Quiet trade, markets await Powell

NOTIFICATIONS

Overnight Headlines

*USD holds near a one-week low, broadly unchanged

*US stocks creeped up to new highs, S&P500 crosses 4,500

*Oil rises for a third day above $72

USD ticked higher through the session before pulling back and closing largely unchanged. EUR fell earlier in the day to 1.1730 before finding a bid above 1.1750 to close higher for a fourth straight day. USD/JPY traded above 110 for the first time since Monday but is capped by the 50-day SMA. Commod-$s were all generally higher but have eased this morning. NZD has risen to the middle of the previous recent range.

US equities made new record highs as the S&P500 crossed the 4,500 threshold for the first time ever. It was its fourth consecutive daily gain, but it did close below here at 4,496. The Nasdaq also notched a record close. Equity sentiment is muted this morning with Asian markets modestly lower and US futures similar.

Market Thoughts – Fed speakers before the main event

Ahead of Powell tomorrow, we get to hear from Fed hawks Bullard and Kaplan this afternoon. Any considerable pull back from their hawkish stance centred around an October start to tapering asset purchases could further lower expectations for Jackson Hole. Kaplan has been one of the Fed’s most forceful supporters for beginning to reduce support for the economy. But he raised eyebrows recently by saying he may need to adjust his hawkish stance if the Delta variant slows economic growth materially.

There now seems to be much more of a neutral stance going into Powell’s speech. Currency markets are positioning for a quiet meeting with volatility measures particularly muted – the Deutsche Bank FX Volatility Index is near historical lows.

Chart of the Day – EUR/USD weekly head and shoulders

We look at the weekly EUR/USD chart this morning as there is much talk about a big head and shoulders reversal pattern. The downward trajectory from June has formed the right shoulder with the neckline breakdown level just above 1.18. If this resistance does its job, then the pair should drop to 1.16 shortly, with first support at 1.1704. The long-term target for a proper head and shoulders measured move lower comes in much lower around 1.12. We can be sceptical of these major textbook reversal patterns playing out. But we note other momentum indicators are lined up bearishly too, on various timeframes.