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Jackson Hole: Powell could pull down the dollar this week


The dollar index managed to go up and down on Monday, but there were no fundamental changes in the indicator. The greenback is still going around the 93.00 point mark. Nevertheless, the expectations of currency strategists are more related to the dollar's decline against a basket of competitors this week. Multi-year highs can be updated. Thus, the dollar index may go below 92.00.


Let's try to figure out what this movement might be related to. So, this week will be very informative for greenback. Data on GDP and inflation in the US will be released. Given that almost all previous macroeconomic publications were quite weak, most analysts began to predict a slower economic recovery than initially expected. Much will depend on the situation with the coronavirus and the measures taken by monetary officials.

Traders are now focused on the opening of the Federal Reserve's annual conference in Jackson Hall. Fed Chairman Jerome Powell is likely to confirm his commitment to a low-rate policy, as well as his reluctance to control the bond yield curve. Given the reaction of traders to the minutes of the last meeting, Powell's comments may put serious pressure on the dollar. Sellers will become more active if we talk about additional monetary policy easing.

If you look more closely at all the conditions under which the dollar fell in the previous two months, you can see that there were outpacing forecasts of economic growth in the US and expectations of aggressive easing by the Fed. Now both conditions are in question. The Fed minutes shows that if the central bank decides to soften its policy, it will not be as aggressive as previously stated. In addition, the macroeconomic data, as everyone noticed, began to show weakness.

The dollar has reasons to decline, but it is becoming more difficult for it to get to new lows. Anyway, the Jackson Hole Symposium will clarify a lot. The Fed will indicate updated benchmarks, and traders will choose the direction for the dollar based on this. It is possible that it will also be new and unexpected.

As for the euro, it may once again take advantage of the dollar's weakness, if it will be traced further. Today, its growth was associated with an increased appetite for risk, which, among other things, is due to the successes achieved in trade talks between the US and the EU. The parties agreed to reduce tariffs and expressed their hopes that this deal will be followed by new agreements in the field of trade. In general, the euro-dollar rally is growing tired.

The euro bulls have cause for concern, as there is a serious bias in the positions of speculators in favor of longs, a decrease in the number of new cases of COVID-19 in the United States and their growth in European countries. However, attempts by euro sellers to attack look weak, at least for now. JPMorgan, for example, maintains its third-quarter forecast for the EUR/USD pair at 1.19 and for the fourth at 1.20.

Banking strategists admit the possibility of consolidation and even correction, but do not see any serious reasons for the development of a downward movement. They also call the correction of the major pair to 1.17 and below a good buying opportunity.


The material has been provided by InstaForex Company -