2021-08-24 • Updated
This week is full of important news, starting with PMIs in the key economies, with Jackson Hole Symposium as a cherry on the top. Weak Flash US Manufacturing and Services PMIs (61.2 actual vs. 62.4 expected and 55.2 actual vs. 59.1 expected respectfully) are questioning the strength of the USD. Will Jackson Hole add to the pressure or will it send the dollar up?
Jackson Hole Symposium is important due to central bankers often signaling important shifts in monetary policy. For instance, in 2008 Fed Chairman Bernanke tabled repeatedly to strategize with other high-level policymakers about the response to the Global Financial Crisis, in 2014 ECB President Draghi laid the groundwork for QE, and in 2020 Fed Chairman Powell announced average inflation targeting framework (it is the Fed’s long-run monetary framework that has replaced inflation targeting).
With the top policymakers from the ECB and Bank of England skipping this year’s event, traders’ focus will be almost exclusively on the US Federal Reserve, specifically any hints about the central bank’s timeline for tapering its asset purchases. Last week’s FOMC minutes showed a divided committee, and that came after a mix of optimistic (strong NFP jobs report) and pessimistic (poor consumer sentiment, a doubling of US COVID cases) news over the last month.
However, so far market’s expectations about tapering haven’t been met and dollar is under growing pressure. Last week dollar index hit a nine-month high on bets that the Fed would start shifting away from its accommodative monetary policy, but that view began to change on Friday when Dallas Fed President Robert Kaplan said he might reconsider his hawkish stance if the virus harms the economy.
UsDollar Daily chart.
Support: 90.0, 91.5, 92.5.
Resistance: 93.475-93.6, 94.3, 94.8.
Last week, when traders thought that the Fed would hurry to start tapering asset purchases, the USD rose and S&P 500 corrected down. On the contrary, when fears of tapering somewhat subsided, the US currency weakened and stocks set new highs – this is how this week has started. If concerns about covid-19 make the Fed postpone tapering up until next year, stock markets will get even higher.
US500 Daily chart.
Support: 4270, 4370.
Resistance: 4600
Elsewhere, oil has gained momentum on the news about zero new COVID cases in China. Another possible bullish factor is an explosion of Ku-Alfa, the oil production platform of Pemex company. This is one of the richest Mexican oil deposits with a production rate of close to 640K barrels a day. If the company can't cope with the situation, the prices will tend to rise, pressuring the greenback even more.
Although the oil has generally been able to shrug off strength in the stock market, the bullish combo of increased risk appetite and significant weakening in the U.S. dollar indices represents a potent mix that oil has been forced to recognize.
XBRUSD H4 chart.
Support: 65.0
Resistance: 69.7, 71.5, 72.5.
China has issued new oil product export quotas to allow oil companies to send surplus barrels overseas, particularly Sinopec, which has the highest volume among quota holders. While the exact quota volume remains undisclosed, oil companies are forecasted to export approximately 3.5 million metric tons of clean oil products in September, a 10% increase from August.
Thanks to the incredible advancements in horizontal drilling and fracking technology, the United States has experienced a mind-blowing shale revolution. They've become the heavyweight champion of crude oil production, leaving Saudi Arabia and Russia in the dust. They even turned the tables and became net exporters of refined petroleum products in 2011.
Oil prices rebounded slightly on Friday but are still expected to show losses for the week due to concerns about slowing growth in the US and China. US crude futures rose 2.7% to $70.41 per barrel, while the Brent contract increased by 2.5% to $74.33 per barrel.
The past several weeks have been a real triumph for the bulls in the oil market. The Brent spot price grew by 8.5% during the last month.
Gold prices are rising for three consecutive days ahead of the Federal Reserve (Fed) interest rate decision, which is expected to remain unchanged due to declining inflation and a positive economic outlook. Investors are keen on the Fed's interest rate guidance, fearing a hawkish stance that could trigger market risk aversion.
Amid concerns of a Chinese economic slowdown, reports of declining investment often overlook China's efficient investment strategy in emerging sectors for long-term growth. China has taken measures to stabilize foreign and private sector investments, like reducing the reserve requirement ratio to boost investor confidence.
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