Could the US Dollar finally settle down this week? Perhaps. But it might only be until Friday when Fed Chairman Powell speaks at the Jackson Hole Symposium.
Can you recall a more volatile August for the US Dollar? Last week, the strength of the US Dollar was all the rage as Fed members were out in numbers discussing how the inflation battle was not over and the Fed still has a way to go. This week, that theme should continue as Fed members set up Fed Chairman Powell to speak at the Jackson Hole Symposium on Friday. In addition, Friday will bring about the Fed’s favorite measure of inflation for July, Core PCE. Will it confirm the weaker CPI print seen earlier this month? Markets will also see Minutes from the July ECB meeting. Earnings season begins to wind down this week, however there are still a few names worth watching, including ZM, NVDA, DG, DLTR, and PTON.
US Dollar on the move
This week, the calendar moves into the last full week of August. What happened to the summer doldrums? Sure, there have been a few quiet days here and there, but last week brought volatility in the US Dollar! The week started with a surprise rate cut in China, which sent the US Dollar on the move higher. As the week progressed, the Fed Minutes were initially interpreted as slightly dovish when it noted that “at some point”, the pace of future rate hikes must slow. In addition, it stated that “many” members said it could over tighten. On the release, stocks moved higher and the DXY lower as traders seemed to be grasping at the hope that the Fed will slow the pace of rate increases. However, cooler heads prevailed and the DXY resumed its move higher. Will the US Dollar move slow? With a light economic calendar and many traders out of the office for end of summer, it would seem plausible. However, volatility may return towards the end of the week with Powell speaking at the Jackson Hole Symposium.
Jackson Hole Symposium
It would seem like Fed speakers have already begun to set up Powell for his Jackson Hole speech. This annual event has been used in the past for the Fed to signal a change in the direction of Fed policy. However, that doesn’t seem to be the case this year. Fed speakers over the past week seem to be setting Powell up to continue with his hawkish rhetoric and continue with aggressive rate hikes, despite the lower inflation print for July. Fed members such as Daly, Bullard, Kashkari, and Barkin were on the wires last week talking about how it is way to early to declare victory on inflation with core services inflation still rising. Other discussions included getting rates to 3.75%-4% by end of year and pondering if the Fed can lower inflation without causing a recession. These comments seem to be setting up Powell for a speech on how the Fed has more work to do to lower inflation. Note that the CPI print for July was 8.5% YoY vs a previous reading of 9.1% YoY. Although the rate was lower, it is still considered to be very high.
Core PCE
Less than 2 hours before Powell is due to speak on Friday, the US will release the reading for July Core PCE. This is said to be a more accurate and preferred measure of inflation for the Fed than the CPI. Expectations are for a print of 4.7% YoY vs 4.8% YoY in June. Will this number confirm or contradict the CPI print?
Earnings
Earnings season is winding down but there are some important company releases to watch. Zoom and Peleton will be two to watch. How far have earnings fallen from the pandemic highs and what will be the guidance moving forward? In addition, Nvidia will be one to watch as it is one of remaining large tech companies to report. Dollar General and Dollar Tree will also be watched to see how aggressively consumers moved to low cost businesses and away from big box realtors such as Walmart and Target. Other earnings due out this week are as follows:
PANW, ZM, TOL, M, MDT, JD, INTU, NVDA, CRM, SNOW, DG, DELL, DLTR, GPS, TD, PTON
Economic Data
In addition to the US Core PCE due out this week, there is some other economic data to be on the lookout for. Global Flash Manufacturing and Services PMIs will be released. Last month’s European prints showed that many countries were below the 50 level. A reading of above 50 is said to be expansionary while a reading of below 50 means a country’s economy is contracting. In addition, the ECB will release the Minutes from it’s July meeting. This usually isn’t a large market mover, but with EUR/USD heading towards parity, traders will be looking for hawkish clues to push the Euro higher. Other economic releases to watch for this is as follows”
Monday
- China: Loan Prime Rate 1Y
- China: Loan Price Rate 5Y (AUG)
- Canada: New Housing Price Index (JUL)
Tuesday
- Global: Manufacturing and Services PMIs Flash (AUG)
- UK: CBI Industrial Trends Orders (AUG)
- EU: Consumer Confidence Flash (AUG)
- US: New Home Sales (JUL)
- US: Richmond Fed Manufacturing Index (AUG)
Wednesday
- Mexico: Mid-Month Inflation Rate (AUG)
- Canada: Manufacturing Sales Prel (JUL)
- US: Durable Goods Orders (JUL)
- US: Pending Home Sales (JUL)
- Crude Inventories
Thursday
- US: Jackson Hole Economic Symposium
- New Zealand: Retail Sales (Q2)
- Germany: GDP Growth Rate Final (Q2)
- Germany: Ifo Business Climate
- US: GDP Growth Rate 2nd Est (Q2)
- EU: ECB Monetary Policy Meeting Minutes
- US: Kansas City Fed Manufacturing Index (AUG)
Friday
- US: Jackson Hole Economic Symposium
- New Zealand: ANZ Roy Morgan Consumer Confidence (AUG)
- Japan: Tokyo CPI (AUG)
- Germany: GfK Consumer Confidence (SEP)
- US: Personal Income (JUL)
- US: Personal Spending (JUL)
- US: PCE Core Price Index (JUL)
- US: Michigan Consumer Sentiment Final (AUG)
- US: Fed Chairman Powell Speech
Chart of the Week: Daily EUR/USD
Source: Tradingview, Stone X
EUR/USD has been moving lower in an organized channel since making 2022 highs on February 10th near 1.1495. The pair has tested the top and bottom of the channel quite a few times, only breaking above or below for hours at a time. On July 14th, the pair broke through the 1.0000 level, taking out stops below and penetrating the bottom trendline of the channel. As is often the case, when price fails to break through one side of a pattern, it often moves to test the other side. In this case, there was a confluence of resistance at the top of the channel, which included the channel line, horizontal resistance dating to January 2017, and the 50% retracement of the move from the highs of June 9th to the lows of July 14th, near 1.0360. Since then, EUR/USD has been moving lower and is threatening to move below parity once again. If EUR/USD continues to move lower, first support is at the psychological round number of 1.0000. Below there, price can fall to the lows of July 14th at 0.9952, then horizontal support dating to December 2002 at 0.9859. However, if the recent lows hold, first resistance is at the lows from July 27th at 1.0097. If EUR/USD breaks above, the next resistance level is at the previously mentioned confluence of resistance between 1.0340/1.0360 and then the 61.8% Fibonacci retracement from the highs of June 9th to the lows of July 14th at 1.0460.
Could the US Dollar finally settle down this week? Perhaps. But it might only be until Friday when Fed Chairman Powell speaks at the Jackson Hole Symposium. In addition, the US will release the Fed’s favorite measure of inflation, Core PCE. Watch for tape bombs from Fed officials who may be setting up Powell for a more hawkish tone when he speaks later this week.
Have a great weekend!
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