What Jay Powell's Jackson Hole message means for markets

Jay Powell delivered a hawkish speech on inflation at last week's Jackson Hole meeting. Alex Rankine explains what his speech means for markets.

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EUR/USD Forecast: Potential Correction Ahead?

Having tested the parity, the currency pair EUR/USD has pulled back from the support and reversed to jump and undergo correction. It’s clear that bears won’t be able to break the level of 1.0000 right away. Now, the asset’s price is targeting the downtrend. The price of this currency pair is likely to pull from the downtrend and drop. American stock index S&P 500 is heading down. It has closely approached the supporting level of 3900.00, which is the crossing point for several important trendlines. The asset might potentially pull back from the supporting level of 3900.00. Hence, it is likely to hit the level of 3900 and jump soon. So, let’s observe what will happen next. Bitcoin remains at the psychological level of 20000. This asset might either pull from the current level or gain the required support at the level of about 19000. Currently, the price of Bitcoin is not likely to drop to the level of 19000. Hence, potential price growth might be ahead.

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Mini DAX Futures (FDXM1!), H4 Potential For Bearish Drop

Type: Bearish DropKey Levels:Resistance: 13341Pivot: 13011Support: 12422Preferred Case:On the H4, with price moving within a descending channel and below the ichimoku indicator, we have a bearish bias that price will drop from the pivot at 13011 where the pullback resistance is to the 1st support at 12422 where the swing low support, 61.8% fibonacci projection and 161.8% fibonacci extension are.Alternative Scenario:Alternatively, price could break pivot structure and rise to 1st resistance at 13341 where the overlap resistance and 50% fibonacci retracement are.Fundamentals:Since Russia's Gazprom said that a new turbine halt will further cut gas to Germany, it creates additional supply worries and we have a bearish view on the DAX index .

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EURCHF : ECB Member Hawkish Comment Lifts EUR

EURCHF has extended its 0.9551 rebound this week to 0.9775. The gains follow the release of German Consumer Price Index data showing that annual consumer price inflation hit 7.9% for August, higher than market expectations for a decline of one percentage point. The monthly CPI figures and the Harmonized Index of Consumer Prices or HICP (monthly and yearly) all remained unchanged, indicating that the European Central Bank’s (ECB) earlier rate hike did not dampen consumer price gains. The data is preliminary, with the final results to be published on September 13. However, it remains close to 50-year highs.

German inflation data pushed the 10-year bond yields to a 2-month high and strengthened the euro rate differential. The EUR found support from falling nat-gas prices which eased concerns about the energy crisis, after European nat-gas prices fell more than -7% on Tuesday to a 1-week low.

With energy prices 25% higher in August 2022 than a year earlier, the ECB has limited room to raise interest rates when it meets next week to decide the direction of Eurozone monetary policy. However, ECB Chief Economist Lane said the ECB needed a “steady pace” of raising interest rates in the fight against record inflation to minimize negative consequences, while ECB Governing Council Member Vasle said “we haven’t seen the highest inflation figures in the Eurozone yet,” and that he expected inflation to be high until it peaks in the next quarter before easing in the first half of 2023. Kazaks, said a significant rate hike is needed in September. He argued that the ECB should be “open to discussing possible 50bp and 75bp moves.”

Eurozone HICP inflation hit 9.1% y/y in the preliminary reading for August. Another higher than anticipated number and yet another record high. More importantly perhaps, core inflation jumped to 4.3% y/y, which is adding to warnings that inflation is becoming more broad based. Inflation differentials are also drifting apart and with headline rates running far over 20% in some countries, it won’t be enough to bring inflation down to prevent broader based knock on effects, as the erosion of real disposable income and the rise in cost pressures is too much to absorb lastingly. The numbers will give the hawks sufficient ammunition to force a debate of a 75 bp hike next week, which will put pressure on the dovish camp to at least back another 50 bp hike.

Technical Overview

The EURCHF pair attempted to bounce off its lows and in Tuesday’s trading a break of the 0.9700 resistance lifted the price close to the 0.9800 resistance. The intraday bias tends to the upside in the short term, while a move above 0.9800 opens doors for another test of 1.0000 parity.

EURCHF, H4

Meanwhile a move below 0.9700 will confuse the outlook and the price will return to neutral. As long as the 0.9551 support holds, the price move could test the 50% and 61.8% retracement levels at 1.0031 and 1.0142, respectively. Broadly speaking, the pair is still in bears’ control, a price swing is possible if in the medium term, a rebound can overcome the resistance level of 1.0513 (June high price).

Meanwhile, the EURGBP pair extended its August gains by recouping losses incurred in July. The pair continues its rally for the 3rd day since Friday with Tuesday’s trading gaining +0.67% and trading in the 0.8590 price range.

