The dollar has been solid in trading this week as markets settle down and wait on further catalysts with regards to the Fed outlook before September. The main event this week is of course Fed chair Powell’s speech in Jackson Hole and potentially other Fed commentaries from the symposium itself.
But so far this week, we’ve been treated to Fedspeak being more neutral/hawkish and also the Fed minutes not revealing much dovish dissents. I’d put a caveat on the latter though as the related FOMC meeting was before the dismal 1 August jobs report.
All that has seen traders pare back on Fed rate cut expectations and in turn has translated to a firmer dollar on the week.
As we look to Jackson Hole next, the dollar is in good standing and buyers are hoping to get some affirmation to pursue a further upside run based on the charts. Here’s a look at a couple of dollar pairs that are trying to make a play at the moment.
Cable is a notable one after the upside push earlier this month failed to break the 23-24 July highs before the shove back lower this week. The rejection there sets up a good mirror image on a downside push but sellers will have to first crack support from the 100-day moving average (red line), now seen at 1.3411. That will be a key level to watch going into the weekend and next week.
USD/JPY is another as the slight push higher on the day so far sees price move up to its highest since 1 August itself. There is scope to extend towards the 200-day moving average (blue line) of 149.09 but that will be a key level to be mindful of before getting to the 150.00 mark next for buyers.
The jump at the end of July looked like it was a potential breakout for the dollar but at the end, it was a fakeout owing to the poor jobs data. That aside, USD/JPY hasn’t firmly traded above both its key daily moving averages since early February. That speaks a lot on how negative dollar sentiment has been as the BOJ has been on the sidelines for quite a while now.
And here, we have AUD/USD testing the waters of the lows seen during the tail end of July. The dollar drop on 1 August was timely in the sense that technical traders could lean on the 100-day moving average (red line) as well at the time. But now, we’ve already seen that level break in trading this week.
So, the 31 July and 1 August lows of 0.6418-23 is very much in focus before looking towards testing the 200-day moving average (blue line) at 0.6384 currently.
If sellers can manage a break below both those levels, then the June low of 0.6372 will be next focus point. However, I would argue that a firm break below both the key daily moving averages will keep the dollar in good stead.
Despite the potential for the moves above, I would be remiss not to point out that markets might not end up with too much to work with from Jackson Hole this weekend.
The expectation going into the event is that Fed chair Powell is to be more neutral and not pre-commit or be explicit about any intentions to cut rates in September. That means the can will be kicked down the road to the next big data point and that will be the US labour market report on 5 September.
That means markets might be left wanting for another two weeks in trying to make sense of what the Fed will do next month.
As things stand, traders are pricing in ~74% odds of a 25 bps rate cut. That has been scaled back since last week amid some caution before the main event later today.
The question is, will markets pull back even more if Powell delivers as expected and not confirm nor deny rate cut expectations for September? I can imagine a possibly where markets readjust something closer to 50-50 or 60-40 (in favour of a rate cut)
