Markets wait for Powell’s Keynote Speech

August 26, 2022

US stocks rallied on Thursday, as traders awaited Jerome Powell’s keynote for clues on how much further the Federal Reserve will pump the brakes on the economy to bring inflation back under control.  Investors were mostly unfazed by hawkish comments from Fed officials gathering for the annual conference in Jackson Hole, Wyoming. The Fed’s chair is widely expected to restate his resolve to keep tightening policy to fight inflationary spirals. Besides, traders will also be watching out for any signals about the pace of the Fed’s balance-sheet runoff, quantitative tightening, which gets up to full speed in September at a monthly clip of up to $95 billion.

The benchmarks, both S&P500 and Dow Jones Industrial Average advanced on Thursday, following the lowest trading day of 2022 for US equities, and volume was once again below average. All eleven sectors of S&P500 stayed in positive territory, as Material and Communication Service performed the best among all groups, rising by 2.26% and 2.06% on daily basis for the day. Benefit from mega-caps like Apple Inc. and Amazon.com Inc. jumped, Nasdaq 100 rallied with a 1.7% gain. The Dow Jones Industrial Average rose 1%, and the MSCI world index increased 1.3% on Thursday.

Main Pairs Movement

US dollar slid on Thursday, as investors awaited Federal Reserve Chairman Jerome Powell’s speech on Friday for further clues about the pace of the U.S. central bank’s rate hikes. The DXY index extended bearish momentum and dropped to a level around 108.0 in the first half on Thursday, then witnessed fresh upbeat transactions and oscillated from 108.4 to 108.6 level in the late UK trading session.

The GBP/USD was little changed up on Thursday, although the US greenback turned a little weak, a gloomy economic outlook in the UK weighed heavily on the cables. The pair climbed t a daily high level above 1.186 during the middle UK trading session, then slipped and volatile in a range from 1.800 to 1.845. Meanwhile, EUR/USD observed upbeat tractions in the first half of Thursday, then faced heavy selling pressure to wander between 0.995 and 0.998. The pair was little changed for the day.

Gold surged with a 0.43% gain on daily basis, as the FX domain turned volatile ahead of Jackson Hole Economic Symposium. The yellow metal edged higher to touch a daily high of $1,765 marks in the first half of Thursday, then corrected to around $1,757 marks.

Technical Analysis

EUR/USD (4-Hour Chart)

The EUR/USD pair advanced on Thursday, preserving its bullish strength and touched a daily high above the 1.003 mark in the early European session amid the better market mood. The pair is now trading at 0.9986, posting a 0.25% gain daily. EUR/USD stays in the positive territory amid a weaker US dollar across the board, as traders prefer to wait for a more hawkish message from Fed Chair Jerome Powell at the Jackson Hole Symposium on Friday. The less-hawkish comments from the Philadelphia Fed President Patrick Harker also acted as a headwind for the safe-haven greenback and underpinned the EUR/USD pair, as he said that a 50 basis points rate hike would still be a substantial move. But the expectations for further policy tightening by the US central bank should limit the losses for the US dollar. For the Euro, the German Final GDP came at 0.1% QoQ in Q2, which was better than expected and provide some support to the shared currency.

For the technical aspect, the RSI indicator is 43 as of writing, suggesting that the downside is more favoured as the RSI stays below the mid-line. As for the Bollinger Bands, the price failed to climb higher and dropped toward the moving average, therefore the downside traction should persist. In conclusion, we think the market will be bearish as long as the 1.007 resistance line holds. Technical indicators also turned lower and the RSI is within negative levels.

Resistance:  1.0007, 1.0089, 1.0172

Support: 0.9924

GBP/USD (4-Hour Chart)

The GBP/USD pair edged higher on Thursday, struggling to capitalize on its intraday gains and retreated from a daily high near the 1.1860 level that touched in the early European session amid the recovery witnessed in the US dollar. At the time of writing, the cable stays in positive territory with a 0.05% gain for the day. The US Weekly Initial Jobless Claims declined to 243K in the week ending August 20, which came in better-than-expected and reaffirms bets for a further policy tightening by the Fed. The market focus now shifts to Fed Chair Jerome Powell’s appearance at the Jackson Hole Symposium on Friday, as his comments could provide clues about the possibility of a 75 bps Fed rate hike move at the September meeting. For the British pound, the currency is likely to remain under pressure as the bleak outlook for the UK economy overshadows expectations for a 50 bps rate hike by the BoE next month.

For the technical aspect, the RSI indicator is 43 as of writing, suggesting that the risk is skewed to the downside as the RSI started to decline. As for the Bollinger Bands, the price preserved its downside traction and dropped toward the moving average, therefore the bearish strength should persist. In conclusion, we think the market will be bearish as long as the 1.1849 resistance line holds. On the downside, a break below 1.1780 could underpin the GBP/USD pair’s downside bias.

Resistance: 1.1849, 1.1922, 1.2050

Support: 1.1780, 1.1763

XAU/USD (4-Hour Chart)

Gold price refreshed a weekly high near the $1,760 level ahead of Thursday’s European session, forming a three-day uptrend. The price advance for a weaker dollar and stimulus news from China, as investors await rate guidance from the Jackson Hole Symposium.

Per Bloomberg, the State Council, China’s Cabinet, outlined a 19-point policy package on Wednesday, including another 300 billion yuan that state policy banks can invest in infrastructure projects, on top of the 300 billion yuan already announced at the end of June. Local governments will be allocated 500 billion yuan of special bonds from previously unused quotas. As China is one of the largest buyers of gold in the world, positive news from China often favours the gold price.

For the technical aspect, the RSI indicator is 56 as of writing, above the midline, showing some momentum to the upside. As for the Bollinger Bands, the price edges higher with an up-bending moving average, maintaining slightly below the upper bound, suggesting that the upside traction could be expected. Besides, the price has advanced to above the $1,757 level, and now testing it as a support region on the 4H chart. In conclusion, we think the market started to show some bullish traction, but the trend after still mainly depends on the message from Fed Chair Jerome Powell at the Jackson Hole Symposium on Friday. Therefore, it might not be that much price action before the event.

Resistance: 1783, 1803

Support: 1757, 1730, 1714

Economic Data