Click here to access our Economic Calendar

 

Ady Phangestu

Market Analyst – HF Educational Office – Indonesia

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Market Spotlight: Eurozone Inflation Hits Record Highs

Eurozone CPI Soars AgainEuropean asset prices have come under fresh selling pressure today in response to the latest eurozone economic data. Headline August CPI was seen hitting a fresh record-high of 9.1% when compared with the same month a year earlier. This marks an increase from the prior month’s 8.9% reading and surpasses analyst forecasts for a 9% reading. Core CPI was similarly strong at 4.3%, up from 4% a month prior, again topping forecasts for a 4.1% reading. This latest data underpins just how entrenched the inflationary uptick has become in the eurozone, putting greater pressure on the ECB ahead of the upcoming September rates meeting next week.Looking at the breakdown of the data, energy and food costs remain the biggest drivers of upside, rising 38.3% a d 10.6% respectively. The ECB has recently changed its tone, focusing much more on inflation as a persistent threat rather than a temporary factor. This was reflected in the ECB’s decision to hike rates by .5% in July. Traders are now bracing for a potentially even larger hike next week when the central bank meets.Technical ViewsDAXFollowing the rejection at the latest test of the bearish trend line from YTD highs, the market has turned sharply lower with price now once again trading below the 13067.45 level. With both MACD and RSI bearish, while price holds below here focus is on a test of the YTD lows at 12462.59, a break of which opens the way for a much deeper move towards 11590.13 thereafter.

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ETHUSD, H4 | Potential Bearish Drop

Type: Bearish DropKey Levels:Resistance: 1654.99Pivot: 1559.47Support: 1421.24Preferred Case:On the H4, with price moving below the ichimoku indicator, we have a bearish bias that price will drop to pivot at 1559.47 where the overlap support is. Once there is downside confirmation of price breaking pivot structure, we would expect bearish momentum to carry price to 1st support at 1421.24 where the swing low support, 61.8% fibonacci projection and 161.8% fibonacci extension.Alternative Scenario:Alternatively, price could rise to 1st resistance at 1654.99 where the pullback resistance, 100% fibonacci projection and 78.6% fibonacci retracement are.

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GBP Breaks Down Further As Dark Clouds Gather

GBP Grinding LowerThe British Pound is back under heavy selling pressure again this week, extending its recent run of losses as a stronger US Dollar continues to weigh on GBP. The currency has been one of the worst performing this year, weighed on by a number of issues, many of which look set to keep price anchored lower across the remainder of the year.Perfect StormIt’s been something of a perfect storm for GBP with the fallout of the Russia-Ukraine war, ongoing COVID disruptions, Brexit-linked difficulties, surging inflation, tighter monetary conditions and political uncertainty each combining to send investor sentiment plummeting.Gas Price NightmareIn terms of the greatest risks to the UK currently, rising gas prices (and their inflationary knock-on) are taking the lead as winter approaches. With news this week that Russia has temporarily suspended its Nordstream gas supply to Europe for three days (for maintenance), fears of further disruption in the coming months are likely to keep gas prices at elevated levels.Inflationary SpiralThe UK economy is already reeling from the inflationary surge of the last six month and there are fears over how households will manage the winter months, given the spike in energy prices. The surge in energy costs has been one of the driving forces behind the record uptick in inflation in the UK. CPI was seen hitting 10.1% last month, putting extra pressure on the BOE to hike rates further. Current rates market pricing suggests BOE rate hikes will top out at 4% next year, suggesting higher rates in the UK than in the US.UK Growth Forecasts FallingHowever, the BOE’s tightening program is taking a toll on UK growth forecasts. Given the political uncertainty we are seeing currently amidst the change in Tory leadership, these fears are driving capital out of the UK and elsewhere. Along with the BOE taking action against inflation, the government has been forced to provide support for those struggling with the cost-of-living crisis, particularly energy payments, via a new £37 billion package announced in May.Fiscal Stimulus A Double-Edged SwordBoth candidates in the Tory leadership race have announced plans for further measures later in the year given that energy prices are now running above the forecasts made in May. While this will no doubt be welcomed by UK households it might end up stoking inflationary fires, putting even more pressure on the BOE to hike more aggressively. With this in mind, the coming months will be key for the UK economy and GBP alike as the BOE attempts to navigate very tricky territory. As such, it will likely take a significant shift in the narrative and a healthy upside surprise to help lift the beleaguered Pound.Technical ViewsGBPUSDThe sell-off in GBPUSD this year has seen the market grinding lower within a clear bear channel. Despite attempts in July and early August to breakout, that rally quickly fizzled out and price has since broken down to fresh 2022 lows, trading below the 1.1764 level. With both MACD and RSI bearish, the focus is on further downside near-term with 1.1474 the next support level to note.

