Greenback in focus ahead of Jackson Hole

The US dollar will be the main point of focus in the FX markets this week with a couple of key events for the greenback.

USD
Source: Bloomberg

The Jackson Hole Symposium will be the key event for the USD and currency markets this week. The topic is ‘re-evaluating labour market dynamics’ and there will nr plenty of interest around what Janet Yellen has to say, and of course any shift away from language on slack in the labour market/underutilisation of the will be key for markets. Are we going to see a more aligned Fed or still a large gap between the hawks and the doves?

Don’t forget we also have the July FOMC meeting minutes setting the scene on Wednesday and CPI data due out on Tuesday.  All up should we get a more neutral tone from Janet Yellen, away from her usually dovish stance, then this could be a trigger for a USD move.

Cable firmer on Mark Carney comments

As far as trades are concerned, the pair I’m watching closely is cable. The pair has been declining since July 16, but finally managed to pop this morning on the back of comments made by BoE Governor Mark Carney. He suggested the key to raising rates will be confidence that prospective real wages are going to be growing sustainably. Additionally, the BoE won’t wait for confirmation of that to raise rates and that momentum is now more assured. The market certainly took these comments as hawkish and this has pushed cable higher.

Last week I highlighted a downtrend resistance which has been in place since July when the pair topped out. This downtrend currently comes in at around 1.678 and may cap gains in the near term. Traders will be looking for a catalyst to push the pair through this downtrend. A good sign is the fact the RSI traded below 30 and has now pushed back above this level, suggesting it was oversold. A safer way to trade the pair could be to actually wait for a move above 1.6800 to confirm a change in trend. 

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