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Euro slips, but range-bound ahead of Jackson Hole - PM Bulletin
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Early moves

·         Quiet trading session in prospect

·         All eyes on euro ahead of Draghi speech

It’s shaping up to be an uneventful trading session, at least until we get past speeches from Janet Yellen and Mario Draghi later this evening. Investors have used the Jackson Hole event as an excuse to go on “pause” despite numerous hints from various insiders that neither Yellen nor Draghi will say anything dramatic when it comes to monetary policy. This is especially true of the Federal Reserve chair who delivers the keynote speech at 17:00 BST. In other words, this year’s symposium should see a return to the days when it was a dry and dusty academic event only of interest to economists. But even though Mr Draghi isn’t expected to address the issue of the ECB’s €60 billion per month bond purchase programme, some traders believe he may have something to say about the euro. This follows on from last week’s release of minutes from the bank’s last meeting which showed that the Governing Council was concerned about the current strength of the single currency. Some traders feel that the ECB don’t want to see the EURUSD get much above 1.2000 and will be listening out for anything that Mr Draghi may say on this matter.

Stock Index Update

·         Mixed start to European trade

·         US majors end modestly lower

The major European indices were mixed first thing this morning with a slightly negative bias. But overall it’s shaping up to be an uneventful trading session. Investors are using the upcoming speeches from Fed Chair Janet Yellen and ECB President Mario Draghi as the excuse to sit on their hands and do nothing. With Yellen scheduled to speak first at 17:00 BST and then Draghi at 20:00 BST, there’s the possibility that we see little market movement for most of the day. However, there are a few significant economic data releases due including the German Ifo Business Climate survey and US Durable Goods Orders.

Last night the US majors ended the session a touch weaker. This was despite a flurry of earnings reports from the retail sector which came in better than expected.

Commodities Update

·         Oil prices react to Hurricane Harvey

·         Gold and silver range-bound

Crude oil is steadier in early trade this morning following yesterday’s sell-off. Both WTI and Brent took a tumble on Thursday afternoon as traders assessed the possible effects of Hurricane Harvey on crude production. Yesterday it appeared that the storm was relatively mild and would largely bypass the main oil producing areas of the Gulf of Mexico. But the hurricane has intensified since then and appears bound for the Texan coast, potentially making it the most severe US mainland storm in over twelve years. Despite this crude has been trading in a relatively narrow range since the beginning of this month, although there is a slight downward bias.

On Tuesday BHP Billiton CEO Andrew Mackenzie told Bloomberg Television that the mining giant was in talks with potential buyers of its US shale assets. The news comes just a month after a number of oil companies (including Anadarko) said they were cutting capital expenditure in the US shale oil space. This suggests that shale oil production may have peaked for now which could mean less downside pressure on crude going forward. Also on Tuesday Kuwait Oil Minister Essam al-Marzouq said he was optimistic that OPEC and non-OPEC producers would agree to extend their oil output cut at the next OPEC meeting in November.

Gold and silver were both firmer in early trade on Friday, making back some of their losses from the previous session. But as with other markets investors continue to sit on their hands ahead of speeches later today from Fed Chair Janet Yellen and ECB President Mario Draghi. Neither of the two central bank heads is expected to address monetary policy in any detail. However, there is a possibility that Mr Draghi may comment about the recent strength of the euro. It is understood that members of the ECB’s Governing Council are growing increasingly concerned as the euro’s rally since the beginning of the year shows no signs of abating. If Mr Draghi attempts to talk down the single currency then we could see the EURUSD pull back sharply. Any pick-up in the dollar looks likely to put downside pressure on precious metals, along with other dollar-denominated commodities. However, gold and silver should continue to get support as investors look for safe havens in times of uncertainty. But gold keeps running into resistance around $1,290/$1,300 while silver is struggling to hold above $17.

Forex Update

·         FX quiet ahead of key speeches

·         Focus on Draghi and EURUSD

There may be a hurricane off the coast of Texas, but the global FX market is most definitely stuck in the doldrums this morning. As with other markets, but perhaps more so when it comes to currencies, investors are unwilling to take on additional exposure ahead of speeches later today from Fed Chair Janet Yellen and ECB President Mario Draghi. Neither of the two central bank heads is expected to address monetary policy in any detail. However, there is a possibility that Mr Draghi may comment about the recent strength of the euro. It is understood that members of the ECB’s Governing Council are growing increasingly concerned as the euro’s rally since the beginning of the year shows no signs of abating. The EURUSD is up around 15% since the beginning of the year and came within a cent of breaking above 1.2000 earlier this month. The worry is that the stronger euro not only makes it more difficult for Euro zone exporters to sell their goods, but that it also pushes inflation down as imports become cheaper. That’s obviously a good thing for individual consumers, but terrible for companies and financial institutions overburdened with debt. So it seems likely that traders and investors alike will focus on the EURUSD pair as Draghi begins speaking at 20:00 BST tonight.

Upcoming events

Today’s significant events and economic data releases include Germany’s Ifo Business Climate survey and US Durable Goods Orders. But the main events are speeches from Fed Chair Janet Yellen and ECB President Mario Draghi at the Jackson Hole Economic Symposium in Wyoming.

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Posted by David Morrison

Category: AM Bulletin


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