Market participants will pay close attention to the Jackson Hole symposium of central bankers on Friday in an otherwise data light week.
US stock markets spiked on Friday, reacting to the news that controversial presidential adviser Steve Bannon is exiting the White House, however the move was short lived and faded in afternoon trading, underscoring the nervous environment.
The S&P 500 on Thursday recorded its biggest one-day fall since May, down 1.5 per cent at the close, as top company executives fled President Donald Trump’s business councils over his handling of protester violence at the weekend and investors worried that Gary Cohn, chair of the National Economic Council, might resign.
Mr Cohn is seen as one of the drivers behind President Trump’s pro-growth agenda and infrastructure and tax-reform programmes and is regarded as a moderate force belonging to the ‘globalists’ camp, which is keeping a check on the more radical ‘economic nationalist’ forces within the administration, led by Stephen Bannon.
This news initially helped buoy riskier markets like equities and pare the advances in havens such as gold and US Treasuries, but the gains fizzled out towards the end of the trading session, with the S&P 500 ending the day down 0.2 per cent. The global flight from riskier assets had also dented European stocks on Friday, sending the Stoxx 600 down 0.7 per cent on the day.
The flight to haven assets sparked by the US political turmoil and the attacks in Spain had seen the Japanese yen strengthen as much as 0.9 per cent earlier on Friday, but the news on Mr Bannon’s exit pared the advance to 0.4 per cent to trade at ¥109.18 per dollar, continuing its now month-long rally. Gold gave up its earlier gains to trade at $1,284, after initially hitting $1,300 an ounce for the first time since November last year.
The dollar index was down 0.2 per cent at 93.42. Meanwhile euro was up 0.3 per cent to $1.1761 after hitting a three-week low against the dollar on Thursday after freshly released European Central Bank minutes highlighted worries about the strength of the single currency.
Federal Reserve chair Janet Yellen will join European Central Bank President Mario Draghi in Jackson Hole, Wyoming this week in what may be considered by some as the biggest market event of the week.
Investors will be parsing through every comment from the pair for clues to the monetary policies of the world’s two most powerful central banks. Mrs Yellen will speak on the topic of financial stability at 8am local time (10am EST) on at the conference hosted by the Federal Reserve Bank of Kansas City on Friday, August 25.
While it seems unlikely that Draghi will use his speech at Jackson Hole to address policy issues, it is also clear that the most effective way the central bank can tackle unwanted euro strength will be to start downplaying the likelihood of any reduction in the asset purchase programme.
Ahead of the Jackson Hole symposium market participants will also be watching Canada’s biggest banks, including Royal Bank of Canada, report fiscal third-quarter results on Wednesday. The big five, which together control almost C$4.5tn worth of assets, are expected to post profit growth of as much as 8 per cent even as rapidly rising house prices and consumer debt levels have raised concerns about potential threats to financial stability north of the border.
EUR/USD opened in Asia at $1.1756, towards the upper end of Friday’s range. We began the session on the front foot, rising to today’s high of $1.1764. With a lack of headlines to prompt any real shifts, the pair have traded in a narrow range, although they have come under slight pressure as we head into the European open, setting at fresh session low of $1.1747. From a technical view, Thursday’s low of $1.1661 may offer support before the July 27th low of $1.1648, while Thursday and Tuesday’s highs of $1.1789/92 form our first resistance level before the August 11th high at $1.1846.
Cable opened in Asia at $1.2866 around midway of Friday’s range. We began the session on the back foot, falling to today’s low of $1.2850. The pair found support as the session on setting a high of $1.2882, but likewise with EUR/USD struggled to make any real moves. The pair have eased away from the highs as we approach the European open, trading at $1.2876. On the upside, the overnight high of $1.2882 forms our first resistance level ahead of Friday’s high of $1.2915. On the downside, Friday’s low of $1.2829 ahead of the July 12th low of $1.2808 may offer some resistance.
USD/JPY opened in Asia at ¥109.33 towards the lower end of Friday’s range. We began the session on the back foot, falling to today’s low of ¥109.15. The pair found some support as the session wore on, rising to today’s high of ¥109.42. The pair have returned to around the lows of the session as we approach the European open, trading at ¥109.23. On the downside, Friday and the April 17th low of ¥108.11 may offer some resistance, while on the upside, Thursday’s high of ¥110.36 may offer some resistance before Wednesday’s high of ¥110.94.
GBP/EUR opened in Asia at a session low of €1.0942 towards the lower end of Friday’s range which saw the pair fall to a multi-year low. The session began on the front foot, before dropping back to the opening low. The pair rose to a session high of €1.0957 as the session wore on. The markets has slightly eased off the highs as we approach the European open, trading at €1.0955. From a technical view, Friday’s low of €1.0927 forms our first support level before the March 1st (2010) low of €1.0918. On the upside, Friday’s high of €1.0998 and Thursday’s high of €1.1032 are in focus.