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All eyes on Powell’s Jackson Hole speech, and US claims numbers

The absence of negative drivers, as well as optimism over what is coming from the start of today’s Jackson Hole on-line symposium saw US markets post more new record highs yesterday, as well as seeing gold finish the day strongly higher as well.

Asia markets have had an altogether more mixed session, with oil prices slightly firmer as the industry prepares for significant disruption from Hurricane Laura in the Gulf of Mexico.

A fairly decent set of US durable goods numbers for July, helped underpin the positive mood yesterday, and looks set to see some positive spill over to markets here in Europe, ahead of today’s keenly anticipated speech by Fed chair Jay Powell, where there is some speculation that he could well explore, or hint at a new policy of AIT, or average inflation targeting.

This means that central bank policymakers would be prepared to tolerate prices rising above 2% for extended periods of time to compensate for other periods, when inflation is running below target.

He is also likely to ram home the message from his previous press conference that the recovery still largely depends on the virus, and the Fed remains ready to do whatever is necessary to support the economy.

At the risk of coming across as rather glib, I’m not altogether sure how this is any different to what central banks have been doing for the past twelve years, and appears to come across as rather desperate.

The Bank of England has been doing this for the past 12 years with very little success, and just because we could get an official recognition that this is where central bank policy is now leaning, the bigger question remains as to whether it is likely to make much difference at all.

If anything, it comes across as shuffling the deckchairs, at a time when the Fed’s room for policy manoeuvre is somewhat limited in the absence of further fiscal measures from US politicians. The Fed may well be able to anchor market expectations about its inflation targeting, however we already know from the Bank of England’s experience of the last 12 years, when it let inflation roar up to 5%, without nudging rates up, that it is easier to say than it is to do.

As such this could well be a buy the rumour, sell the news type of move as we head towards the weekend.

On the data front we’ll also be getting the latest revision to US Q2 GDP, which could well be revised up from the current -32.9%, with the possibility that the sharpness of the rebound in May and June could see an upward revision to the latest numbers, with expectations of a modest improvement to -32.6%.

Of more interest will be the latest weekly jobless claims numbers after last weeks, not entirely unexpected jump from 963k to 1.1m claims. This could well have been the first indication of the damage done by the sudden ending of the $600 a week enhanced unemployment benefits package, which stopped at the end of July.

The brief fall below 1m weekly claims, along with new record highs for stock markets may have given rise to some complacency amongst out of touch US politicians. If we see another sharp rise in claims in this today’s numbers, the pressure to pass a new stimulus package is only likely to intensify, especially if stock markets start to look a little top heavy, which in some cases is starting to look to be the case.            

EURUSD – still feels like it wants to head back towards the neckline support around the 1.1700 area. Currently we have resistance at 1.1880, and the recent highs at 1.1960. A break below 1.1680 targets the 1.1500 area.  

GBPUSD – the pound has continued to find support above the trend line from 7th August lows at 1.3030, after last week’s push to the 1.3270 area. A move above the 1.3270 area could well open up a move towards 1.3350.  A break below 1.2980 opens up the prospect of a move towards the 1.2770 area.

EURGBP – a break below the recent lows at the 100-day MA and the 0.8940/50 area has the potential to open up a move towards the 0.8870 area. The euro needs to push back above the 0.9080 level to target the 0.9130 area.

USDJPY – slipped back from the 50-day MA yesterday at 106.20 and could well see a return to the 105.00 area in the short term. A move through the 106.30 area targets the 107.20 area seen earlier this month.

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