Talking Points:

  • The Jackson Hole Economic Symposium is now underway and there have been multiple Central Banker interviews already on financial television. Today is marked by a series of speeches and interviews and this produces a backdrop that could bring continued volatility throughout the day. Potentially complicating matters for short-term traders is the fact that we’re in the latter-portion of summer trading and liquidity levels will likely remain subpar throughout the day, potentially magnifying any volatility that does come in from today’s slate at Jackson Hole.
  • The US Dollar is very much the focal point today after the retracement that started last Wednesday ran into a key area of support yesterday. That support has held thus far, but also brewing on the weekly chart is a potential bearish reversal pattern, which if coupled with a break or test through support today, can become attractive for price action themes next week and moving towards the end of Q3.

    • JACKSON HOLE BEGINS AS WE NEAR THE WEEK’S END

    As we move towards the close of this week, one really big event remains on the calendar, and that’s the start of the Jackson Hole Economic Symposium. Today will be marked by a series of interviews from Central Bankers attending the event, so the potential for volatility remains high throughout today’s session. At 10AM ET, FOMC Chair Jerome Powell will give a speech to discuss the US economy and Monetary Policy. Naturally, questions around rate policy will be at the forefront of traders’ minds as this gets underway, but also of interest is how the Fed chief might frame his response towards the comments from President Trump earlier in the week. While many headlines have appeared to pit the two at odds with each other, the question remains how well they can synergize monetary and fiscal policy to achieve the long-term goals for the US economy.

    Mr. Powell, in charge of monetary policy, is likely looking at a backdrop for continued rate hikes in order to tame inflation closer to the Fed’s 2% goal. President Trump, on the other hand, has pointed out the primary risk of the Fed’s strategy, which if coupled with a global environment of dovishness, much as we have today, could see the US Dollar continue to surge up to fresh highs. If left unchecked for long enough, this could temper inflation too much, putting the US in the unenviable position of watching a strong currency erode growth to the point where rate cuts need to be addressed. This is not the type of stable policy that’s desired around interest rates; and this concern is similar to what happened to Japan after the Plaza Accord helped to bring upon the ‘lost decades’ for the economy, and this is a theme that the Bank of Japan continues to struggle with.

    Ahead of Mr. Powell’s speech, the US Dollar continues to hold on to the bullish up-trend that’s defined the currency’s price action over the past four months. That bullish move in the Greenback started in mid-April, right around the time that British inflation was starting to head-lower. A week later, a really dovish ECB sent EUR/USD reeling-lower, and that further contributed to the US Dollar’s rise. Once we got into the month of May, worries around the political situation in Italy drove even more sellers to the pair (and buyers to USD), and this is when the bulk of the topside move was priced-in. After that, we had almost two months of digestion until the breakout two weeks ago:

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