Will Warsh Spark USD Fireworks on Friday?
Warsh to Speak
All eyes are on Fed chair Kevin Warsh’s upcoming speech at the Jackson Hole Symposium today, his first after taking over from former Fed chair Jerome Powell. On the back of a somewhat confusing post-FOMC press conference in July, traders are today hoping for greater clarity from Warsh. However, whether they will get this clarity remains to be seen given Warsh’s stance on forward guidance and his attempts so far to refrain from giving any.
Fed Rate Hike Expectations
Fed rate hike expectations have been in flux in recent weeks, plunging to around 35% from as high as 70% (September hike) a fortnight ago. A soft patch in US data and the recent actions of the Treasury have weighed on hawkish sentiment. However, with 3 Fed members dissenting and voting in favour of a hike at the July meeting, uncertainty remains high and any strength in incoming jobs/inflation data ahead of that meeting could still potentially push the Fed into a hike. Today, therefore, traders will be looking for a signal from Warsh as to how the Fed is likely to proceed near-term and the outcome for USD looks neatly binary: any hawkish skew, USD should push higher again, any dovish skew and USD is vulnerable to a sharp drop lower.
Technical Views
DXY
The sell off in DXY has stalled for now with price bouncing back above the 99.15 level. If bulls can sustain the rebound, focus will be on a test of the 100.18 level next. If we turn lower again, however, 98.24 is the initial support to note ahead of the deeper level down around 96.59.
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