Euro, US Dollar Set for Important Week with Jackson Hole in Sight
- The DXY Index continues to ride its August uptrend, but has yet to break through key resistance before we can say that a bottom has been established.
- Speeches by the ECB's Draghi and the Fed's Yellen at the end of the week will prove to be the biggest factors for the Euro and the Us Dollar when all is said and done this week.
- Retail crowd positioning continues to moderate in EUR/USD, GBP/USD as the US Dollar attempts to establish a turn.
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FX markets are quiet at the start of the week in part thanks to a rather quiet economic calendar. Yet by the week's end, a good deal of volatility should have made its way through the market as the most important event in perhaps months is in sight: the Federal Reserve's Jackson Hole Economic Policy Symposium from Thursday to Saturday.
While this is a Federal Reserve event, ECB President Mario Draghi will be sharing the spotlight with Fed Chair Janet Yellen. Draghi has not appeared at Jackson Hole in several years, so his presence at the conference obviously raises the bar in terms of expectations for the conference to impact the Euro. Euro bulls may walk away disappointed by the end of the week if the rumors that emerged in recent days are true: that the ECB is becoming more concerned with sustained Euro strength, so Draghi may not signal stimulus tapering in his speech.
General consensus on the street is that, while recent shifts in realized inflation and inflation expectations probably means the Fed views the necessity for significantly higher rates reduced, ultimately Yellen will use her speech as an opportunity to prepare markets for the beginning of the balance sheet normalization process in September.
Concurrently, this would open the door for a rate hike by December; given that rates markets are pricing in March 2018 as the most likely period for the next rate hike, any repricing of Fed policy shifts would seem pre-determined to be in the US Dollar's favor. Over the coming days, we may find ourselves with the catalysts needed to finally establish a short-term top in EUR/USD and thus a bottom in the DXY Index.
See the above video for technical considerations in the DXY Index, EUR/USD, GBP/USD, USD/JPY, AUD/USD, AUD/JPY, S&P 500, and Gold.
Read more: Euro Vulnerable if ECB’s Draghi Disappoints at Jackson Hole
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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