What we are looking for
- USD strength is looking to resume: After a near-term pullback in the past couple of days, the USD strength looks to be resuming this morning. With yields edging higher, traders seem to be positioning for a hawkish positioning from Fed Chair Powell at Jackson Hole.
- Indices tick higher, US futures more cautious: European indices are higher after a strong close on Wall Street. However, US futures are looking slightly more cautious as they slip back lower this morning.
- Commodities are mixed again: Precious metals are beginning to slip back lower (as the USD strengthens again) whilst oil has rebounded from yesterday’s decline.
- Data trading: Core PCE does not have the market impact that CPI does (which was announced over two weeks ago). However, there is still likely to be some reaction if inflation does fall. The final Michigan Sentiment will help to support USD if there is an upward revision.
There is always anticipation in the build-up to the Jackson Hole Economic Symposium. In previous years we have seen Fed Chairs use the platform to deliver policy-defining speeches. This year, there seems to be a view being taken that Fed Chair Powell will confirm the repeated hawkish leanings of many of his FOMC colleagues in recent weeks.
Can Powell live up to expectations? The Kansas City Fed’s Esther George might be an interesting gauge, suggesting that next week’s Nonfarm Payrolls data would be an important guide for the September FOMC decision. Powell is likely to follow the “data dependent” line. But the question is how Powell positions for potential rate cuts in 2023. A “higher for longer” bias could sustain USD outperformance.
This morning we see Treasury yields pulling higher and the USD strengthening once more. Markets seem to be leaning towards the hawkish side. European indices are playing catch up on a strong close on Wall Street, but US futures look a little more cautious.
Aside from watching Powell’s speech, traders will also be watching for US data on the economic calendar. The Fed’s preferred inflation gauge, the US Core PCE is expected to fall back slightly in July. The final reading of the August Michigan Sentiment is expected to be revised slightly higher.
Market sentiment moving back towards USD again: USD strength is the bias this morning, with a mild risk-negative bias hinting on US futures.
Treasury yields resume the trend higher: After falling yesterday, US futures are ticking higher once more this morning.
Fed speakers remain hawkish: Bullard (most hawkish on the FOMC, 2022 voter) remains unsurprisingly hawkish, talking about rates being at 3.75%/4.00% by the end of 2022 and still advocating the need to front-load rate hikes to be “serious about the inflation fight”. Esther George (host of the Jackson Hole Economic Symposium) who is a voter in 2022 and is slightly less hawkish stressed the importance of next week’s labor market data (Nonfarm Payrolls) would determine the size of the September hike. :
Cryptocurrencies falling back again: After ticking higher in recent days, cryptocurrencies are falling back again this morning. Bitcoin is -1% and back to around $21400.
Fed Chair Powell will be key: Fed chair Powell gives the keynote speech at the Jackson Hole Economic Symposium. Traders will be looking to see if Powell echoes the sentiments of a stream of recent Fed speakers. Members have been toeing a hawkish line. Powell is expected to do the same. Powell speaks at 14:00 GMT.
- US Core Personal Consumption Expenditure (12:30 GMT) The core PCE is expected to fall to 4.7% in July (from 4.8% in June).
- Michigan Sentiment - final (14:00 GMT) Consensus is expecting the slightest upward revision in the August final data to 55.2 (from 55.1 prelim), which is higher than the 51.5 final reading in July.
Major markets outlook
Broad outlook: It is all about the USD today and the reaction to Fed Chair Powell. This is key for major forex and precious metals. A mild risk negative bias is hinting on US index futures.
Forex: USD outperforming again on major forex. A risk-negative bias leaves NZD and AUD faltering.
- EUR/USD may have found a low at 0.9900 in recent days but a near-term recovery has failed to ignite. Small candlestick bodies with long shadows suggest a lack of conviction in moves. . A sharp two-week downtrend of the past two weeks is still a gauge of resistance and coincides with the price resistance around 1.0020/1.0030 this morning. Powell’s speech will be key today, but we favour selling into strength for a retest of 0.9900 in due course.
- GBP/USD has held support at 1.1717 but a rally has failed to take hold. A series of mixed signals throughout this week leaves the market waiting for Powell’s speech today. Initial resistance is at 1.1875/1.1890. If this is broken the 1.2000 could be seen. However, we favour selling into strength for a retest of 1.1717 in due course. Beyond that, there is little real support until the COVID breakout spike low of 1.1410.
- AUD/USD has been finding buyers into weakness in recent sessions as a mini recovery has taken off. Momentum (especially on the four-hour chart) is looking stronger and if support can form around 0.6930/0.6950 then an improving outlook can sustain. The next resistance is 0.7025/0.7040. Back under 0.6900 puts pressure back on the 0.6850 support.
Commodities: Precious metals are seeing mini rallies faltering this morning. Oil has pulled back from key resistance.
- Gold has recovered well from $1727 into the resistance between $1754/$1772. However, can the move continue? Early moves this morning are suggesting that the rally is now struggling, with the market drifting back from $1765. This is an important moment, with the daily RSI back around 50 but starting to falter again. Reaction around the higher low initial support at $1743 will now be an important gauge for this recovery.
- Silver has been tentatively ticking higher in the past few sessions, this is all playing out with the RSI struggling for traction in the low 40s and the price faltering yesterday around a pivot band of $19.38/$19.54. This looks set to be a rally that is a chance to sell. Initial support at $18.95 is protecting a retest of the $18.71 low.
- Brent Crude oil has spent the past couple of days testing the key resistance of the mid-August lower high at $102.95. After yesterday’s failed breakout turned lower from $103.50 the reaction today will be important. The initial move back higher this morning needs to hold and sustain the support above $100. A move back under $99.50 support would turn the outlook corrective again. We are still neutral for now, turning more positive on a close above $103.50.
Indices: US futures have rallied again but are looking more cautious today. European markets face a key test of resistance.
- S&P 500 futures have rallied well from the low at 4110 to test the old resistance band at between 4170/4202 again. Intraday charts show this resistance is holding back the recovery as the market looks more cautious today. Although daily momentum is more positive, the four-hour chart reflects the need to decisively break clear above 4200, whilst a move above 4220 breaks a corrective trend. The mini higher low at 4147 is initial support.
- German DAX has rebounded off 13075 with two positive daily candles, leaving the support of the key higher low at 13035 intact. However, the move is now into a test of the resistance band at 13330/13450. The early reaction this morning suggests this is a key test. Momentum has unwound back towards the 45/50 area on the daily and four-hour RSIs and a failure around here would re-affirm the growing corrective pressure of the past two weeks. A move below 13200 would re-engage a negative outlook.
- FTSE 100 has rebounded off 7411 but is now starting to falter around resistance between 7530/7545. With the 55-period moving average on the four-hour chart becoming a basis of resistance and the RSI struggling around 50/55, this is an important moment for the near-term outlook. Below support at 7466 would re-engage a corrective outlook.
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