Jackson Hole Recap

The consensus out of the Jackson Hole Economic Symposium seems to be that central banks need to take a step back and view last week’s market turmoil from the bigger picture. Yes markets experienced a correction (that could be construed as healthy by many), but with employment and economic growth numbers still delivering, the Fed is still in a position to forge on with plans to hike rates.

While some of the Fed big hitters such as Janet Yellen chose to give the Wyoming weekend escape a miss this year, yesterday’s speeches from Vice Chair Stanley Fischer and the Bank of England’s Mark Carney gave the market enough to indicate that liftoff is as close as ever, with the major hurdle not China or uncertainty, but still the sliding inflation numbers out of the US.

“Inflation will likely rebound as pressure from the dollar fades, allowing the Federal Reserve to raise interest rates gradually.”

“Given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further.”

“With inflation low, we can probably remove accommodation at a gradual pace. Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening.”

As you can see from some of the key points extracted from Fischer’s speech, without being over the top, he is still confident that the Fed is in a position to forge forward on their current path without doing any feared long term damage.

I take the avoidance of China and the stock market circus as a big positive sign that September is still in play. The Fed had ample opportunity to be negative this weekend and they passed it up in favour of optimism. For me, that is huge.

With this in mind, let’s turn to the Forex markets from a trading point of view. With US Non-Farm Payrolls to end the week and the economy sitting close to full employment, I see more risk to the US Dollar if Friday’s number misses rather than beats.

On the Calendar Monday:
Fairly quiet one to start a fresh new week, with Kiwi Business Confidence the only tier 1 release. Also don’t forget that the UK is off today for their Summer Bank Holiday. With the S&P beginning the Asian open with an immediate sell off to Friday’s lows, a lack of London liquidity has the potential to exaggerate moves later on.

NZD ANZ Business Confidence
AUD Company Operating Profits q/q

GBP Bank Holiday
USD Chicago PMI

Chart of the Day:

“Developments are unlikely to change the process of rate increases from limited and gradual, to infinitesimal and inert.”

With the Bank of England signalling that they are still on track, let’s take a look at the EUR/GBP technical picture.

EUR/GBP Weekly:

The giant weekly channel has started to bottom out over the last few months but price has failed at each upward attempt to print a higher high.

Last week’s gravestone doji (well as close as you’re going to get in reality on a weekly chart) is of extra significance due to where it has formed on the chart.

EUR/GBP Daily:

Zooming into the daily chart, you can see the clean highs that price pushed through to clear out any lingering stops, before being unceremoniously slapped back down to give us the weekly close we see on the previous chart.

This sort of price action shows the bears still firmly in control.