Forex Markets Are All Geared Up For Something Big And Then There’s A Big Nothing

With the Jackson Hole symposium getting underway traders are sitting tight waiting on the super star of the show, Janet Yellen, who will make a critical speech tomorrow afternoon. Her speech is titled “The Federal Reserve’s Monetary Policy Toolkit.”

Barclays experts say “We believe Chair Yellen may use the opportunity to signal the FOMC’s growing confidence in the outlook for activity and inflation,” writes Nikolaos Sgouropoulos, FX strategist. “Given the low market expectations for a September or December Fed rate hike, a re-pricing at the front end of the rates curve should drive a near-term rebound in the USD.”

Bank of American Merrill Lynch said: “We think it will be clear from the conference that the Fed will only be able to execute a very shallow hiking cycle,” writes Michelle Meyer, head of U.S. economics. Meyer thinks that clues on upcoming Fed action (or a lack thereof) “will be difficult to find.”

While TD Securities offers their view that “A nuanced view from Chair Yellen at Jackson Hole can prevent a significant repricing in rates,” writes a team led by Millan Mulraine, deputy head of U.S. research and strategy. “Our base line view sees disappointment on both sides of the debate.” However, the team also suggests that this view could potentially signal “that Yellen may have shifted into the one-hike camp.”

In the meantime, the US dollar continued on the upside but remains near the bottom of its longer term trading range. The greenback is trading at 94.71.

Wall Street closed lower with health care shedding more than 1.5 percent, while investors eagerly awaited a speech from Federal Reserve Chair Janet Yellen.

The benchmark S&P 500 closed about 0.5 percent lower, with health care posting its worst trading day since June 24. Health care began falling sharply in afternoon trade after Democratic presidential nominee Hillary Clinton tweeted about the recent price hikes on EpiPens, marking the second time in about a year the former Secretary of State pressured the sector with a comment.

The most direct quote about market anticipation of Yellen, comes from TD Ameritrade. “What’s amazing is we’ve recently geared up for something big from the Fed, and then there’s a big nothing,” said JJ Kinahan, chief strategist at TD Ameritrade. He also said he expects Yellen’s speech to be a non-event.

The total lack of economic data this morning has left commodity currencies and Asian currencies in a holding pattern. The AUD/USD gained a few points to 0.7624 while the kiwi is at 0.7304. The Japanese yen is holding at 100.47 paying little attention to threats and promises from the Bank of Japan which seems to have run out of ammunition.

Asian equities gained this morning but clung to recent ranges while the greenback held firm against regional currencies. The euro was trading at 1.1270 and the pound remains near the top of its trading range at 1.3218.