When you gather many of the world’s mostinfluential central bankers in one place and ask them to spruik about MonetaryPolicy, you have the ingredients to potentially cook up another course ofvolatility in financial markets. Which is what we may see this week as the keycentral bank and financial figures gather at the mountainous and scenic settingof Jackson Hole.
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Fed Chairman Jerome Powell will be theheadline act; however, he is unlikely to give the game away as to the size ofthe anticipated Fed cut in September. Though we might get a read on howconfident or otherwise the Fed is that inflation has been tamed, and from this,markets may project the size and scope of rate cuts we might expect to seebetween now and the end of next year. The Fed Chairman’s take on the health ofthe jobs market will also be interesting to watch, particularly after themarket’s reaction to the most recent NFP (Non-Farm Payrolls miss). The otherthing to watch for is any divergence of the expected dovish messaging fromcentral bank heads.
While financial markets are looking aheadto Jackson Hole, gold has been racking up new all-time highs this week. Acombination of ETF flows, safe-haven demand, and investor positioning ahead ofa lower global interest rate environment have sent the gold price north of the$2500 level. The fundamental picture still looks favourable for potentialfurther upside in the gold price from here over the coming year. However, thisrosy outlook for the precious metal is rather predicated on the US FederalReserve ‘delivering the goods’ by cutting rates to the tune of around 200 basispoints between now and the end of 2025.
So, there is a possible scenario where thereality of the size and pace of Fed rate cuts falls short of marketexpectations, which would pose a risk to gold’s momentum. But as of now, goldis still the ‘flavour of the month’ in financial markets as the Fed has itsfinger on the rate-cutting trigger. Levels to watch this week are support at$2498 and $2481, while resistance at $2532 would need to be overcome for goldto take a run at $2550.
The oil price is see-sawing around, withcrude being a very headline-driven market. Ceasefire talks regarding Gaza holdthe short-term key for the oil price. Any breakdown in talks would probably seeoil the WTI contract tracking back in the direction of $80, while if an actualceasefire took place the price would likely come under further sellingpressure. Right now, much of the risk-premium has been removed from the pricewith the WTI contract wallowing around the $73 level as of early Asian tradinghours on Wednesday. The next level of support is at $72.30 while resistancearound $75.20 awaits on the upside.
In FX, the Dollar is under pressure withthe DXY (Dollar Index) close to its lows for the year around 101.30 level, withthe expectations of looser US Monetary Policy taking a toll on the Greenback.This USD weakness has seen the USDJPY rate move below the 145 level once againwith traders focused on the anticipated differing directions of the FOMC andBOJ policy moving forward. From the USD’s perspective, there is a chance of areprieve for the currency should Fed Chairman Powell deliver a Jackson Hole addresswhich doesn’t meet the level of dovishness that is currently priced intoexchange rates. We will soon find out.
