SIGNS OF TIGHTER MONETARY POLICY BY THE FED. THE JACKSON HOLE SYMPOSIUM IN FOCUS.
Last week, markets were dominated by the announcement of Fed Minutes and developments around the COVID-19 Delta mutation. On Wednesday, following the announcement of the recent Fed Minutes, the prevailing spirit in the markets is that the US policymakers (the body of electors for the exercise of Monetary Policy) are more ready to discuss tighter monetary policy, concerning the current situation of the $ 120 billion-a-month bond-buying program. The growth of the US economy, the recent increase in employment, and high inflation are the main arguments in this direction. This sentiment boosted the dollar and pushed the major stock markets, although by the end of the week most of the Indices had recovered. Another reason for the strengthening of the dollar, as a safer investment option, is the large increase in cases of the Delta mutation, which now greatly threatens the return to normalcy.
Europe had little to add to the complex equation of the global economy, with inflation remaining stable in the Eurozone in July at 2.2% (a sign of unchanged monetary policy by the ECB) but with the pandemic still at more controllable levels than the USA.
This week is dominated by the Jackson Hole Economic Symposium, an annual symposium that began in 1978 with the participation of most central bankers, prominent economists, and finance ministers from around the world, and analyzes economic developments and issues affecting the global economy. Since 1981, the symposium has been held in Wyoming, USA and it is worth noting that this year, due to the pandemic, central bankers from Europe and the United Kingdom will not participate. However, Jerome Powell is expected to speak on Friday, with markets wondering if something more specific will be given about US Monetary Policy.
The US SP500 Index closed last week with a small correction, at 4,437 points and losses of about 0.50%. There was strong pressure at the beginning of the week but from Wednesday onwards there was an upward reaction which was not enough to close the week with a positive sign. The uptrend remains clear and of course, the target for 4,500 points also remains for buyers. Any tight Monetary Policy from the Fed or such hints at the Jackson Hole Symposium could lead to corrections. Corrections may also be made if concerns about the course of the pandemic escalate. It should be noted here that in contrast to the slight fall of the SP500, the shares of medium-sized companies and in particular some “hot” names have been devastated in recent weeks with drops exceeding 35-50% from their highs. That fact must be taken into account. Our selection for this week is long positions.
The German Index DAX30 moved lower last week, closing at 15,817 points, with losses approaching 1%. The 16,000 points seem to have “scared” the Index that underwent correction without altering the long-term uptrend character. In case there is a clear bullish breakout of 16,000 points then the DAX30 can make even higher prices. Corrections can arise either from rumors of a change in the ECB’s Monetary Policy or from any increased cases of the pandemic. In this case, we need to see prices below 15,600 units to cause some concerns. Long positions is what we will open this week.
The British FTSE100 Index was bearish last week, closing at 7,091 points and losses approaching 1.10%. The Delta mutation, which creates worries about the return of the economy to normalcy, is creating turmoil and the Index followed the corrective course of most and major stock markets last week. In case of a bullish breakout of 7,190 points, the correction will probably seem to be exceeded but below 7,000 points there will be fears of expanding losses. We prefer long positions in the current week.
Last week was practically neutral for gold, closing at $ 1,782, with marginal gains of 0.10% and much-reduced volatility. There was divergence as gold rose along with the dollar, which is somewhat rare. The dollar was strong due to market estimates for a tighter Monetary Policy by the Fed while gold strengthened, albeit marginally, amid concerns about the course of the pandemic. Given the importance of the Jackson Hole Symposium from Thursday onwards, gold could continue to rise, particularly above $ 1,800. In a possible downtrend, below $ 1,750, concerns for further correction begin. We may try long positions in case of prices above $1,800.
Last week was strongly bearish for oil with next month’s futures closing at $ 61.82, performing losses approaching 9%. It was the biggest weekly drop in several months, reaching values we have been seeing since last May. The main reason for the big drop is the worries and fears for the demand since the Delta mutation is galloping and threatens the recovery of many economies. Two other reasons are the unexpected increase in oil reserves in the US and of course the strong dollar, in which oil is valued. After this strong downtrend, it makes sense to have the $ 60 scenario visible as the trend from the beginning of July is bearish so short positions is our option for this week.
EURUSD (Euro vs US Dollar)
EURUSD moved strongly down last week, opening at 1.1794 and closing at 1.1699. The dollar strengthened much after the markets felt that a tighter Monetary Policy from the Fed was imminent, following the Minutes announced on Wednesday. Markets are also awaiting news at the Jackson Hole Symposium starting on Thursday, especially in Jerome Powell’s speech on Friday. Another reason for the strengthening of the dollar is the resurgence of the pandemic and the concerns that are caused, as the US currency is a safer investment option. The pair is right on the support of 1.17 and any net break may lead to the next support of 1.16 so sell positions is what we will open this week.
