Today is posed to be an interesting day with GDP data from the UK and the US, following by the long anticipated speech by FED Chair Yellen at the Jackson Hole Symposium. While the GDP data out of the UK could definitely have an impact on the GBP, the question is how much the GDP data out of the US will be influencing the USD today, as the focus will be on the comments from Yellen.
As some senior FED officials have said in recent days that a rate hike is possible and appears close, there is an expectation that the speech will be a bit hawkish, as it would appears unlikely that those comments go against what Yellen believes.
On the other hand, Yellen is known to be very cautious and doesn’t want to rock the boat too much. The officials said and/or hinted that September would be a possibility for a rate hike and while possible, this is not a normal year. A lot of people are wondering if the FED really act right before the elections in the US and right before the first presidential debates. Therefore a lot expect Yellen to sound upbeat about the state of the economy and say that every meeting would be a live meeting at which the interest rate could be raised and that it remains data dependent. This would mean that next week’s NFP could prove to be crucial.
We will know in a few hours which of the two is correct, or perhaps she will surprise with a mix or a third option.
Currencies
EUR/USD – moved up yesterday, even though the data out of Europe wasn’t good, but the USD weakened yesterday. We can see that it nearly corrected Wednesday’s move. There was a bit of strengthening right after the US data, but this didn’t last long.
USD/JPY – is likely to break out today as the range at which it is trading gets tighter and tighter. Inflation data out of Japan was lower than expected and this means that the likelihood the BOJ will act next month is increasing, as they are not able to meet their inflation target.
GBP/USD – remained trading down for a change and didn’t turn around in the morning, a change from the last few trading days. This morning we are moving up as the USD is weakening a bit as we are awaiting the GDP data out of both the UK and the US, and the speech by Yellen.
Indices
Dollar Index – today being such an important day, we are bound to see a fair amount of volatility here as well.
S&P 500 – was trading much lower for the better part of the day, but was able to close almost unchanged. Also here, the speech from Yellen will be of importance, as a rate hike means that money will flow away from equity markets and more into USD assets.
Commodities
Gold – continued to drop amid some more hawkish rhetoric from FED officials with regards to the rate hike. We will be waiting to see what Yellen will say later today, and also if the GDP data confirms that the US economy is doing well. We can expect a lot of volatility in gold today.
Oil – moved up yesterday after comments from the Saudi Energy minister that they see demand picking up and also due to an incident in the Straits of Hormuz between Iranian and US vessels which included warning shots being fired. On the other hand, the Saudi Energy minister also said that it was likely not needed to have a significant intervention in the market, making it doubtful they will indeed agree to a production freeze.
As every Friday, we will also be looking at the number of active rigs, which over the last several weeks has been steadily increasing.
Wheat – is close to reaching a new 10 year low when it breaks below the 399 level. The reason wheat has been trading lower and is under pressure is the fact that the supply of wheat is expected to grow, amid a new record production. However there is some concern for the longer term, which could provide some support at the current levels.