plays. Having slipped below $US0.66 the AUD has clawed back some losses as the furor that followed the Fed policy announcement subsides. Our attentions turn now to US manufacturing and services data while the UK mini budget will afford a key insight into expected tax cuts and widespread deregulation designed to stimulate the embattled British economy. Key Movers There was ample price action across major currencies through trade on Thursday as the furor that followed the Fed’s overtly hawkish policy update subsided. Global rates continued to climb as markets look to adjust interest rate projections following a 50-basis point rate hike from the Bank of England and a stubbornly ultra-easy monetary policy update from the Bank of Japan. After an uptick in inflation pressures earlier this week we highlighted the possibility the BoJ may move to unwind its policy of yield curve control if only to prevent further deterioration in the value of the JPY. The bank’s decision to hold firm and offer little hint of changing course prompted a sharp correction in USD/JPY with the dollar surging back through JP¥145 and marking new highs just shy of JP¥146. The rapid JPY sell-off prompted government officials to intervene in a bid to stabilise the currency and limit speculative buying. For the first time in 34 years, officials stepped in to prop up the value of the yen forcing the USD off JP¥145.89 and back to levels as low as JP¥140.36 before price action stabilised and the pair settled to trade at JP¥142.5. While the move surprised markets, without a shift in BoJ policy or a significant weakening in the USD the impact will likely be short-lived. The USD continues to trade near its 20-year high with the Euro comfortably back below parity and the GBP unable to sustain a recovery back above US$1.13. Our attentions turn now to US manufacturing and services data while the UK mini budget will afford a key insight into expected tax cuts and widespread deregulation designed to stimulate the embattled British economy. Expected Ranges AUD/USD: 0.6570 – 0.6730 ▼ AUD/EUR: 0.6690 – 0.6730 ▲ GBP/AUD: 1.6880 – 1.7120 ▼ AUD/NZD: 1.1280 – 1.1420 ▲ AUD/CAD: 0.8880 – 0.9020 ▲

After a week in which a dozen central banks around the world either tightened policy or resorted to currency intervention, the focus is now on the economy. Just how much of the move was priced in, and how much will economic growth be impacted going forward. So far, tightening has contributed to a stronger dollar, on top of increased risk avoidance supporting safe havens. Purchasing managers are likely to see the first signs of the effects of monetary policy. Whether that's in lower prices implying potentially less inflation in the future, or lower orders implying less growth in the future. Weaker PMIs could start raising bets that monetary policy will start to level off in the near future. The surveys are still being conducted, so we won't see the full effect on manager's thinking until next month. But central bank action was pretty well telegraphed ahead of the start of the survey. What to look out for: Australia  Australia is expected to keep bucking the global trend, with manufacturing PMIs expected to be firmly in expansion, although stumbling a bit. The services sector is expected to remain under pressure through the winter, and slower tourism activity. Australian Manufacturing PMI expected at 53.2 compared to 53.8 prior. Services PMI expected to expand modestly to 50.8 from 50.2 prior. France As usual, France is the first major EU country to report PMIs, and is likely to set the tone for the shared currency unless there is a major deviation with later data. The high cost of energy in France has been weighing on the economic outlook coupled with the ECB recently starting to raise rates. Both are likely to be on the minds of managers when they answer the survey. French September Preliminary Manufacturing PMI is forecast to fall just barely into contraction at 49.8 compared to 50.4 prior. Services PMI is expected to remain just barely in expansion at 50.5 compared to 51.2 prior. Germany Recent positive news in Germany on the energy front isn't expected to lift businesses' spirits all that much. With energy prices still high despite the country well ahead of target on filling up its reserves, executives are worried about which plants will be idled next due to high operating costs. German September Preliminary Manufacturing PMI is expected to fall further into contraction to 48.3 from 49.1 prior. Services PMI is expected to perform even worse, dropping to 46.0 from 46.9 prior. UK The British survey was conducted after PM Truss announced the price cap, so we could see if that has any effect on business optimism. However, the details have yet to be announced, so the impact might be minimal. UK Preliminary Manufacturing PMI is expected to improve modestly to 47.5 from 47.3 prior. Services PMI is expected to fall to 50.0 compared to 50.9 prior.

The Bank of England rate decision sees UK avoid 75bp move seen elsewhere, with Truss energy policy expected to lessen inflationary pressures. Markets head lower, as geopolitical and monetary policy concerns hurt sentiment “Today has seen another bout of downside for stock markets throughout Europe and the US, with geopolitical and economic concerns providing a drag on risk assets once again. On a week dominated by central banks, it was always going to be difficult to envisage a scenario where traders emerge with a positive outlook. Volatility has come from a variety of sources, with the aftereffects of yesterday’s FOMC monetary policy meeting coming into play alongside a Russian nuclear war warning, BoJ JPY intervention, and a BoE rate decision. ” BoE take cautious approach in battle against inflation   “The Bank of England have taken a more cautious approach to monetary policy today, with the 50-basis point hike falling short of the 75bp move seen at the ECB and Fed. The spread of votes saw almost half of the nine members vote for either 75 or 25 basis point hikes, highlighting the significant degree of uncertainty over what needs to be done in the face of recessionary and inflationary pressures. However, the downward revision to inflation expectations (peaking at 11% rather than 13%) does highlight a feeling that Liz Truss and Kwasi Kwarteng could limit the impact of rising gas prices, with tomorrow’s mini budget providing a focal point for UK investors. Unfortunately, while an energy cap could also limit inflation, the BoE see this measure as risking higher inflation down the line as disposable income drives up consumption. Thus what can be relief for consumers now, could result in rates remaining elevated for a longer time as inflation becomes entrenched. ”