Global macro overview for 21/08/2017:
The focal point on the economic calendar will be the Jackson Hole symposium at the end of the week, while the U.S. politics and geopolitical factors may become sidebars. The main theme of the speech will be the stability of the financial system. Among the speakers there will be US Fed Chairperson Janet Yellen and ECB President Mario Draghi. Groundbreaking declarations are unlikely, but investors will carefully analyze the smallest suggestions on the future of major central banks' monetary policy. It is worth to mention last week's speech of Fed Vice President William Dudley which was less dovish than the content of the July FOMC minutes. Dudley and Yellen were often very consistent in assessing the processes in the economy and the optimum shape of politics. Both of them also represent the "center of gravity" of the Fed views. Therefore, Yellen's speech may be a stepping stone to the belief that, despite mixed data from recent weeks, the Federal Reserve remains on the path of gradual normalization. Key will be the interpretation of pricing processes in the US and assessment of the sustainability of inflation slowdown. Any mention of growing imbalances, overly high valuations of assets or under tight financial conditions should be interpreted as a hawkish signal in anticipation of another rate hike.
Global investors are still underestimating the possibility of the Fed hiking the interest rate more often than quarterly and the current anticipation of another interest rate hike in December is quite low (40% implied probability of a rate hike to 1.5% according to CME FedWatch Tool). Almost the same anticipation level is currently set on March 2018: only 43% chances for a hike to 1.5%. This figures can quickly change if Yellen gives any hawkish clues in Jackson Hole.
Let's now take a look at the US Dollar Index technical picture at the H4 time frame. The market is moving inside of a blue channel and bulls are unable to break out above the golden trend line resistance around the level of 94.11. The market is in the critical moment and a breakout in either direction is expected.
