Jackson Hole Starts Today, Fireworks Come Tomorrow for EUR/USD
- Fed Chair Yellen seems less likely to surprise tomorrow; we already know that the Fed wants to normalize its balance sheet beginning next month and hike rates by the end of the year.
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The US Dollar has done very little this week, with the DXY Index down barely -0.1% thus far on the week. FX markets continue to wait for perhaps the most important event over the past few months: the Federal Reserve's Jackson Hole Economic Policy Symposium from Thursday to Saturday.
Indeed, while this is a Federal Reserve event, ECB President Mario Draghi will be sharing the spotlight with Fed Chair Janet Yellen, if not garning more attention than his Fed counterpart. 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. At his last attendance in 2014, he used his speech to pre-announce the ECB's QE program.
Euro bulls may walk away disappointed by the end of the week if the rumors that that were floated to the market last Tuesday are true: that the ECB is becoming more concerned with sustained Euro strength, so Draghi may not signal stimulus tapering in his speech. The Euro is at the greatest risk headed into the end of the week, more so than the US Dollar.
Accordingly, the topping potential for EUR/USD remains on a close below 1.1714. Concurrently, we're looking for a US Dollar bottom (via DXY) to be established should price clear the July 26 outside engulfing bar at 94.29. Until then, more grinding sideways price action should be expected to continue.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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