Markets Cautious Ahead of Jackson Hole Meeting

25 August 2022, 02:48

Market Focus

US stocks rose a little on Wednesday as traders remained hesitant to make any huge wagers ahead of Jerome Powell’s speech on Friday, which may provide clues on how hawkish the Federal Reserve will be in the face of mounting economic challenges. In the run-up to the all-important annual Jackson Hole conference that will be attended by policy makers around the world, investors had to digest more hawkish talk, as it’s probable that Fed officials will need to tighten and bring inflation back under control. Besides, economic data have been mixed at best, US pending home sales fell to the lowest since the start of the pandemic, underlining the delicate task policy makers face in bringing down high inflation without sparking a recession.

The benchmarks S&P 500 and Dow Jones Industrial Average notched a small gain on Wednesday, with swings capped within 1% for a second day in a row. All eleven sectors in S&P 500 stayed in positive territory, with the Energy sector performing the best among all groups, rising 1.20% for the day. It’s worth noting that Tesla Inc. pared most of its rally ahead of a split-adjusted basis on Aug 25, which caused the Nasdaq to edge upward with a 0.3% gain. The Dow Jones Industrial Average rose 0.2%, while the MSCI world index was little changed on Wednesday.

Main Pairs Movement

The US dollar was little changed on Wednesday ahead of a Friday speech by the Federal Reserve chairman for fresh clues on how aggressive the central bank will be in its battle against inflation. The DXY slowly climbed to a daily high level above 109, then witnessed huge selling transactions and fell to a level below 108.4 during the US trading session.

GBPUSD declined 0.31% for the day, as investors are cautious ahead of the Jackson Hole Symposium. Cable was weighed at the first half of Wednesday, then observed upbeat traction at the beginning of the US trading session and touched a daily high level around 1.188. Meanwhile, EURUSD touched a level of nearly 1.000. The pair was little changed on Wednesday.

Gold advanced 0.17% for the day ina two-day uptrend. XAUUSD surged during the US trading session and oscillated in a range from $1744 to $1756. WTI and Brent oil surged on Wednesday, rising 1.23% and 1.55% respectively.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair advanced on Wednesday, regaining upside momentum and climbing toward the 1.000 mark to recover all of its daily losses during the US session amid the emergence of fresh selling around the US dollar. The pair is now trading at 0.9981, posting a 0.12% gain on a daily basis. EUR/USD stays in the positive territory amid renewed US dollar weakness, as rising US Treasury bond yields and upbeat US economic data failed to lift the greenback higher. The US Durable Goods Orders excluding defense increased 1.2%, while Pending Home Sales data also fell less than expected, providing some support to the greenback during the European session. Investors are waiting for a more hawkish message from Fed Chair Jerome Powell at the Jackson Hole symposium on Friday. For the Euro, the concerns about the energy crisis still remained amid the three-day unscheduled cut-off of energy supplies for maintenance of Nord Stream 1 pipeline.

On the technical side, the RSI is at 40 as of writing, suggesting that the pair is regaining upside momentum as the RSI has started to rise toward the midline. As for the Bollinger Bands, the price witnessed fresh buying and rose toward the moving average, therefore a continuation of upside traction can be expected. In conclusion, we think the market will be slightly bullish as the pair is heading to test the 0.9979 resistance.

Resistance:  0.9979, 1.0038, 1.0089

Support: 0.9924

GBPUSD (4-Hour Chart)

The GBP/USD pair edged lower on Wednesday, failing to preserve its upside traction and retreating back to the 1.1795 level during the US trading session amid fresh buying witnessed in the US dollar. At the time of writing, Cable stays in negative territory with a 0.32% loss for the day. The slightly upbeat market mood and mostly upbeat US economic data both underpinned the greenback and exerted bearish pressure on the GBP/USD pair. The current market pricing indicates an equal possibility of a 50 bps rate hike or a supersized 75 bps move at the September FOMC policy meeting, as Minneapolis Fed President Neel Kashkari has said that inflation is too high and emphasized the need to tighten monetary policy. For the British pound, despite further rate hikes by the Bank of England, the currency might remain under pressure amid higher energy prices.

Meanwhile, the RSI is at 39, suggesting that the downside is more favored as the RSI is below the midline. As for the Bollinger Bands, the price lost its upside strength and crossed below the moving average, therefore the downside traction should persist. In conclusion, we think the market will be bearish as the pair is testing the 1.1780 support. The level 1.1763 will be a crucial support to watch during the GBP/USD pair’s further weakness.

Resistance: 1.1849, 1.1922, 1.1980

Support: 1.1780, 1.1763

XAUUSD (4-Hour Chart)

Gold turned to rise in the US session and advanced to above $1,750 amid renewed selling pressure around the US dollar. However, the benchmark 10-year US Treasury yield is still up nearly 2%, limiting the upside for gold price.

The RSI is at 50, maintaining steady compared to yesterday, showing no strong momentum to the upside or to the downside. As for the Bollinger Bands, the price consolidated between moving average and upper bound. This, along with a flat lining moving average suggests that the price still has no clear traction. In conclusion, we think the market is still  signal to determine the next direction. To the upside, gold prices have to advance above the resistance at $1,750 level first. To the downside, if price closes negative below the $1,730 level, it might head to test the next support at $1,714 level.

That said, traders might refrain from placing aggressive bets ahead of the key event risks – the Jackson Hole symposium on Friday. All eyes are now on Friday’s Jackson Hole symposium, which would determine the near-term direction of the US dollar and influence the performance of gold price. For more price actions, eye on the tier 1 economic figures from the US.

Resistance: 1757, 1783, 1803

Support: 1730, 1714, 1685