When you gather many of the world’s most influential central bankers in one place and ask them to spruik about Monetary Policy, you have the ingredients to potentially cook up another course of volatility in financial markets. Which is what we may see this week as the key central bank and financial figures gather at the mountainous and scenic setting of Jackson Hole.
Fed Chairman Jerome Powell will be the headline act; however, he is unlikely to give the game away as to the size of the anticipated Fed cut in September. Though we might get a read on how confident or otherwise the Fed is that inflation has been tamed, and from this, markets may project the size and scope of rate cuts we might expect to see between now and the end of next year. The Fed Chairman’s take on the health of the jobs market will also be interesting to watch, particularly after the market’s reaction to the most recent NFP (Non-Farm Payrolls miss). The other thing to watch for is any divergence of the expected dovish messaging from central bank heads.
While financial markets are looking ahead to Jackson Hole, gold has been racking up new all-time highs this week. A combination of ETF flows, safe-haven demand, and investor positioning ahead of a lower global interest rate environment have sent the gold price north of the $2500 level. The fundamental picture still looks favourable for potential further upside in the gold price from here over the coming year. However, this rosy outlook for the precious metal is rather predicated on the US Federal Reserve ‘delivering the goods’ by cutting rates to the tune of around 200 basis points between now and the end of 2025.
So, there is a possible scenario where the reality of the size and pace of Fed rate cuts falls short of market expectations, which would pose a risk to gold’s momentum. But as of now, gold is still the ‘flavour of the month’ in financial markets as the Fed has its finger on the rate-cutting trigger. Levels to watch this week are support at $2498 and $2481, while resistance at $2532 would need to be overcome for gold to take a run at $2550.
The oil price is see-sawing around, with crude being a very headline-driven market. Ceasefire talks regarding Gaza hold the short-term key for the oil price. Any breakdown in talks would probably see oil the WTI contract tracking back in the direction of $80, while if an actual ceasefire took place the price would likely come under further selling pressure. Right now, much of the risk-premium has been removed from the price with the WTI contract wallowing around the $73 level as of early Asian trading hours on Wednesday. The next level of support is at $72.30 while resistance around $75.20 awaits on the upside.
In FX, the Dollar is under pressure with the DXY (Dollar Index) close to its lows for the year around 101.30 level, with the expectations of looser US Monetary Policy taking a toll on the Greenback. This USD weakness has seen the USDJPY rate move below the 145 level once again with traders focused on the anticipated differing directions of the FOMC and BOJ policy moving forward. From the USD’s perspective, there is a chance of a reprieve for the currency should Fed Chairman Powell deliver a Jackson Hole address which doesn’t meet the level of dovishness that is currently priced into exchange rates. We will soon find out.
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