So… Jackson Hole has been concluded. Yellen didn’t really say that much, but the tone of the conference (she was only one of a number of academic/ central banker speakers) was mildly hawkish. A number of speakers argued that the current unemployment is as a result of labour market rigidities, the implication being that monetary policy isn’t the cure – hawkish! However there was one speaker who argued the effectiveness of monetary policy. But this was neither here nor there in my view… possibly the biggest moment in the conference was the intervention of Mario Draghi the ECB president: his speech acknowledged the downward path of inflation over the past year, and indicated that the ECB is likely to take action. Some key market watchers are now speculating that said action could occur as early as next month!
Even though I’ve implied the conference was mildly hawkish in terms of the Federal Reserve, risk sentiment remained bullish into the end of the week, with the S&P 500 making a new record high, indeed we’ve now seen the index attain the 2,000 level for the first time ever. A huge psychological level no doubt. The bigger picture implications for currency markets (which as I noted last week have broken with the pattern of the last decade (with equities rallying in conjunction with dollar strength the name of the game right now) would appear to be a persistence in the ongoing bearish EUR/USD trend. Despite this, I have serious reservations about how much further the euro weakness can go in the short term, particularly against the dollar. There are increasing signs of weakening momentum in the technicals and if I were running a short EUR/USD position I would be tightening my stops and keeping a close eye on the price action. It seems to me that a correction of some sort is a high probability in the very near future. And given the fact the trend has been so strong for the past few months, it’s possible that when it happens it could be a vicious bounce. Prepare accordingly!
Some useful macro data out later today. In the US we have durable goods orders, Case-Shiller house price data and consumer confidence. Tomorrow we get some sentiment data from some Eurozone economies. For now I’m keeping an eye on USD price action.