As investors and traders are likely to be aware, the Federal Reserve Bank of Kansas City’s Economic Policy Symposium, held in Jackson Hole, Wyoming around this time each year since 1978 is quite a big deal for markets.
It allows central bankers, finance ministers, academics and other financial market participants from all parts of the world, as well as the media to gather and discuss economic issues, policies and likely implications relevant to an assigned topic.
Last year the assigned topic was “Fostering a Dynamic Global Economy”. One of the key takeaways was a general reluctance of key central bankers including the ECB’s President Draghi and Federal Reserve’s Chair Janet Yellen to talk in detail about their thoughts on near-term interest rate policy moves. Perhaps understandable given a desire to nurture the green shoots evident in some parts of the global economy at that time.
This year the assigned topic is “Changing Market Structure and Implications for Monetary Policy’. While the green shoots may not have blossomed as hoped for globally, and despite recent emerging market troubles, there is likely to be a slightly more upbeat tone this year. Particularly from the U.S. with unemployment sitting at 20-year lows and inflation at its highest levels in six years.
The full schedule of speakers is yet to be released, however both Federal Reserve Chairman Jerome Powell and Bank of Canada Governor Poloz are confirmed as speakers. Both are leaders of central banks currently in the midst of interest rate tightening cycle’s.
Apart from commentary on recent emerging markets wobbles one of the main points of interest will be the content of Federal Chairman Powell’s speech, the title of which is “Monetary Policy in a Changing Economy”.
A narrow subject it would seem, that will allow the market to focus on clues as to the likely trajectory of future U.S. interest rate hikes. Currently there is a fullrate hike priced for September and the market has ascribed around 50-50 odds of a second increase by year-end, as well as a further one-and-a-half rate hikes in 2019.Despite reports that U.S. President Donald Trump was “not thrilled” by the prospect of further interest rate hikes, it is unlikely to have had any impact on the Feds thinking.
In which case, it’s hard to go past the lure of the U.S. dollar. After a 2% tumble over 5 days, stretched long U.S. dollar positioning across the board is likely to have been reduced. While it was hard to find a logical place to buy U.S. dollars against pairs such as EURUSD and GBPUSD, USDJPY offered a much better alternative.
As can be viewed on the chart below, USDJPY formed a daily reversal candle at the 109.77 low. The 109.77 low was towards the middle of the 38.2% Fibonacci retracement and the wave equality target at 109.50. The subsequent recovery provides a strong technical basis to suggest USDJPY completed a corrective pullback at the 109.77 low and that a retest of the July 113.17 high will follow.
Further confirmation of this bullish prospect would be a daily close above the top of the trend channel, 111.00 area, ideally post the Jackson Hole Symposium. If this occurs, I would consider adding to USDJPY longs with the stop loss placed below 109.70.
Source Tradingview. The figures stated are as of the 23rd of August 2018. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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