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USD buoyed after Jackson Hole

- Our main focus point is now on the Fed’s fight to maintain its credibility and while we believe that a rate hike is on the cards (although more likely in December than September), a QE may also be announced in the interim

- Currency-wise, the USD’s appreciation should continue as long as rate hike expectations endure

- EURUSD is back below 1.1200 and should continue to head south until at least the September meeting

- The only winner of this meeting was Japan, which has seen the USDJPY increase back above 102.00. We expect the yen to continue weakening against the greenback as the monetary policy divergence between the two central banks increases

- The Swiss franc was the second biggest loser as traders sold their long CHF positions amid Jackson Hole proceedings

- USD/CHF is currently testing 0.9750 and will most likely hold ground as long USD trades are popular again

 

The US dollar continued to appreciate across the board on Monday after Federal Reserve officials voiced their mistrust in negative interest rates on the occasion of the two-day symposium at Jackson Hole. During these two days, several Fed presidents continued to build the case for an interest rate hike at either the September or December meeting, based on the argument that both the labour market and the US economy as a whole are improving. The entire US treasury yield curve shifted higher, with monetary policy sensitive 2-year yields rising 7bps to 0.84%, while 10-year yields jumped 8bs to 1.62% - the highest level since the Brexit vote. As a result, the US dollar strengthened against all currencies with the dollar index surging more than 1% to 95.55.

 

Yann Quelenn, market analyst: "The most important information provided at Jackson Hole was the fact that the Fed is considering to buy a broader range of assets to stimulate the economy. Even if Yellen declared that the Fed is “not actively monitoring these options”. Our main focus point is now on the Fed’s fight to maintain its credibility and while we believe that a rate hike is on the cards (although more likely in December than September), a QE may also be announced in the interim.

 

Currency-wise, the dollar is appreciating and should continue to do so as long as rate hike expectations abound. For now, EURUSD is back below 1.1200 and should continue to head south until at least the September meeting.”---

 

Within the G10 complex, the JPY was the biggest loser, falling 1.80% against the greenback as BoJ’s Kuroda reiterated his pledge to provide more monetary stimulus, while at the same time highlighting the need for joint action between fiscal and monetary policy. USD/JPY took off to 102.37, compared to 100.40 on Friday. We expect the yen to continue weakening against the greenback as the monetary policy divergence between the two central banks increases. However, with the probability - extracted from the Fed funds futures - of an interest rate hike in September of 42%, we have the feeling that the market has been overly optimistic in their interpretation of Fed members’ comments. Indeed, almost all members mentioned the need for continual improvement in economic data, while central bankers actually asked for governmental help in their efforts to jolt the economy.

 

The Swiss franc was the second biggest loser as it fell more than 1% against the greenback with USD/CHF jumping to 0.9775 as traders sold their long CHF positions amid Jackson Hole symposium proceedings. On the medium-term, the currency pair is still trading within its downtrend channel but has been persistently testing the top line for the last few weeks. Last week, USD/CHF broke its 50dma to the upside, sending a buying signal. The pair is now currently testing the top of the channel at 0.9750 and will most likely hold ground as long as USD trades are popular again.

 

Equities are blinking red across the board with the exception of Japanese equities, which took advantage of the weaker yen. The Nikkei was up 2.30%, while the Topix index rose 1.97%. In China, the CSI 300 edged down 0.08%; offshore the Hang Seng was off 0.46%, while the Taiex slid 0.24%. In Europe, equity futures are trading into negative territory, pointing towards a lower open.

Monday, 29 Aug, 2016 / 9:37

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Source : http://en.swissquote.com/fx/news

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