The Jackson Hole Symposium was a big hit for traders looking for volatility and decisive trends. The US Dollar broke through resistance levels for the second time in the same week and increased to a new record high for the year. Currently, the US Dollar Index is at 109.35, which is 0.55% higher than the weekly open.
The US stock market reacted positively to Jerome Powell’s speech at first. However, as the Chairman continued delivering the rest of his speech, the price significantly declined, as many investors opted to sell. The S&P 500 saw a decline of 3.37%. Friday’s decline was the strongest recorded since May 18.
The symposium has also triggered a downward trend for gold and silver. The decline continued throughout this morning’s Asian session and has broken below the previous support level from 22nd August.
Jackson Hole Symposium
Last week, most investors fixed their eyes on the Federal Reserve’s speech at the Jackson Hole Symposium. This includes investors already active within the market and others waiting for clarification before positioning trades. As the speech started, most assets moved in favor of a dovish Fed.
In other words, the price of US Indices increased, and the US Dollar declined. However, it looks as though these bullish trades were placed prematurely.
The Chairman of the Federal Reserve, Mr. Jerome Powell, explained that his analysis of the economy is that the Central Bank will need to “maintain a restrictive policy in the longer term” and that it would be a mistake to start easing policies too early.
In addition to this, the Chairman also advised that the Fed will keep its 2% inflation target. This was also an important point as it was previously rumored that the Fed would consider temporarily increasing their inflation target to 2-4%.
The spotlight was, of course, on Mr. Powell. However, he was not the only member to speak to the public. The Federal Open Market Committee (FOMC), which determines the Federal Fund Rate (FFR), also includes 11 other members.
Two of these members also spoke at the Symposium on Friday. Mr. Jefferson and Ms. George both indicated a strong hawkish stance. They advised that the Fed will need to push inflation and demand lower, even if it results in economic contraction and a higher unemployment rate.
USD/JPY - Technical View
The USD/JPY has seen one of the strongest bullish trends this year. However, the exchange rate struggled from 15th July up to 10th August. Since then, many investors have wondered whether the upward trend had lost momentum.
The loss of momentum was mainly triggered due to price psychology, better economic figures from Japan, and uncertainty regarding the US monetary policy. The USD/JPY increased by 0.80% on Friday, approximately 108 PIPs (Percentage in Points).
The instrument's price increased by a further 0.82% during this morning’s Asian session. Traders have also noted that a 0.82% increase during the Asian session is not surprising.
This is because the Asian session is known to show little volatility. The price movement may potentially be triggered by traders in Asia, significantly converting to Dollars.
Japan's August inflation data for the Tokyo area was released on Friday. The Index confirmed that the annualized Consumer Price Index (CPI) had increased from 2.5% to 2.9%.
Price pressure in the national economy continues to increase, but the Bank of Japan (BOJ) members still believe that it is a consequence of temporary factors and rising energy costs.
The Central Bank is also happy to allow a certain level of inflation as the bank has struggled to move out of deflation. The monetary policy generally continues to pressure the Japanese Yen which has been declining against most major currencies.
US Dollar View
The price movement related to the US Dollar continues to be influenced by the symposium. According to reports, most analysts have revised their forecasts for the Fed’s September meeting.
Currently, most analysts expect a 75 basis point increase in interest rates. This is a far cry from last week when the chances of adjusting the value by 50 and 75 basis points were estimated to be about the same.
Of course, it should be noted that the latest inflation figures will not be out for a further two weeks, which will also influence their decisions.