Markets are Hesitant until the Fed’s Jackson Hole Speech

August 25, 2022

The US stocks little rallied on Wednesday, stock traders remained hesitant to make any huge wagers ahead of Jerome Powell’s speech on Friday, which may provide clues on how hawkish the Federal Reserve will be in the face of mounting economic challenges. In the run-up to the all-important Jackson Hole annual conference that will be attended by policymakers around the world, investors had to digest more hawkish talk, as it’s probably that Fed officials need to tighten and bring inflation back under control. Besides, economic data have been mixed at best, US pending home sales fell to the lowest since the start of the pandemic, underlining the delicate task policymakers face in bringing down high inflation without sparking a recession.

The benchmarks, both S&P500 and Dow Jones Industrial Average notched a small gain on Wednesday, with its swing capped within 1% for the second day in a row. All eleven sectors in S&P500 stayed in positive territory, as the Energy sector performed the best among all groups, which rose 1.20% for the day. It’s worth noting that Tesla Inc. pared most of its rally ahead of a split-adjusted basis on Aug.25, which caused the Nasdaq to little moved upward with a 0.3% gain on daily basis. The Dow Jone Industrial Average rose 0.2%, and the MSCI world index was little changed on Wednesday.

Main Pairs Movement

The US dollar was little changed on Wednesday, as investors put into sideways for a Friday speech by the Federal Reserve chairman for fresh clues on how aggressive the central bank will be in its battle against inflation. The DXY index slowly climbed up to a daily high level above 109, then witnessed huge selling transactions and fell to a level below 108.4 during the US trading session.

The GBP/USD declined with a 0.31% loss daily for the day, as investors were cautious ahead of Jackson Hole Symposium. The cables were weighed in the first half of Wednesday, then observed upbeat traction at the beginning of the US trading session and touched a daily high level of around 1.188. Meantime, EUR/USD touched a level of nearly 1.000. The pair was little changed down on Wednesday.

Gold advanced with a 0.17% upward for the day, as a two-day uptrend. XAU/USD surged during the US trading session and oscillate in a range from $1,744 to $1,756 marks. WTI and Brent oil surged on Wednesday, rising by 1.23% and 1.55% on daily basis respectively.

Technical Analysis  

EUR/USD (4-Hour Chart)

The EUR/USD pair advanced on Wednesday, regained upside momentum and climbed toward the 1.000 mark to recover all of its daily losses during the US session amid the emergence of fresh selling around the US dollar. The pair is now trading at 0.9981, posting a 0.12% gain daily. EUR/USD stays in the positive territory amid renewed US dollar weakness, as the rising US Treasury bond yields and upbeat US economic data failed to lift the greenback higher. The US Durable Goods Orders excluding defence increased by 1.2% and Pending Home Sales data also fell less than expected, providing some support to the greenback during the European session. Investors are waiting for a more hawkish message from Fed Chair Jerome Powell at the Jackson Hole symposium on Friday. For the Euro, the concerns about the energy crisis remained amid the three-day unscheduled cut-off of energy supplies for maintenance of the Nord Stream 1 pipeline.

For the technical aspect, the RSI indicator is 40 as of writing, suggesting that the pair is regaining upside momentum as the RSI started to rise toward the mid-line. As for the Bollinger Bands, the price witnessed fresh buying and rose toward the moving average, therefore a continuation of upside traction can be expected. In conclusion, we think the market will be slightly bullish as the pair is heading to test the 0.9979 resistance.

Resistance:  0.9979, 1.0038, 1.0089

Support: 0.9924

GBP/USD (4-Hour Chart)

The GBP/USD pair edged lower on Wednesday, failing to preserve its upside traction and retreated to the 1.1795 level during the US trading session amid fresh buying witnessed in the US dollar. At the time of writing, the cable stays in negative territory with a 0.32% loss for the day. The slightly upbeat market mood and mostly upbeat US economic data both underpinned the greenback and exerted bearish pressure on the GBP/USD pair. The current market pricing indicates an equal possibility of a 50 bps rate hike or a supersized 75 bps move at the September FOMC policy meeting, as Minneapolis Fed President Neel Kashkari said that inflation is too high and emphasized the need to tighten monetary policy. For the British pound, despite further rate hikes by the Bank of England, the currency might remain under pressure amid higher energy prices.

For the technical aspect, the RSI indicator is 39 as of writing, suggesting that the downside is more favoured as the RSI stays below the mid-line. As for the Bollinger Bands, the price lost its upside strength and crossed below the moving average, therefore the downside traction should persist. In conclusion, we think the market will be bearish as the pair is testing the 1.1780 support. The level 1.1763 will be a crucial support to watch during the GBP/USD pair’s further weakness.

Resistance: 1.1849, 1.1922, 1.1980

Support: 1.1780, 1.1763

XAU/USD (4-Hour Chart)

Gold turned to rise in the US session and advanced to above $1,750 amid renewed selling pressure around the US dollar. However, the benchmark 10-year US Treasury yield is still up nearly 2%, limiting the upside for gold price.

For the technical aspect, the RSI indicator is 50 as of writing, maintaining steady compared to yesterday, showing no strong momentum to the upside or the downside. As for the Bollinger Bands, the price consolidates between the moving average and upper bound. This along with the flat-lining moving average suggests that the price still has no clear traction. In conclusion, we think the market is still waiting for a key signal to determine the next direction. To the upside, the gold price should advance above resistance at the $1,750 level first. On the downside, if the price closes negative below the $1,730 level, it might head to test the next support at the $1,714 level.

That said, traders might refrain from placing aggressive bets ahead of the key event risks – the Jackson Hole symposium on Friday. All eyes are now on Friday’s Jackson Hole symposium, which would determine the near-term direction of the US dollar and influence the performance of gold prices. For more price actions, eye on tier 1 economic figures from the US.

Resistance: 1757, 1783, 1803

Support: 1730, 1714, 1685

Economic Data