GBPUSD (Great Britain Pound – US Dollar)
GBPUSD moved lower last week, opening at 1.3858 and closing at 1.3602. The strong dollar has dropped the pair close to the strongest support of 1.3570, which is a low price of several months. The United Kingdom has had positive economic results concerning the Unemployment Rate and negative effects on Retail Sales, but the aggravating reason is the issue of the pandemic and the recent increase in cases. With a clear bearish breakout of 1.3570, we may see prices at much lower levels but any bullish reactions are possible due to the large drop that occurred so we may try buy positions this week.
USDJPY (US Dollar – Japanese Yen)
The USDJPY was slightly bullish last week, opening at 109.60 and closing at 109.77. The dollar moved higher but the pair had two main reasons to slow down from a higher rise, kept below 110: The correction of bond yields (the US 10-year fell to 1.25%) and the strengthening of the yen. The yen strengthened due to Japan’s positive results in GDP and Industrial Production while inflation in July was again negative. With these conflicting data on the pair, the decisive or not the split of the psychological limit of 110 will play a decisive role in the next period. We may try buy positions above 110.
EURJPY (Euro – Japanese Yen)
The EURJPY was bearish last week (3rd consecutive falling week) with an opening at 129.29 and closing at 128.43. The downtrend of the pair is evident as the euro appears weak based on the continuing loose Monetary Policy of the Eurozone but also the yen strengthens due to the recent positive economic announcements of Japan and the course of the pandemic. The price area of 127.50 is the next support in this downtrend which is particularly strong (only 3 in the last 12 weeks are up). Sell positions is our selection for the current week.
EURGBP (Euro – Great Britain Pound)
The EURGBP continued its strong uptrend (2nd week in a row), opening at 0.8501 and closing at 0.8586. The biggest gain was at the end of the week and accelerated on Friday following the negative announcement of Retail Sales in the UK. The euro, on the other hand, has no particular reason to be strong and so the bullish reaction of the last two weeks needs attention because, in the event of a possible strengthening of the pound, the pair may turn back to 0.85. Under this consideration, we are keen to open sell positions this week.
USDCAD (US Dollar – Canadian Dollar)
USDCAD moved strongly up last week, opening at 1.2515 and closing at 1.2820, with a performance of more than 300 pips. The strong US dollar, as well as the sharp drop in oil prices, which negatively affected the Canadian currency, were the main reasons for this. Inflation in Canada was announced at 3.3% in July, well above market estimates, but that did not help the Canadian dollar, which also had a negative result on Retail Sales on Friday. It makes perfect sense for buyers of USDCAD to think that 1.30 is a feasible short-term goal so buy positions is a reasonable selection this week.
USDCHF (US Dollar – Swiss Franc)
Slightly bullish was USDCHF last week, opening at 0.9154 and closing at 0.9168. The dollar was strong but so is the Swiss currency as it is considered a safe haven for investments when worries prevail, as has been the case recently due to the resurgence of the pandemic. The above resulted in a limited bullish movement. The main target of buyers remains the high of 4.5 months, above 0.9275 and we will open buy positions.
AUDUSD (Australian Dollar – US Dollar)
Last week was strongly bearish for the AUDUSD, which opened at 0.7362 and closed at 0.7136. There has been a sharp downtrend since mid-May, which accelerated last week mainly due to the strong US currency but also the problems that Australia is facing with the pandemic. The increased cases and the small number of vaccinated citizens in the country will probably prolong the loose Monetary Policy, putting more pressure on the currency. In addition, China had lower-than-expected Retail Sales in July. With this data and if this image continues, we may see that even the emblematic support at 0.70 is threatened. Under this consideration, we prefer sell positions this week.
It was the fifth consecutive strongly bullish week for Bitcoin, closing at $ 49,302 and gains approaching 5%. There is a general euphoria among cryptocurrency investors that the recent major correction may be a thing of the past, as the mining is normalizing and there is also positive news such as the recent investment of the FTX exchange company in a community of developers to develop new open-source tools. Earlier this week, there was already a $ 50,000 breakout that is one of the “castles” of Bitcoin’s uptrend. On the other hand, the sharp rise may trigger a wave of sellers who will consider making a profit and so the correction scenario is quite strong so we’re keen to try short positions this week.