What’s Making the Headlines

  • US equities fell back to weekly lows with profit taking ahead of Jackson Hole the most likely catalyst
  • The DXY pops above the 104 psychological level with attention turning to Fed Chair Powell’s speech
  • WTI heading towards short term trend resistance around $80

Equities

US equities took an unexpected turn lower yesterday with very little catalysts to explain the sudden move lower. The US Jobless Claims data did not print better-than-expected, but even though financial media is blaming the labour data, the market did not really move on the data – but instead started the dump at the cash open.

What does this tell us? It probably means that the higher likelihood of yesterday’s move comes down to some profit taking ahead of Fed Chair Powell’s speech, with short-term equity longs and USD shorts getting out of the way ahead of the Powell’s speech a bit later today at the Jackson Hole Symposium.

FX

The Dollar Index (DXY) popped above the 104 psychological level yesterday, as the US dollar continuted to strengthen. This is likely due to profit taking ahead of the Jackson Hole Symposium, as well as expectations that Fed Chair Powell will sound hawkish in his speech.

WTI crude oil prices also rose yesterday, reclaiming important support around $79. The market is now focused on the $80 level, which is a key resistance zone.

If prices can break above this level, it could spark some additional upside back towards $83.

Jackson Hole Symposium

The main highlight of today’s session will be the Jackson Hole Symposium and the speeches for both Fed Chair Powell, and ECB President Lagarde.

Looking at current positioning, we would say the bar is higher for the Fed to surprise hawkish, simply because they won’t want to limit their optionality.

With the recent amount of upside in both the USD and yields, a Fed that just says whatever we already know, which is that they are nearing the peak and they don’t see rate cuts anytime soon, might be enough to see some profit taking in USD longs and Treasury shorts.

Trading Strategy

Seeing how far equities pushed lower yesterday, as well as the pop higher in the Dollar, the most attractive opportunity to trade would be a surprise dovish shift from Fed Chair Powell.

Recently, some of his colleagues opened the door to the possibility of interest rate cuts in 2024. If the Chair confirms this view and explains that rate cuts are possible in the Q2 or Q3, that could provide markets with enough reason to push the USD lower.

Our preference, just like yesterday, would be to look for gold and AUDUSD longs if the Chair surprises on the dovish side.

This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

All trading carries risk.