How will Jackson Hole Meeting Affect Markets?
What will happen?
Federal Reserve Chair Jerome Powell will give a speech during the Jackson Hole Symposium on August 26 at 18:00 GMT+3. Analysts expect to hear statements about the future of interest rates and get hints regarding quantitative tightening (QT) in the United States. Therefore, the Federal Reserve Chair has all the chances to set the September market trend.
Moreover, European Central Bank Executive Board member Isabel Schnabel will give her speech on Saturday, but ECB President Christine Lagarde doesn't plan to attend.
Why is it important?
US stocks have rallied since the Fed's last policy meeting in late July as investors saw signs that inflationary pressure decreased and thought that the central bank will begin slowing the pace of tightening.
However, experts are not so optimistic. A year ago, inflation had risen well above the Fed's 2% target, but Powell emphasized that those pressures would probably be transitory.
Now inflation is near the highest level in four decades. Powell has confirmed that the Fed's analysis was incorrect, and policymakers should have begun raising interest rates sooner.
Therefore, despite the latest monthly report on consumer prices causing some optimism that inflation may have peaked, Powell might sound hawkish.
"They are so focused on doing this partly just because they screwed up last year with the whole 'transitory' thing, and they realize that the one thing they can do now is tightening policy, and that will slow inflation," said Kevin Cummins, the chief US economist at NatWest Markets in Stamford, Connecticut.
The Fed raised its benchmark interest rate by 75 basis points at the July policy meeting, following an increase of the same size the month before.
What about Europe?
In Europe, policymakers are also concerned about the size of the next rate hike. Following last month's half-point increase, the ECB can make another 50-basis-point step in September or a more minor, 25-basis-point move due to recession risks.
As the only Executive Board member attending the conference, Isabel Schnabel might provide insights into the ECB's plans to deal with high price pressure and a weakening economy.
The bottom line
Analysts and experts expect to hear some highly hawkish speeches from the central bank's leaders at the end of this week, especially from Jerome Powell. Therefore, the US dollar has strengthened against the other currencies during the previous week. We believe that the markets might overestimate central bankers' intentions.
If Jerome Powell doesn't make any hawkish statements, the US dollar will get under heavy pressure, and it will probably be the end of its rally this year.
Technical analysis
US dollar index, daily chart
US dollar index might come to 110.00 resistance by the end of the week. Currently, the price is trading under the resistance of 108.55. Nothing will stop buyers from reaching the primary target if they break through this support. However, after such a solid growth, a correction is highly expected, and as a famous saying says, “buy the rumors – sell the news.” We expect the US dollar index to reverse at the beginning of the next week towards the resistance range of 104.10 – 105.20, pushing the basket of currencies versus the USD.
EURUSD, H4 chart
EURUSD is moving right above the 0.9950 – 0.99932 support range. If the pair loses this support, I might plunge towards 0.9680, a support level from 2001. However, if buyers hold this support, it would be a strong signal to buy towards 1.0080.
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