Jackson Hole speeches fail to hit target
The latest round of Brexit negotiations started yesterday with some further concerns surrounding the difficult talks. There was, however, evidence of a slight shift in Sterling sentiment following the revised Labour Party policy which called for a transitional period in both the single market and customs union following the EU exit. Given the weakness in Prime Minister May’s position, there was increased speculation that the government would be unable to push ahead with a ‘hard’ Brexit.
This morning, GBPUSD extended its steady rise, with the market now poised to test 1.3000 levels after breaching the 1.2950 barrier. The Pound has benefitted against the Dollar as Asian equities and oil prices tumbled after the reports of several missiles launched by North Korea headed into the Japanese airspace. In turn, markets witnessed aggressive USD selling, in response to the escalating North Korean tension making Sterling more attractive compared to USD.
After falling to fresh nine-year lows near 1.0770, Sterling edged lower against the Euro despite wider gains against the US Dollar.
Fed Chair Yellen’s speech on Friday concentrated on financial stability with no significant comments on the economic outlook or monetary policy. Given that there had been some speculation that Yellen would make hints surrounding monetary policy and look to shift Fed Funds expectations slightly, the lack of commentary triggered a fresh round of sharp Dollar losses.
The Dollar weakened yesterday after Tropical Storm Harvey paralysed Houston, Texas, and many oil refineries in the U.S. Gulf Coast. The big winners out of USD weakness have been the EUR and AUD, with the EUR having the potential of hitting 1.2000 and perhaps even the long-term 50% Fibonacci retracement level of 1.2200 in extension.
During the New York session, the US Consumer Confidence (AUG) will be in focus at 2pm and is expected to tick lower to 120.6 from last month’s 121.1. A miss of expectations could make things even tougher for the USD while a better-than-expected result could put a temporary tap on its downfall.
At the Jackson Hole conference on Friday, European Central Bank (ECB) President Draghi’s comments were generally optimistic surrounding the global economic outlook, but it was what he did not say that was the main driver of market action. There had been some speculation that Draghi would take this opportunity to talk down the Euro, but he failed to make any comments on the currency or the bond-buying programme which bolstered a fresh rise in the Euro to above the 1.1900 level against the Dollar. The Commitment Of Trade data recorded a small increase in long Euro positions to just below 88,000, maintaining the potential for a correction, although it was still below the six-year highs recorded earlier in August.
The Euro strengthened sharply to 31-month highs just above 1.1980 against the Dollar on the back of this even though the latest Eurozone money supply data was weaker than expected. Against the Pound, the currency pair broke below the resistance barrier, finishing last week with nine-year lows of 1.0796.
Today’s German GfK consumer confidence unexpectedly improved to 10.9 in the September projection, up from 10.8 in August. The breakdown, only available for August, shows a re-established uptick for income expectations and the willingness to buy, despite the fact that economic expectations actually fell back markedly in August.
Thursday sees Consumer Price Index (YoY) for August and Germany’s Unemployment Change data released, which will be closely followed by investors with swings in market sentiment possible.
Data to Watch:
7:00am German Gfk Consumer Confidence Survey (September)
2:00pm US S&P Case-Schiller House Prices