The USDZAR aside, it seemed as though the market was eagerly awaiting the Yellen Speech at Jackson Hole. Would she put a potential September rate hike back on the table? Would she confirm market expectation that December would be the soonest? My initial thinking was that this would turn out to be a damp squid, but in the end the price action turned out to be anything but that…
The Fed Chair gave her expected response and suggested that the case to hike had strengthened but as always, it came with a number of caveats:
- Data Dependent
- Course will not be pre-set
- Global Economic Shocks could affect that path
The initial price action was for the Dollar to strengthen and then to immediately reverse, as a side note the USD did reverse at strong support and resistance levels. Later in the evening we heard Vice Chair Fischer in a Q&A suggest that Yellens comments did allow for a possible rate hike in September, this drove a broad based Dollar rally.
I am still of the opinion that we will not see an interest rate hike before the US Elections, and am firmly in the camp that expects the next interest rate in December at the soonest.
Of the major FX pairs, the USDJPY was probably the wildest mover of the day, it hovered around the 100.40 level for most of the day, it smashed through the 101.30 resistance level and by the end of the week it settled slightly lower than the 2 week high at 101.85. There may be a little more room on the top side.
The EURUSD was also a massive mover and it closed below 1.1200. This is huge as the 100 day MA still lies at 1.1220. This level will be something to watch next week.
The GBPUSD was more or less unscathed on the week, it did close at 1.3135 which is around where the 200 Hour MA sits. This is a tricky pair to call for the open. Reports do show that the market is short this pair at record levels, I can’t discount that perhaps we were seeing a little bit of short covering ahead of the Bank Holiday Weekend.
The commodity currencies USDCAD, AUDUSD and NZDUSD felt the pain. These, along with Emerging Market currencies would be most affected should the FED hike rates in September as it would clean out the carry trade as market players migrate to USD based assets. My opinion is that on Monday the NZDUSD could be most at risk for a correction – as mentioned in the daily videos this pair has been trading at yearly highs and has battled to break through these levels which leaves it most vulnerable.
Keep in mind that Monday is a bank holiday in the UK and we will have reduced liquidity in the market, we may have to wait until the US opens to get come clarity in the market. On the bright side though we are one day closer to the end of summer holidays and perhaps we will see more defined moves towards the end of the week.
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