Today’s Market Outlook Dollar Strength After U.S. Data Pauses; Jackson Hole and U.S. Yields Become the Next Focus

Today’s Market Outlook
Dollar Strength After U.S. Data Pauses; Jackson Hole and U.S. Yields Become the Next Focus

■ Market Summary

Tokyo trading was generally quiet, with markets confined to narrow ranges.

USD/JPY saw mixed trading in the low 159 range and remained close to the previous New York close near 159.31. Remarks from BOJ Deputy Governor Himino offered no concrete indication of a September rate hike, leaving the yen slightly soft.

EUR/USD remained centered around 1.1650, moving by only around nine pips. The market is holding onto the dollar’s gains following the previous day’s solid U.S. data while searching for a new directional catalyst.

In New York trading, the U.S. PCE price index, revised GDP, and durable goods orders were broadly firm. Treasury yields rose modestly and the dollar index also edged higher.

However, the dollar index rose to around 99.20 in early London trading, recovering its 200-day moving average at 99.170 and 10-day moving average at 99.176. It is still too early to conclude that the breakout has become established. This area is likely to be an important short-term turning point for the dollar.

■ Dollar Index and U.S. Yields

The dollar index rebounded from a Tokyo-morning low near 99.096 and rose toward 99.20 in early London trading.

The 99.17 area, where the 200-day and 10-day moving averages converge, is an important resistance zone for the dollar.

If the index breaks clearly above this level and holds, the correction of last week’s dollar weakness could extend further. Conversely, if it is capped there, falling U.S. yields or cautious messaging from Jackson Hole could once again favor dollar selling.

Today’s U.S. releases include initial jobless claims, wholesale inventories, and the seven-year Treasury auction. Unless there is a major surprise, market focus is likely to remain on U.S. yields and Jackson Hole expectations.

■ Jackson Hole Symposium

The Jackson Hole Symposium begins today, with attention shifting toward Fed Chair Warsh’s keynote speech scheduled for tomorrow.

The Chair is expected to avoid providing explicit forward guidance or a detailed interest-rate outlook. Markets will therefore look for clues in the assessment of inflation, employment, and economic conditions.

Key points include:

• Assessment of easing inflation

• Views on the resilience of the economy

• Risks of a slowing labor market

• Signals regarding future rate cuts or maintaining high rates

Following the recent firm U.S. data, a more hawkish-than-expected speech could support higher U.S. yields and dollar buying. Conversely, emphasis on economic-slowdown risks or caution regarding financial conditions could cap the dollar’s upside.

■ Middle East Developments and Oil

In the Middle East, the safety of shipping through the Strait of Hormuz remains an important theme.

Markets remain highly sensitive to reports involving tankers and maritime logistics. News of a vessel being struck by a projectile, for example, could trigger a renewed surge in oil prices and risk aversion.

NY crude futures are currently trading in the $81 range, suggesting that excessive risk aversion has eased somewhat. However, conditions in the Middle East can change rapidly on headlines. Oil prices continue to affect the dollar through U.S. inflation expectations and long-term Treasury yields.

■ USD/JPY

USD/JPY is trading in the low 159 range.

With BOJ Deputy Governor Himino’s remarks failing to heighten expectations of an early rate hike, persistent yen carry trades remain a burden on the yen. However, despite the previous day’s firm U.S. data, USD/JPY has been unable to accelerate toward the upper 159 range, which warrants attention.

On the upside, 159.50 is the initial resistance level, followed by the key 160.00 threshold. As the pair approaches 160.00, concerns over possible intervention by Japanese authorities are likely to intensify.

On the downside, the focus is whether 159.00 can hold. If lower U.S. yields coincide with dovish signals from Jackson Hole, a correction into the upper 158 range is possible.

■ Key Events Ahead

• South Africa July PPI

• Mexico July employment data and trade balance

• Brazil July employment data

• Canada second-quarter current account

• U.S. July preliminary wholesale inventories

• U.S. initial jobless claims

• ECB meeting minutes

• Remarks by Cleveland Fed President Hammack

• U.S. seven-year Treasury auction

• Jackson Hole Symposium

• Middle East developments and NY crude futures

■ Summary

The dollar remains supported by the previous day’s firm U.S. data, but the dollar index is now approaching a key technical area where the 200-day and 10-day moving averages converge. This could determine whether the dollar extends its recovery or resumes its decline.

In the short term, trading is likely to remain sensitive to U.S. yields, Jackson Hole developments, and Middle East headlines.

USD/JPY is likely to find support on dips due to persistent carry-trade demand, while resistance is also expected to strengthen from the upper 159 range toward 160.00. In London and New York trading, the key will be whether the dollar index can break clearly above and hold the 200-day moving average, while monitoring U.S. yields and oil prices.