FxPro Financial Services Ltd | Aug 27, 2021 03:35AM ET
It is not an exaggeration to say that the future of the markets is now tied to Powell's Jackson Hole speech. Much more so in the currency market, which is often influenced by interest rate trends and expectations.
These estimates are noticeably more hawkish and decisive than the market anticipated and put into expectations. Nevertheless, the reaction has been relatively muted, with the dollar index adding 0.3% by the end of the day but losing more than half that today; the S&P 500 was down 0.7% by Asian session open but is now up 0.35% from those lows.
By and large, the markets fear that Powell will repeat the hawkish position or come very close to it. This can cause a severe spike in volatility in the stock markets, potentially triggering a noticeably deeper correction, above 5% or even 10%.
The story with dollar dynamics is a bit more complicated. The US is often the flagship of monetary policy, and other central banks join in with some lag so that we might see an acceleration of the Dollar's rising trend.
Technically, the US currency has completed phases of declines and consolidation in a sideways range. Still, the markets are waiting for a wave from Powell or the Fed, giving the start of a DXY rally.
There is also a slight possibility of negative surprises for the Dollar if Powell takes an extreme dovish stance. In that case, the stock markets would continue to storm to highs (nothing new here), and the Dollar would turn sharply lower. In that case, the DXY could quickly return to the lows of the year, near multi-year lows.
The FxPro Analyst Team
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