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Heading into The Jackson Hole summit this Friday, there’s a confluence of macro assets resting at a key technical level to be aware of.
The first up is the US dollar index, or DXY, which as we see below is sitting just above its 50-day moving average which currently rests at 98.08.
The tension here as Friday approaches couldn’t be much more tense than it already is, as whichever direction price breaks from here will have massive ripple effects for risk assets.
For evidence of this, we need look no further than the last time Powell spoke at FOMC in late July, which caused that large spike to the 100 level we see above. As you may recall that dollar squeeze was quickly followed by a big sell off in assets in the days that followed as Bitcoin retreated over $10,000 from its July highs, ES sunk by over 200 points in 2 days, and as the Nasdaq dropped over 1000 points.
This indecision from the dollar at present to make a clean breakout above, or below the 50-day ahead of Jackson Hole is once again setting the stage for volatility around Powell’s speech as he makes his first public comments since last month’s FOMC…
Should the dollar surge upwards and retest or break out above 100, expect another risk-off impulse to not linger far behind.
Should the dollar instead retreat, and head back towards its June lows in the 96 region, that would be a signal that we’re entering into an environment of easier monetary policy and consequently greater liquidity levels which can surge the market current rally to new heights as we close out August.
And when we look for the confluence of a big move looming elsewhere we see no shortage of data underscoring the importance of Friday’s meeting….
BTC - The Canary in the Risk Coal Mine
Following last week’s brief push to all-time highs BTC quickly hit reverse, as it failed not only to close its following daily high above the previous high, but also lost the key psychological level at $120,000.
This bearish reaction from the highs has led to a full retracement in the days since and as we see below BTC has now joined that dollar in resting upon its key 50-day SMA inflection point, which currently sits at $115,740 - making its second retest of the level this month alone.
The macro importance of BTC holding on to this level into the end of the month can’t be overstated enough, as it has time and again throughout 2025 been a leading indicator for directional trends as it relates to the equities markets.
BTC tends to act as the macro canary in the risk on/risk off coal mine and send us reliable signals as to which direction the indices are likely to head over the coming weeks.
For example, we saw BTC lose its 50-day SMA in early February, about 3 full weeks prior to the February 21st sell off on ES and NQ, then back in mid-April, BTC was quick to recover back above its 50-day SMA about 3 weeks prior to ES and NQ doing the same.
What we can gather from this information is that like it or not, the equity index's fate is likely pegged to which direction BTC takes from here, which is likely going to be downstream of the direction DXY takes into August’s monthly close.
And equity bulls had best hope that BTC decides to get moving to the upside soon, because if it falters from here the consequences could be dramatic.
Look out Below?
As we see on the ES and NQ charts below, neither index has touched their 50-day SMA (green line) since they broke out above it during the first week of May.
This means we’ve now gone over 14 weeks, or nearly 100 days without a retest of the 50-day SMA. An unusual amount of time for price to get without sweeping such a major moving average for liquidity.
Below those support levels we don't see much until all the way back at June levels on ES around 6,000 and 21,500 or so on NQ.
Should DXY push back to 100+, and BTC falter below its 50-day SMA throughout the second half of this week, a retest of these key levels currently resting lower will likely only become a matter of if, not when.
During what is likely to be a chaotic end to the month of August keep a keen eye on these price levels for reaction from the indices, and of course be mindful of the signals the market's leading indicators send us in the meantime.
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