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Central bankers’ speeches in focus

Stock markets in Asia moved higher overnight, and we saw Japan’s inflation rate tick up to 0.5% in July – meeting expectations.

After a long wait the Jackson Hole symposium finally kicked off yesterday, and traders will be paying close attention to the speeches from Janet Yellen and Mario Draghi, which are due to take place today.

To borrow an expression from the music industry, it is fair to say that Mr Draghi is the ‘headline act’. We were told by unnamed sources from the European Central Bank (ECB),that Mr Draghi will not be laying down the groundwork for the tapering of the stimulus package.

The ECB chief will probably use the speech to congratulate himself on the recovery of the eurozone thanks to the loose monetary policy, but he might use the relatively low inflation rate as an excuse not to talk about reigning in the stimulus package.

The ECB are buying €60 billion worth of government bonds per month, and traders know full well the central bank will run out of bonds to buy. The ECB will have to come up with alternative ways to keep the policy loose, because a weak euro will assist the eurozone.

Janet Yellen, the chair of the Federal Reserve, is likely give us more of the usual, that the US economy is improving, and in particular unemployment is falling. Earnings could be firmer but they are edging higher. The US inflation level is below the Fed’s target and if Ms Yellen brings that up, it will tip off traders that we are unlikely to see a rate hike in December.

US politics is certainly interesting at the moment, and President Trump has warned Washington DC that it better come up with the cash to build the wall along the Mexican border, or else run the risk of being shut down. Traders are worried as the deadline for the debt ceiling is looming.

Before the big speeches from Jackson Hole we have some economic announcement that will be of importance. Second-quarter German GDP will be released at 7am, and economists are expecting a reading of 0.6% quarter-on-quarter. Germany is the engine room of the eurozone, and the economy needs to be strong before the ECB can consider altering their monetary policy.

Sales of durable goods excluding transportation, is a good measure of consumer demand, and the US will release the latest numbers at 1.30pm, and traders are expecting an increase of 0.4%.  

EUR/USD – has been creeping higher over the last week, and if the resistance at 1.1847 is cleared then 1.1910 will be brought into play. 1.1708 is acting as support, and should it drop below it, then 1.1662 will be on the radar. The next support level down is 1.1613.

GBP/USD – has been losing ground since the beginning of the month, and the support at 1.2716 will be the target for sellers. A break below 1.2716, would bring the 200-day moving average at 1.2651 into sight. Rallies will run into resistance in the 1.2900 region.

EUR/GBP – is in a solid upward trend and bulls will be looking to the resistance at 0.9297. Pullbacks could find support at 0.9160 and 0.9100.

USD/JPY – is eyeing the resistance at 109.82, and if it breaks above it, then 110.37 and 111.00 will be brought into play. A drop below 108.63, could see it retest the support at 108.13.

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