General market theme
The Jackson Hole symposium is at the centre of everyone’s attention today as the central bankers’ meeting is expected to produce fresh news regarding the policies they are going to follow over the next months.
We know that most central banks are poised for more easing in an attempt to reinvigorate growth in their domestic economies, while the Fed is the only one that has raised rates recently and is planning to do it again according to their future guidance.
Janet Yellen is expected to have a bullish tone during her speech and mention that more rate hikes should be expected this year, but the key here is how certain she will sound and whether investors will be convinced.
The dollar stands to gain from a bullish guidance, however there’s a high risk that Yellen will not be able to fully convince market participants and that would mean a short-lived rally and a possible reversal after it.
Price action highlights
The euro traded higher yesterday, but the move had short legs as it was only able to reach the 1.1300 this morning as investors remain cautious ahead of the Jackson Hole event today.
The stakes are high for the euro today as the dollar is expected to have quite a reaction to Yellen’s remarks, and if the Fed boss sounds bullish enough a move lower towards the 1.1250 level is expected to be the first reaction. Needless to say though that increased volatility is expected, so we should be vigilant of any sudden reversals after her talk, especially if her tone is mixed.
The cable corrected lower yesterday and dropped below the 1.3200 level as profit-taking kicked in ahead of the Jackson Hole symposium later today. The pound has gained in recent sessions on the back of dollar’s weakness and we expect more price action today.
If the US currency receives fresh support from Yellen’s remarks then the pound should break into fresh lows and make a move towards the 1.3100 area, but as we mentioned above we need to be careful as volatility is expected to be quite high today.
Focus of the day
Apart from the Jackson Hole symposium and Yellen’s speech in the afternoon there are a few other important reports pending for release today. The UK and US GDP levels and the University of Michigan Confidence are also on the docket today, but we expect price action to be primarily dictated by the Fed boss’ remarks on the interest rate future policy.
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