Jackson Hole to Drive the EUR and the Dollar

There’s been little else that the markets have really considered through the week, with the Dollar and the EUR in the spotlight ahead of today’s scheduled Draghi and Yellen speeches,

The respective central bank heads certainly have the capability of materially influencing the direction of their respective currencies, though Draghi has tended to be the more dovish of the two in recent years, with the Eurozone economy having been slower in the post global financial crisis recovery.

As things stand, some may argue that the Eurozone economy is now looking in far better shape than that of the U.S, with geo-political risk having subsided in the Eurozone, whilst it seems to be an ever-increasing issue faced by the Dollar.

While the FED Chair may well elaborate on the FED’s intentions in next month’s FOMC, with regards to beginning to sell-down the much talked about balance sheet, the ECB President may well disappoint.

On the face of it, Draghi has every reason to begin talking up a tapering to the asset purchasing program, but there seems to be some continued concern over a sharp acceleration in the EUR, and perhaps justified when considering the lack of support that the Dollar has received through the year. Many were expecting Trump to deliver on growth policies and for the FED to be forced to take a more aggressive path towards monetary policy normalization.

Not only has the U.S administration provided little support from a policy perspective, but sentiment towards the U.S economy is also mixed, re-igniting the FED’s inflation obsession, which has continued to remain soft through the year, leading to the FOMC Doves ruling the roost.

Yellen’s more recent commentaries have been on the more dovish side and, while there may be some positive talk on the U.S economy, with the latest retail sales and service sector PMI figures positive, supported by solid consumer confidence figures through the 2^nd quarter, the lack of inflationary pressures will likely leave Yellen with little choice, but to maintain the cautious outlook on further rate hikes over the remainder of the year.

Ultimately, silence from Draghi on policy will be considered a negative for the EUR, with the markets likely to take this as a confirmation of the ECB’s concern over EUR strength, whilst the markets are expecting the FED Chair to talk of soft inflation and the need for a lower and slower rate hike path, though the one uncertainty will be whether Yellen will suggest that the prospects of a 3^rd hike remain, such an indication guaranteed to support the Dollar, assuming that the U.S president is not on his tweeter account at the time.

Economic data out of the U.S this afternoon is on the lighter side, limited to July’s durable goods order figures, which are forecasted to be mixed, with the markets unlikely to be taking any positions ahead of Yellen’s speech, with Draghi due some hours after.

Economic data out of the Eurozone this morning provided little upside for the EUR, with the German 2^nd estimate GDP numbers in line with 1^st estimate figures, with the only other material stats out of the Eurozone this morning limited to the IfO Business Climate Index numbers for August, which are forecasted to be EUR negative.

At the time of the report, the Dollar Spot Index was up 0.14% at 93.404, with the EUR down 0.19% at $1.17764, ahead of the U.S data and more importantly, Yellen and Draghi’s comments, the Dollar expected to be the favourite out of Jackson Hole.