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Investment Bank Outlook 31-08-2022

Credit AgricoleEurozone inflation: August HICP preview and updateThe preliminary inflation data in August published so far –in Spain, Germany and Belgium –provided few surprises. All in all, YoY inflation continued to rise, in a broad-based way. In particular, food and core inflation are still increasing overall.Tomorrow, the inflation numbers for France, Italy and the overall Eurozone will be published. We expect Eurozone headline HICP at 9.1% YoY (+20bp from July) with core at 4.2-4.3% (+20bp as well). Our take is slightly above the Bloomberg median consensus(headline9.0%,core 4.1%). Incontrast,wehaveFrenchCPIat5.9%YoY,20bpbelow consensus. Core inflation at 4.2-4.3% –if our forecast is correct –would likely put a higher probability for a 75bp hike by the ECB (rather than 50bp) at next week’s monetary policy meeting.Beyond August, the main drivers for European inflation will remain the same in our view: (1) natural gas prices; (2) electricity prices; and (3)the degree of European governments’ intervention to cap energy prices. In this regard, multiple scenarios are possible. In particular, we currently assume that a structural reform of the European electricity market (so as to de-link electricity prices from natural gas) will take time. In turn, we expect that a myriad of measures taken at the country level (so as to take down energy prices for households) will continue to be implemented, in turn making inflation scenarios even more uncertain. In the near term, we expect further acceleration in core inflation by year-end, towards 4.5-4.7% YoY, before some easing materialises. That said, we still have core above 4% during the totality of H123. Bear in mind that wages will probably accelerate significantly in early2023,considering headline inflation above 10% in Q422.INGIndustrial production and retail sales improved in JulyIndustrial production rose unexpectedly by 1.0% month-on-month, seasonally-adjusted (vs -0.5% market consensus), following a 9.2% surge in June. Output forecasts for August and September also improved suggesting that solid production is likely to continue this quarter. By industry, automobile production and shipments improved. Keeping up with the production setbacks will normalise in a few months, but the solid gain for two consecutive months shows that the global supply bottleneck is fading and pent-up demand remains strong. Meanwhile, weak production of electronic components and devices suggests that global semiconductors are entering a downcycle for the second half of this year.Meanwhile, retail sales edged up 0.8% in July (vs -1.4% in June), which was also better than the market consensus of 0.3%. Household consumption remained strong despite the resurgence of Covid cases and high inflation. General merchandise and apparel fell, but more importantly, motor vehicles continued to rise firmly by 4.4% (vs 5.2% in June) for the second month in a row.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/investment-bank-outlook-31-08-2022"
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Market Update – August 31 – Stocks & Oil tank, Yields rally

• USDIndex – remains capped at 109.00 with support at 108.20 today. Tight JOLTS report adds to pressure for a 75 bp next month; Fed Fund Futures now sit at 68.5%.  2yr yields traded to 15 yr highs. AUD outperformed overnight.
• EUR – German Inflation at near 50-yr highs, pressures ECB action and lifts EUR to 1.0033
• JPY holds between 139.00 & 138.00 having breached 138.00 Monday. 
• GBP hit Pandemic era lows (March 2020)  yesterday at 1.1620. Recovered 1.1675 now.  
• Stocks US stocks weak again (S&P500 -44.00pts (-1.10%) 3986).  Under 4k & 24-day low & under 50-day MA. Energy & Tech stocks led the decline. Futs 4014 now.
• Oil lost over 5% yesterday but has recovered; API inventories better than expected. Touched $90.50 yesterday up to $92.50 now.
• Gold – crashed to from resistance at $1736 and trades at support ($1724) now.
• BTC – tested Monday’s 33-day low ($19.5k) again yesterday, back over 20k now at 20.3k.

Overnight – Asian equity markets squeezed lower following weak Wall Street,  European FUTS tick higher.  NZD Strong Building Permits  JPY Retail data also better than expected CNY PMI data beat but weaker than last month. Manufacturing (49.4) remains in contraction. German Import Prices and French CPI (m/m)  weaker than expected. (1.4% & 0.4% respectively).

Today – German Import Prices & Unemployment, EZ CPI, Canadian GDP, US ADP & Chicago PMI, Speeches from Fed’s Mester & Bostic.

Biggest FX Mover @ (06:30 GMT) AUDUSD (+0.68%). Remains volatile, (100+ pip mover yesterday). Latest move; a rally from 0.6850 support to trade at 0.6900 resistance. MAs aligning higher,  MACD histogram negative but signal line rising, RSI 56.00,  H1 ATR 0.00128, Daily ATR 0.00823.

 

Click here to access our Economic Calendar

Stuart Cowell

Head Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Should I use a workplace pension or a SIPP?

Workplace pensions and SIPPs both have attractive qualities, but which one will produce the best returns of investors?

