Powell's Jackson Hole Speech Caps Volatility for FX | FXTRADING.com - International

  • With markets waiting for Jerome Powell’s speech at the (virtual) Jackson symposium on Thursday, we may find currency markets reluctant to breakout – particularly where the dollar is concerned. He’s scheduled to deliver a speech titled “Navigating the Decade Ahead: Implications for Monetary Policy”.
  • The Bank of Canada (BOC) is asking the public for feedback on whether they like their central bank’s 2% inflation target model. Via an online survey, it is the first time they have asked for outside opinion since the target was launched in 1991.
  • A lack of progress with British and EU negotiators has continued to weigh on the pound this week.
  • No major economic data in today’s Asia session should keep ranges tight unless something unexpected is to materialise.

 

Up next: Calendar Highlights

German IFO Business Climate:
The business sentiment index rose for a third consecutive month in Jul, in line with expectations of a V-shape recovery in a post-Covid world. Yet continued optimism assumes no second waver occurring and, as cases have begun to pick up again throughout August, we’ll be waiting to see if this weighs on business sentiment.

As the IFO report is a forward-looking indicator, weakness in the IFO assumes weakness in future growth. So, the further away from expectations the indicator lands, the greater volatility can be as a result.

Keep an eye on: DAX (US30), EUR/USD, EUR/JPY

 

DJI (US30): Retaining Bullish Bias

Bullish momentum has returned to see DJI hit a new cycle high. With the Nasdaq-100 and S&P 500 at new all-time highs, the bullish bias remains with an open target.

The bullish hammer on Thursday saw an intraday break of support at 27.656, but the close back above this pivotal level was enough to suggest the low was in.

With a strong daily structure, we’d prefer to seek bullish setups on intraday timeframes.

A strong trend is developing on the H4 chart, and bulls could seek continuation patterns such as flags, pennants, triangles or periods of consolidation on the hourly chart to enter. Alternatively wait to see if prices pull back to the moving averages, as the 10-20 eMA provided dynamic support during the previous leg higher.

However, keep an eye on the next resistance levels around 28,800 (previous gap lower) and of course the all-time highs around 29,570.

Nikkei 225 (JP225): Eyes Up Break of Key Resistance

Yesterday’s bullish candle following a long-legged doji (wide ranging day) suggests a pivot low could be in place.

The daily chart is in an established uptrend, with the 50-eMA above the 200-eMA and both pointing higher. Price action has broken out of a bullish flag ad paused beneath key resistance (23,350) and, given the bullish structure overall, an upside break is favoured.

  • A clear break of 23,350 highs beings 23,800 and 24,000 highs in focus for bulls
  • If momentum reverses below resistance, bears could consider shorts on lower timeframes

NZD/CAD: Consolidating Below the 200-day eMA

Last week we noted on NZD/CAD and NZD/CHF their “trends remain bearish so we’re waiting to look for short opportunities at higher prices”. Well, prices moved higher, topped and rolled over. Sadly, we could not get an entry as their bearish reversal candles stopped just above the 200-day eMA.

For now, we are monitoring price action below the 200-day eMA to see if it can break beneath 0.8575 support (a pivotal level) and resume its downtrend

  • A break beneath 0.8575 suggests the downtrend has resumed
  • A break above 0.8652 (or the 200-day eMA) warns of a deeper correction
  • Daily trend remains bearish whilst prices remain below the hammer high at 0.8745

 

CAD/JPY: Lacklustre Momentum Is A Problem for Bulls

On Thursday we highlighted a potential bullish setup on the daily chart, yet the series of doji’s has shown a hesitancy to commit to its next directional move.

Technically the setup is still valid as it holds above 79.86 support, and a daily close above 80.50 would be constructive for the bull-case.

However, today we’ll look at the alternative scenario, given the two bearish candles on the H4 chart.

  • 86 remains a level to monitor as a break beneath it could confirm a bearish flag and target the monthly pivot around the 78.70-95 lows.
  • If yesterday’s high breaks before key support, then the bullish scenario can still be considered (Thursday’s report).

  

Watchlist update.

EUR/JPY: The downside break of Thursday’s doji saw the decline stop just shy of our bearish target. As it didn’t break the high of the Doji, the bullish bias was invalidated with the downside break. This has now been removed from the watchlist.

GBP/AUD: The bull-flag breakout has been invalidated and Friday’s bearish inside day (and 2-bar reversal at resistance warns of a double top pattern at 1.8708. Whilst the original analysis suggested we invalidate the potential inverted H&S pattern with a break beneath the 1.8125 low, price action since Friday has underwhelmed so this may best be revisited when the market has truly shown its hand.

GBP/NZD: Setup invalidated and removed from the watchlist. Price broke to the downside of the (potentially) bullish pennant and fell sharply back to the psychological round number 2.0000.  With Friday closing with a large bearish candle (and a dark-cloud cover pattern) we’d prefer to step aside.

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