There seems to be no major breakthrough in the US-Sino trade negotiations, which ended after a two days round. On the contrary, the situation escalated further as a new round of US tariffs for about $16 billion of Chinese products, kicked in yesterday. The market’s focus is now expected to turn to Fed’s Chairman Jerome Powell, who is to deliver his speech at the Jackson Hole symposium later on today. Analysts, see the case for Powell to defend the Fed’s current rate hike path, dependent on economic data and not political pressures. The speech’s title is to be “Monetary Policy in a changing economy” and albeit rather generic, it predisposes at the change of monetary policy in a changing US economic landscape.
We see the case for Powell to defend the Fed’s current policy and its rate hike path, as criticism was raised recently regarding the Fed’s rather lonesome rate hiking path as ECB and BoJ keep a cautious stance. Such a lonesome ride could effectively raise the USD’s value with adverse effects especially for emerging markets. Also, the Jackson Hole Symposium may prove to be a good opportunity to address Trump’s recent criticism indirectly and display the independence of the Fed.
The Chairman could point towards the low unemployment as well as the accelerating inflation and GDP growth rates in order to argue for the economic situation. Also, comments could be made about the international trading relationships and their effects on the US economy. Overall, any hints may be subtle and could support the USD, while should there be any hints of swaying from the current rate hike path of 2018 and 2019, we could see the USD weakening.
EUR/USD moved sideways yesterday with some bearish tendencies, testing the 1.1537 (S1) support line. We could see the pair move sideways with some bearish tendencies today as it might prove sensitive to Jerome Powell’s speech at the Jackson Hole Symposium later today. Should the pair come under selling interest we could see it breaking the 1.1537 (S1) support line and aim for the 1.1482 (S2) support barrier. On the other hand should the market be interested in buying the pair, we could see it rising and aiming if not breaking the 1.1623 (R1) resistance line.
A hard Brexit could mean more bureaucracy and higher prices
UK Brexit secretary Dominik Raab released the first set of advice for businesses in the case of a hard Brexit yesterday. The contents paint a grim picture as they contain notes for more red tape for UK businesses and higher prices. They also imply that many of the problems created by a no deal Brexit may be beyond the UK government’s powers to fix. Also, Chancellor of the Ex-Chequers Philip Hammond repeated the treasury’s warning that leaving without a deal would have “large fiscal consequences”. Should there be further negative headlines about Brexit, we could see the pound weakening further.
GBP/USD dropped yesterday breaking 1.2825 (R1) support line (now turned to resistance). The pair could trade in a sideways manner today with some bearish tendencies, as it may prove sensitive to Jerome Powell’s speech later today. Should the bears dictate the pair’s direction we could see it breaking the 1.2770 (S1) support line and aim for the 1.2725 (S2) support level. Should the bulls take over we could see it breaking the 1.2825 (R1) resistance line and aim for the 1.2895 (R2) resistance hurdle.
In today’s economic highlights:
In the European session, we get the Germany’s GDP growth rate for Q2 while in the American session we get the durable goods orders growth rates for July and the Baker Hughes oil rig count. Also it should be noted that Fed Chairman Powel is to deliver his speech at the Jackson Hole symposium and could move the USD.