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Ignore the doomsayers - energy prices could fall next year

Forecasts suggest the energy prices will continue to spiral, but these projections could turn out to be a lot of hot air.

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Market Spotlight: Tesla Rally Fizzles Out Following Stock Split

Tesla Fails to Rally Following Stock SplitFollowing a decent recovery rally over recent months, Tesla shares have stalled over August and have settled into a tight range between 281.39 and 315.77. The company posted solid Q2 earnings and 50% of the year’s losses before momentum fizzled out. Last week, the company underwent a 3.1 stock split though the move failed to spur the fresh wave of demand the company was hoping for given that much of the rally had occurred prior to the well signalled move.Musk Focused on Self-Driving TechSpeaking at an energy conference in Norway this week, CEO Elon Musk declared that his main focus this year was on the group’s SpaceX starship program and readying self-driving car technology ready for roll-out in the US and Europe, depending on regulatory approval. Speaking at the event, Musk said: "The two technologies I am focused on, trying to ideally get done before the end of the year, are getting our Starship into orbit... and then having Tesla cars to be able to do self-driving. Have self-driving in wide release at least in the U.S., and... potentially in Europe, depending on regulatory approval."Technical ViewsTeslaThe rally off YTD lows has seen Tesla shares trading up as high as 315.77 before stalling. For now, while price holds above 281.39, the focus is on a continuation higher, with 363.61 the broader objective for bulls. Should we slip lower here, the next key support is at the rising trend line and 255.61 level.

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Market Spotlight: AUDJPY Breaking Out

AUDJPY Long TriggeredThe long idea issued in AUDJPY last week has now triggered on the break of 95.67, with price moving towards first target at 96.98. The rebound in risk sentiment this week, fuelled by a pause in the USD rally, has seen AUD trading with a better tone. The pair is also benefiting from the clear monetary policy divergence between the RBA and the BOJ. While the latter has reaffirmed its commitment to maintaining an easing presence in the market, the RBA has fully committed itself to pushing ahead with tightening as it battles inflation. As such, there is room for higher prices near-term.Keep An Eye OnThe current rally in AUDJPY is being fuelled by the pickup in risk sentiment as USD weakens from recent highs. With this in mind, look for a continuation of the current market dynamic to keep the pair supported while a pickup in USD is likely to slow the rally down near term. US consumer confidence data later will be key to watch, as will comments from Fed’s William who speaks. Traders will be keen to see how other Fed members judge the near-term outlook on the back of Powell’s comments last week.

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The IndeX Files 30-08-2022

Risk Sentiment Stabilises As USD Rally PausesGlobal equities benchmarks are seeing better demand on Tuesday following a tricky start to the week for most. An early rally in USD yesterday weighed on sentiment, driving global stock prices lower, before a reversal in the greenback allowed risk assets to stabilise and recover. The driver behind the initial action yesterday was the fall-out from Powell’s Jackson Hole Speech on Friday.Speaking at the Fed’s annual event, Powell poured cold water on the idea of a Fed pivot, cautioning that rates would likely need to stay at elevated levels for longer in order to battle inflation, which is expected to persist at excessive levels. The speech marked a sharp change-in-tone from last year when Powell wrongly judged that the inflationary spike would prove temporary.With market pricing swinging back in favour of a larger .75% hike in September, risk assets tumbled across the board on the back of the comments. However, since then we’ve seen some scaling back in USD upside, likely reflecting a short-term positioning adjustment ahead of Friday’s jobs data. For equities, the near-term outlook remains pegged to USD flows. If USD regains bullish momentum, equities are likely to move lower near term while a further pull-back in USD will allow for a fuller recovery in risk prices.Technical ViewsDAXThe failure at the latest test of the bearish trend line from YTD highs has seen the market reversing lower, breaking through key support at the 13067.45 level. With both MACD and RSI both bearish, the outlook remains skewed towards further losses while price holds below this level, putting 12462.59 on watch as the next key support.S&P 500The S&P has moved sharply lower following the test of the bear channel top. The reversal has seen price moving back inside the initial, corrective bull channel which formed during the initial recovery off YTD lows. While below the 4153.50 level, and with both MACD and RSI bearish, the focus is on a test of the bull channel low and 3910 support next. This is a key area and a break below here would be firmly bearish.FTSEThe FTSE is continuing its shallow correction from the latest test of the bear channel top and 7558.7 level. While both MACD and RSI are bearish here, the move lower has been laboured, suggesting that while the market holds above the 7362.6 level, the focus remains on a further push higher. Below that level, the next support to watch is 7213.9.NIKKEIThe breakout above the falling wedge pattern has stalled for now with price running into selling interest ahead of 29464.9 and reversing back under the 28356.6 level. With both MACD and RSI bearish, while below here the focus is on a test of the 27422.9 level next, ahead of a retest of the broken pattern top.

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