The US dollar surged as stocks tumbled ahead of Fed Chair Jerome Powell’s speech at Jackson Hole tomorrow at 10:05 a.m. ET. The US dollar is ending its strongest day among major currencies today, rising 1.0% against both the pound and New Zealand dollar. It also gained 0.93% against the Australian dollar and 0.79% against the Swiss franc.
Fears of inflation and a hawkish Fed chair are weighing on, as the economy continues to show strong employment and inflation fears. Today, both initial and continued claims for unemployment insurance are down (he rose to 230,000 from an estimated 240,000 initial claims). A year ago before the last summit, the unemployment rate was 3.5% and remains at that level today. Moreover, just as goods inflation is starting to show signs of easing, labor demand is creeping in, threatening to keep inflation high.
Indeed, inflation (as measured by CPI) has fallen sharply from about 8.4% a year ago to 3.2% today, but most of that decline is due to base effects. These effects have almost disappeared. Inflation has indeed fallen, but the Fed’s 2% target is still at 1.2%, and the Fed appears in no hurry to abandon or expand.
Markets are nervous about the Fed chairman’s remarks, but Fed officials Harker and Collins didn’t necessarily ring hawkish bells in today’s speech.
Harker said of the policy:
- At this point, I see the Fed as stable this year. Next year will be data driven.
- We expect interest rates to remain unchanged this year. If inflation falls next year, a rate cut is likely.
- Continuing the restrictive policy stance should lower inflation.
- Policy is in a restrictive position.
But he also said:
- The Fed had to deal with inflation and is still dealing with inflation
- wants a softer labor market, especially in the service sector
Fed’s Collins on policy said:
- At this stage, patience is appropriate.
- I don’t think specifying a preset path will help.
- You may be nearing a place where you can keep your rate.
- It will probably need to be held for a considerable period of time.
- There is also the possibility of another rate hike by the Fed.
In the stock market, Nvidia was the last large cap to report results after the close of trading yesterday, which far exceeded expectations. After gaining more than 8% in pre-market trading, the stock opened and started to fall. At the high, the stock rose $31.50, and at the close, the gains almost completely disappeared, settling at $0.47, or 0.10%. In after-hours trading, it dropped another $1.72.
That was good news for the stock market. The not-so-good news is that the Nasdaq Index fell 257 points, or -1.87%. The S&P Index fell -1.35% and the Dow Jones Industrial Average fell -1.08%. ah.
In other markets:
- Crude oil is trading unchanged around $78.87, but still below the $79 level.
- Gold gained $1.50 (0.08%) to $1916.87.
- Silver fell by $0.19 or -0.78% to $24.10.
- Bitcoin is trading below the $26,000 level at $25,949
In the US bond market:
- Two-year bond yields rose 7.3 basis points to 5.025%.
- Five-year Treasuries yielded 5.5 basis points to 4.416%.
- The 10-year yield rose 4.3% to 4.241%.
- 30-Year Bond Yield Up 2.0 Basis Points To 4.34%
Let’s take a look at some of the major currency pairs.
- EURUSD: EURUSD is closing New York trading near the 200-day MA at the 1.0800 area. The current price is trading at 1.08095. A break below the 200-day moving average will open the door for further selling. The New York session produced a corrective high stall for the higher base swing area around 1.08485. This will increase the importance towards the new trading day.
- pound dollar. GBPUSD closed below the 100-day moving average for the first time since March at 1.26379 before testing a floating region low near 1.25987 towards the close. A break below the 100-day moving average on a new trading day gives sellers the edge.
- USDJPY: USDJPY is above the 100 and 200 hour moving averages near 145.60. There is some resistance at 145.90. Above that, traders will target 146.40, the swing high from Monday and Tuesday. This year’s high is 146.554 (highest since November).
- AUDUSD: AUDUSD has broken below the 200 and 100 hour MAs near 0.6432. Breaking below these moving averages gives sellers more control on the new trading day.
- NZDUSD: NZDUSD has also broken below the 200 and 100 hour MAs near 0.5940. Similar to AUDUSD, a break below AUDUSD will make it more bearish on a new trading day.
Good luck with your trading.