It seems like this week has lasted a month with snail paced trading and range bound pairs. All of this about to come to an end tomorrow at Jackson Hole. The question now is what will be announced, if anything. There are a few possible policy announcements. The Fed could announce its plan to once again start purchasing assets in the form of treasuries or mortgage-backed securities, or possible extend it's commitment to keep rates lower for longer period of time or maybe place in play a plan to boost lending to the wider economy. If any of these plans are announced the Fed's balance sheet will increase and the dollar will fall against the majors. If Ben Bernanke offers no hint of extending the balance sheet the dollar could rally and commodity currency would come under pressure.
Part of todays decline in the EUR and GBP was due to the fact that traders are beginning to believe that QE will remain on the sidelines at Jackson Hole. This does seem like a compelling argument. Additional easing at this time would boost commodity prices. Thus sending oil above comfortable levels. Also, the latest jobs, retail sales and economic reports have been better than expected. finally, if the Fed acts now they lose one of their last bullets in case of a shock to economy occurs in the future.
All in all, I expect the Jackson Hole speech to hint of possible monetary action in the future but not lay out the ground work for any new plans. If this is the case, we could see the majors rally against the dollar in the short-term. Below we will take a look at how the majors could react following Jackson Hole. As always, everyone remember to keep your trades KEANE and play it tight.
EURUSD SOMETHING HAS TO GIVE
The EURUSD has been trading in narrow range over the last week. The pair has found support around 1.2480 and resistance between 1.2560/90. The range could break tomorrow. With the announcement of any sort of balance sheet increase the EURUSD could slice above the top of the triangle and move up to test the 1.2750 area in upcoming days. If the Fed remains on the sidelines and no hints of monetary policy are implied the EURUSD could push down towards the 1.2380/00 zone. An in between statement could lead to a test of the top of the range around 1.26.
Sup 1.2480 1.23
Res 1.2560/90 1.2750
GBPUSD Checking out the 50 FIB
The GBPUSD after working all week to climb up towards 1.5847 resistance level, fell aggressively back to the 50 Fib at 1.5783 on Thursday. The pair has settled in at the 50 Fib for the New York close. This is rather fitting heading into Jackson Hole. It presents the GBPUSD another opportunity to play the Fibs. A weak dollar scenario could see a push up to the .618 fib at 1.5904 once again. If monetary stimulus is placed on hold the cross could drift down towards the .382 Fib at 1.5660.
AUDUSD CONTINUES TO DRIFT LOWER
The AUDUSD continued it's slow and steady decline this week. The pair broke below support at 1.0320 in New York and is now resting at 1.0280. Any announcement of further economic stimulus could push the pair back near the top of its range at 1.06. If Ben Bernanke doesn't suggest further action is in the cards. the pair could begin a slow path back towards the .97 area. The first major area of support comes in around 1.01.
Sup 1.0280 1.01
Res 1.0435 1.06
NZDUSD BREAKS BELOW SUPPORT ZONE
similar to the GBPUSD the NZDUSD has settled in right around its midpoint of its current range ahead of the Jackson Hole Speech. The pair did manage to peak its head below the support zone between .8035/80 in New York trading but follow thru was limited. Based on the mood regarding the dollars following tomorrows speech. The NZDUSD could test the resistance zone near .8184/.8235 or the support zone between .7860/00. If the speech only hints of possible future action the cross could still rise back towards the .81 level.
Res 81 8185/8235
USDJPY Drifting Higher
Heading into tomorrows Jackson Hole speech the USDJPY will most likely have the purest reaction. Any announcement regarding future balance sheet increases or possible increases will send this pair lower. initial support begins at 77.60 but if additional QE is suggested the pair could move towards the year to date lows near 76. If QE is placed on the back burner a move back up towards 80 may play out.
Sup 77.60 76
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