Daily Market Recap – DXY What to expect from Jackson Hole?

The renewed risk appetite in a week where most of the focus is on Fed Chairman Powell's speech in Jackson Hole suggests that the market is not thinking about an immediate reduction in the asset purchase program discussed at the Fed's last meeting.

But can Chairman Powell really move the needle on the tapering debate from the tone of the minutes that so spooked the markets？ And even if he does, will it really be a reason to proceed with greenback sales？

It is unlikely that we will hear any details on the pace or duration of the interest rate cut as that would have to be agreed upon and announced at an FOMC meeting. It is likely that Chairman Powell will repeat many of the comments made in the minutes, including that most FOMC members favor an announcement on the gradual reduction of the asset purchase program, depending on macroeconomic data.

The spread of COVID-19 and recent disappointments in U.S. data may encourage Powell to emphasize the downside risks to growth and push back a specific timetable on tapering. After all, according to dollar bears, even Fed hawk Robert Kaplan recently pointed to these risks as reasons to delay the adjustment.

At a time when global growth may be peaking, markets won't want to start worrying about the U.S. economy. If Powell is too ardent about the risks, he could cause the dollar to react with a risk-off mode, as we saw after the disappointing US retail sales and consumer confidence numbers. Alternatively, if he doesn't give much time to risk and focuses on the recovery and the merits of monetary policy normalization, the dollar should also rally.

Dollar bears may only hold on to their recent gains if Powell can cite the risks, indicate that there is no need to rush into a monetary adjustment while remaining optimistic about the U.S. economic outlook.

The bears need him to pull off this balancing act. As you can see, it is more likely that the elements are there for a continued rise in the greenback.

(Chart Source: Tradingview 27.08.2021)

The dollar is in an uptrend with ascending lows after marking a round bottom reversal pattern in May and June. The drop at the beginning of the week is just a breather for now. Above the 20-period moving average and the last low at 92.42, the rise could resume. Prices may return to the highs at 93.73 as a first step before making a push for the 2018 September high.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.