The Jackson Hole meeting provided little clarity

Investors looking for clarity from the Jackson Hole meeting over the weekend would have been disappointed, as members of the Fed and ECB voiced different opinions.

Federal Reserve Bank of St. Louis President James Bullard said he is cautious on tapering, while the central bank should not raise the benchmark interest rate as long as inflation is below 1.5%, while his peer John Williams, Federal Reserve Bank of San Francisco President said it’s data dependent.

ECB Governing Council members were split over whether the eurozone economy needs further rate cuts. Bank of Cyprus Governor Panicos Demetriades said a rate cut “is still on the cards”, while Bank of Austria Governor Ewald Nowotny said he was “cautiously optimistic” about the economic outlook, although it remains weak.

Technical outlook

Our technical outlook for this week on the euro reflects the underlying theme that the eurozone is not entirely out of the woods yet. Economic sentiment in the eurozone is expected to be at the highest level in over a year, with the consensus that sentiment will improve to 93.8 from 92.5 according to a Bloomberg survey, while unemployment remains high.

The euro gained 4.7% against the US dollar since it touched a low of 1.2755 on 9 July. The euro faces strong resistance in the 1.3400 region. The recent rally lacks momentum with a bearish divergence forming, it is likely to trade lower, towards 1.33-1.32.

sterling gained 4.8% against the dollar since touching a low of 1.4814 on 9 July. It retreated from 1.57 levels as the market anticipated Bank of England’s chief Mark Carney might talk down interest rates, offsetting the better-than-expected GDP data at 0.7% in Q2, boosted by construction and manufacturing.

Over the weekend at Jackson Hole, BOE’s Deputy Governor Charlie Bean said “we are a long way before we start tightening policy” and the UK recovery is better this year with “confidence we are out of this long period of flat output”. Our outlook for sterling this week is to expect consolidation around 1.5550-1.5600 with a possible scenario of pushing higher, towards the 1.57 region.


Kuroda said the asset buying program of US$70.9 billion has started to benefit the economy and financial markets while containing the increases in long-term interest rates. He adds inflation expectations have been picking up in Japan to help ensure stability in global markets.

Japan’s exports in July showed a jump to 12.2% from 7.4% previously. With business and consumer sentiment improving, the yen is at a critical point. There are two possible scenarios we have marked A and B, with a bias towards A.

If the USD/JPYcan sustain above 98.7, we expect scenario A which is a further test of the psychological level of 100, most talked about since the start of the year.

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