The
renewed risk appetite in a week where most of the focus is on Fed
Chairman Powell's speech in Jackson Hole suggests that the market is not
thinking about an immediate reduction in the asset purchase program
discussed at the Fed's last meeting.
But
can Chairman Powell really move the needle on the tapering debate from
the tone of the minutes that so spooked the markets？ And even if he
does, will it really be a reason to proceed with greenback sales？
It
is unlikely that we will hear any details on the pace or duration of
the interest rate cut as that would have to be agreed upon and announced
at an FOMC meeting. It is likely that Chairman Powell will repeat many
of the comments made in the minutes, including that most FOMC members
favor an announcement on the gradual reduction of the asset purchase
program, depending on macroeconomic data.
The
spread of COVID-19 and recent disappointments in U.S. data may
encourage Powell to emphasize the downside risks to growth and push back
a specific timetable on tapering. After all, according to dollar bears,
even Fed hawk Robert Kaplan recently pointed to these risks as reasons
to delay the adjustment.
At
a time when global growth may be peaking, markets won't want to start
worrying about the U.S. economy. If Powell is too ardent about the
risks, he could cause the dollar to react with a risk-off mode, as we
saw after the disappointing US retail sales and consumer confidence
numbers. Alternatively, if he doesn't give much time to risk and focuse
on the recovery and the merits of monetary policy normalization, the
dollar should also rally.
Dollar
bears may only hold on to their recent gains if Powell can cite the
risks, indicate that there is no need to rush into a monetary adjustment
while remaining optimistic about the U.S. economic outlook.
The
bears need him to pull off this balancing act. As you can see, it is
more likely that the elements are there for a continued rise in the
greenback.
(Chart Source: Tradingview 27.08.2021)
The
dollar is in an uptrend with ascending lows after marking a round
bottom reversal pattern in May and June. The drop at the beginning of
the week is just a breather for now. Above the 20-period moving average
and the last low at 92.42, the rise could resume. Prices may return to
the highs at 93.73 as a first step before making a push for the 2018
September high.
Disclaimer:
This material has been created for information purposes only. All view
expressed in this document are my own and do not necessarily represent
the opinions of any entity.