How to trade the Jackson Hole meeting. Trends in Forex Trading
The financial media and markets will be buzzing for the next few weeks over the Jackson Hole conference. It is an important economics conference hosted by the Kansas City Fed, one of the 12 regional Federal Reserves created by the United States government.
There is a history of important policy decisions unveiled at the Jackson Hole conference with implications for world markets. Leading up to the meeting (26-27 Aug) has seen some mixed messages. Fed’s vice chair Clarida set expectations of an early taper running when he said that he could see rates lifting off as early as 2022.
However, the latest University of Michigan print was a bad miss and that had some analysts singing its praises as a good recession forecaster. The rationale being previous times it had surprised to the downside and flagged US economic downturns.
This time it is the Delta variant that is spooking US investors. Cases are rising and so too are deaths in the US. This is what investors are increasingly focused on in the run-up to the FOMC, especially after Fed’s Kaplan’s comments last Friday.
Fed’s Kaplan had been a prominent hawk who would be seen as favoring an early taper. Earlier in August, he said he expected a plan to plan tapering in the September meeting with bond purchases actually being reduced in the October meeting.
However, his recent comments show that he is concerned about the delta variant limiting production output and slowing the return to the office. If the delta variant was to have a more negative impact on GDP then he would adjust his views.
Cases, deaths, and hospitalizations are rising and Hospitalizations are up!
Cases are up
More significantly, so too are deaths
The bottom line, it means the Fed is more likely to be dovish in the short-run. Please note Hawkish monetary policy tends to focus on controlling inflation as a primary goal of monetary policy. Dovish policies are more concerned with promoting economic growth and job creation. Hawks and doves both use interest rates to achieve their policy goals.
Hence, in the short-run, and after these last couple of days EURUSD short rebound to 1.17936 from 1.16743 in August 25, I expect the taper to be delayed, at least for the next couple of weeks and this should weaken the USD, lift gold and help equities higher. It is hard to buy equities at these extreme levels and note that European equities may offer better value right now. However, if the Fed surprise markets and announce a tapering timetable then watch for USD strength, US 10 year yield upside, USDJPY strength, EURUSD weakness, and gold selling.
Disclosures: The material provided herein is for informational purposes only. It does not constitute an offer to sell or a solicitation of an offer to buy any interests in the EUR/USD or any other securities. This overview may include or be based in part on projections, valuations, estimates and other financial data supplied by third parties, which has not been verified by Pedro Ferreira. Any information regarding projected or estimated investment returns are estimates only and should not be considered indicative of the actual results that may be realized or predictive of the performance of the EUR/USD or any underlying security. Further, Pedro Ferreira is not long or short in the currency pair. Past investment results of any underlying managers should not be viewed as indicative of future performance of the EUR/USD.