Markets Consolidate in Suspense Ahead of Powell’s Speech Today
- Cautious trade is expected ahead of Jerome Powell’s speech at Jackson Hole, scheduled at 23:10 (Sydney)
- US indices resumed their relentless bullish ascent with Nasdaq 100 and S&P500 pushing to fresh new highs. Big tech continues to outperform with the Nasdaq 100 outpacing the Nasdaq composite
- The slight risk-on tone from Wall Street sees NZD and AUD as strongest currencies again in Asia, GBP and EUR are currently the weakest
- WTI and Brent trade remain near their YTD highs as Hurricane Laura broods, raising concerns over the damage to US oil and refining capacity
- Japan’s PM Abe has scheduled a press conference on Friday and rumour are circulating that he may resign due to health concerns. It’s also rumoured that Finance Minister (and former PM) Aso would fill his shoes.
11:10 pm (Sydney) – Jerome Powell speech: “Navigating the Decade Ahead: Implications For Monetary Policy”
- Powell’s speech is the main show in town later today
- Any hints in how the Fed may change its policy could have a large impact on markets, particularly traded in USD
- In particular, traders want to hear if the Fed will shift towards an ‘average inflation’ target methodology after consistently missing their 2% target since the GFC
- This could see the Fed letting inflation to move more freely around 2% and let the economy run hotter than it would have previously, allowing inflation to overshoot their previous target and bolster growth
- So as markets expect Fed to deliver something, it could instil volatility whether they deliver or not
- For this reason, traders may want to tread very carefully around the USD arena, at least until the picture becomes clearer (although interestingly, precious metals may benefit in either scenario as a protection against inflation, or a safe-haven through turbulent times).
Brent Is Consolidating Just Below YTD Highs
Hurricane Laura has placed a tailwind behind WTI and Brent prices. Whilst both remain just off-of their YTD (year to date) highs, price action on Brent appears cleaner and there is less in the way of technical levels above to ruin the reward-to-risk potential. Brent has also broken out of a corrective channel whilst WTI remains within its sideways channel – so perhaps Brent could provide the lead for WTI if we see a weaker USD after Powell’s speech tonight. We shall have to wait and see.
- A clean break above 46.57 assumes bullish trend continuation
- If prices dip lower, we could still consider bullish setups above the broken trendline (if it acts as support)
- If momentum rolls over, we will remove it from the watchlist
Silver Breaks Out to the Upside
We flagged the potential for volatility to return to Silver (and gold). They haven’t disappointed. Even if it did arrive a day earlier than expected. Prices are now consolidating near yesterday’s highs ahead of Powell’s speech.
- The bullish bias remains with next target around the 28.30 highs
- If prices retreat, we’d seek evidence of support (a potential ‘higher low’). The 38.2% Fibonacci level and 26.80 highs are a potential zone pf support
- If bearish range expansion takes it from the highs, we’d remove it from the watchlist
AUD/NZD Mean Reversion Underway?
In Monday’s report we flagged the potential for AUD/ZD to move lower as the weekly chart produced a bearish pinbar after a strong move (so look extended). On the daily chart, Friday and Wednesday produced large bearish candles, and we have seen several failed attempts to close above 1.10 before rolling over.
- Near-term bias is bearish with a view to fall to the cluster of support around 1.0850
- A break above 1.10 invalidates the near-term bearish bias
- As this is a counter-trend move, we’d typically seek a lower reward/risk ratio than if it were a trending bias
EUR/JPY Pullback, But Can It Hold Support?
As of yesterday’s report, we were either waiting to see if the consolidation held or prices retraced to support for bulls to consider entering at a ‘better price’. Well, the latter occurred and prices have retreated to the 50% level where prices are consolidating once more.
- Given the bullish daily trend, we continue to seek bullish setups but support needs to hold from here
- If bullish momentum returns from current levels then we’d seek an initial target back at the 126 highs, and then 126.750
- A clear break below the 125 zone invalidates the setup
USD/CAD: The Loonie continues to probe key lows in line with its bearish daily trend, yet supported by the 200-week eMA. We are yet to find out if the 200-week eMA will act as a springboard for bullish gains or cave in for a break lower for bears. Today’s Powell speech at Jackson Hole could be key.
AUD/JPY: Waiting for the big break of a multi-month ascending triangle. Prices are consolidating below 76.86 resistance and it is unclear whether prices will break directly higher form here or recycle lower. If prices move lower, we’d want to see another ‘higher low’ form to suggest the triangle was still a potential. So, it remains one to watch but patience may be key given the size of the triangle.
NZD/CAD: Removed from watchlist as a large bullish candle has taken the cross markedly higher before it broken key support.