Hawkish Risks Fading
The prospects of Fed chair Jerome Powell giving any clear signal as to the start of tapering ate the Jackson Hole symposium this week appear to have diminished. While traders were not looking for any fireworks, broadly expecting that there would be a nod towards tapering, recent developments have underscored the difficulties facing the Fed. In a very real example of the uncertainty still surrounding the pandemic, specifically as a result of the Delta variant, the Powell has been pulled from making an in-person appearance in Wyoming. Instead, as a result of the COVID risk level in Jackson Hole, Powell will appear via video link.
Ongoing COVID Uncertainty
While this might seem like a relatively unimportant change, it serves as a timely reminder of the disruption still being caused by the virus. Indeed, for the Fed, the difficulty lies in its needs to continue to foster the recovery, remaining abreast of these risks, while also helping to curb any upside inflationary issues as a result of the ongoing recovery. This issue was highlighted last week by Dallas fed president Kaplan who told reporters that should the surge in Delta infections continue, he might be forced to change his mind over his support for tapering.
Market Looking For Tapering Signals
Sentiment and expectations have shifted recently. With data improving steadily, the market has swung back into expecting a tapering signal from the Fed. Indeed, with many Fed members now calling for tapering, many traders were looking to this week’s speech from Powell as a likely candidate for a signal. However, it feels now once again as though USD bulls might be left empty handed with the increased risk that the Fed chair strikes a tone of caution once more and refrains from any clear, hawkish signals on tapering.
Dovish USD Risks
If this proves to be the case, USD is likely to net sold in the near term as bulls react with disappointment while equities and risk currencies are likely to gather pace once again. High yielders are likely to be best performers in the FX space (AUD, NZD) while the metals complex should also see some near term lift. The extent to the move will depend on the content of Powell’s speech though, if the Fed chair sounds concerned over Delta, this is likely to strike a firm blow to USD.
Technical Views
AUDUSD
The current rally in AUDUSD has seen price bouncing off the .7112 lows and moving back above the .7243 level. With indicators turning higher,, price is now fast approaching the bear-channel top with stronger resistance above at the .7339 level. There is plenty of technical resistance to note overhead and, unless bulls can get back above the .7413 highs, the move remains corrective for now.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.