Markets on the edge as investors wait for forward guidance from Yellen

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Yellen_Dollar rallies

Janet L. Yellen, Chair of the Board of Governors of the Federal Reserve System / Image via Federal Reserve

Traders and investors eagerly anticipate the speech from Janet Yellen today who is scheduled to speak at the Jackson Hole symposium which started yesterday. At the core of the matter is whether Yellen will provide any forward guidance on the Fed’s rate hike decision when the FOMC meets in about 4 weeks time.

On Thursday, the Kansas City Fed president, Esther George told CNBC that it was time to increase interest rates. Her hawkish comments were expected as George is seen as a hawk among the FOMC and also the dissenter at the July 2016 FOMC according to the meeting minutes where Ms. George voted for a rate hike. In the interview with CNBC, the Kansas City Fed president said, “I do think it is time to move that rate. It doesn’t mean I favor high rates. It doesn’t mean I think it needs to happen rapidly,” suggesting that while she favored a rate hike, she was of the opinion that the pace of rate hikes should be gradual. “But under conditions when we’re seeing employment move [higher with] low and stable inflation, I think it’s fair to say we could remove some of that accommodation,” George said. Her comments did not see any big reactions from the markets, however.

While Yellen’s speech remains the highlight for today, the US second quarter GDP is also up for a second revision. Economists have forecast that the US economy might have grown at a pace of 1.10% down from the first estimates of 1.20%. Any further deviation from the estimates could see a more marked reaction from the markets. Looking forward, after yesterday’s solid durable goods data, investors are seen already looking ahead to the US economy’s performance in the third quarter. Initial estimates from AtlantaFed’s GDPNow shows that the third quarter GDP could rise 3.40%. Still, questions linger on the strength of the economy after a weak performance in the first half of the year.

Atlanta Fed GDP NOW - Q3 GDP estimates
Atlanta Fed GDP NOW – Q3 GDP estimates

US stock indices trade flat

The US stock indices which have been stuck near record highs continue to remain in the holding pattern. The S&P500 futures closed weaker at 2173.50 for the second consecutive day with the Dow Jones and Nasdaq futures exhibiting similar patterns.

Gold prices continued to fall yesterday with spot gold closing the day at $1321.99 an ounce. Gold prices have been bearish for five consecutive days with prices hitting a 4-week low yesterday before attempting to recover some of the losses. Resistance is seen at the $1335 – $1340 level while to the downside; $1300 remains a psychological support level. As noted earlier in the week, the bias to the downside remains in place.

US dollar index – Bear flag remains in play, 95.00 in focus

The US dollar index which fell to a one-month low last week, following the bearish flag pattern breakout on August 16, has seen the momentum fading. Prices have since then managed to bounce to the upside following the inside bar setup that was formed last Friday. However, lack of any significant follow through here could mean that the US dollar could either resume its declines or we could see renewed bullish momentum send the dollar back to the 95.00 handle which now acts as resistance. To the downside, the 161.8% measured move of the bearish flag points to 93.53, which could be tested if the dollar breaks below the currently established low at 94.00 or if 95.00 proves too strong to be broken to the upside.

US Dollar Index (Daily Chart) – Inside bar following the downside breakout
US Dollar Index (Daily Chart) – Inside bar following the downside breakout
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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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