The annual meeting of central bankers at Jackson Hole is here at last. Ms Yellen’s set speech, entitled “The Federal Reserve’s Monetary Policy Toolkit”, may or may not attempt to move market thinking towards a faster interest rate tightening cycle.
Before you say “meh”, consider the market positioning. The forward interest rate curve varies but is expressing doubt that there will be a Fed rate rise this year, with the probability fluctuating between 40% and 60%. However, the outcome is binary, and the timing could vary. At this stage, markets are giving less than full weight to a rate rise.
This may change today. If Chair Yellen talks higher rates faster, there will be a market reaction. On the other hand, there is very little possibility that Yellen will talk rate cuts, or rule out rate rises this year. A speech that is interpreted as maintaining the status quo is unlikely to shift markets.
This set up points to possible asymmetric risk, with the USD to strengthen, or remain steady.
The Singaporean economy is steady at low growth. The lower than expected industrial production numbers today did little to shift the currency, suggesting the current Sing economic climate is reflected in USD/SGD. This makes it an ideal instrument to express USD views.
The clear overhead resistance gives an entry strategy. Buying at 1.3635, with a stop loss at 1.3582, some traders may target 1.3800 given the May resistance at the level. However, my view is that such a development could take days and weeks for the market to price correctly, and therefore my target is 1.4050, just below the February resistance.