All eyes are focused on this afternoon at 2pm (GMT) and the weeks main risk event, where Fed Chairman Bernanke will testify at Jackson Hole symposium, in Kansas.
This highly anticipated event, will give further colour on the next move for the Federal Reserve of the USA and whether they will initiate another round of QE. After the August FOMC meeting minutes showed that many members saw the need for large scale asset purchases. Following this market participants are looking for the framework behind this and more clues on if and when the asset buying will take place.
Guest post by Mo Mahar, FX Analyst with FC Exchange
Most analysts are expecting little from Bernanke and this disappointment will surely hit risk assets hard, and we should see the risk-off trade take place in the afternoon.
Recent comments by Fed’s Bullard and Lacker, have stated that they want to see more data before further QE is undertaken, as recent fundamentals have shown a mixed bag of results from the US economy.
The concentration will then fall on Septembers FOMC meeting and this will be the next big event to look forward to from the US Central Bank.
Meanwhile in Europe, the light volumes have allowed for the summer rally to be prolonged as EUR/USD, and EUR/JPY continue to trade around multi week highs.
Comments earlier from ECB’s Coeure, provided more fuel to this rally as he said that the central bank were working on a Bond Buying programme. To add to this the EU are set to give ECB sole power to grant EU banking licenses as well as make bank closure recommendations. This news has spurred risk on the morning of the Jackson Hole speech and is providing the markets with some confidence, ahead of next week’s ECB meeting where any plans are expected to be laid out.
The work that is currently being done behind the scenes on the EU banking plan is crucial to the future of the Eurozone. With Draghi already having said that he would not be attending Jackson Hole, because of ECB commitments, many are expecting next week’s meeting to provide respite by setting out the plans for banking reform and helping the indebted nations.
As was the case in the last meeting, where Draghi was expected to deliver a ‘Bazooka’ for the markets after his supportive words in London, this did not come to fruition and so Disappointment again next week will see the Euro sold off, and a continuation of the longer term Bear Trends in pairs like the EUR/USD.
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