As we noted in the recap to yesterday’s FOMC minutes (see “FOMC Minutes: Three Frustrating Fed Fears Fail to Fade” for more), this week’s marquee event for the US economy was always going to be Fed Chairman Jerome Powell’s speech at the Jackson Hole Symposium, which takes place at 10:00am ET.
Especially after central bank policymakers expressed numerous concerns in the minutes, traders will key in on the tone and content of Powell’s comments tomorrow to gauge the likelihood of an interest rate increase in December (a rate hike next month is essentially a “done deal” at this point). While there are reasons for caution, we generally expect Powell to maintain the same optimistic perspective he espoused at his Congressional testimony last month.
In that meeting, the Fed Chair emphasized the strength of the US economy and the rising price pressures, voicing support for continued “gradual” adjustments to interest rates. Interestingly, we’ve also seen US President Trump chime in on monetary policy, noting in a meeting with donors that Powell and Company were raising interest rates too aggressively. Having just seen the risks of a central bank losing its perception of independence in Turkey earlier this month, we suspect that these comments could backfire, making the Fed more likely to raise interest rates in order to emphasize its independence.
Technical View: EUR/USD
The world’s most widely-traded currency pair has been on a tear over the last week, rallying from a low at 1.1300 midway through last week to peak at 1.1600 yesterday. Rates are rolling over so far today, in-line with the recent downtrend. For now, the three-month bearish channel remains intact, suggesting that EUR/USD could roll over for a move back toward 1.1400 or 1.1300 if Powell comes off as a hawkish. Only a break above the top of the channel around 1.1650 would erase that near-term bearish bias.
Source: TradingView, FOREX.com