Markets in focus! Will there be market volatility from the Fed Chair's speech? [From Teruhito Emori’s newsletter]
From Tetsu Emori's investment e-newsletter "Tetsu Emori's Real Trading Strategy" provided by GogoJungle, here is a small excerpt from this morning's distribution.
〔CURRENCY MARKET〕
USD/JPY fell. On the back of worsening U.S. manufacturing indicators, it dropped to the mid-106 range. The August U.S. manufacturing PMI flash reading came in at 49.9, below 50 for the first time since September 2009, indicating contraction. Fears of a U.S. recession led to dollar selling and yen buying, pushing the yen briefly to 106.32. However, after Fed Chair Jerome Powell’s statements at the Philadelphia Fed symposium suggesting a generally neutral rate stance and that a further rate cut is unlikely, dollar demand recovered. Subsequently, with the economic policy symposium in Jackson Hole, Wyoming approaching Powell’s speech on the morning of the 23rd, market participants adopted a wait-and-see stance and moved in a narrow range. EUR/USD traded in the high 1.10s. The flash PMI for the Eurozone in August rose slightly; while services were strong and manufacturing slowed, indicators that would signal future outlook, given trade frictions, fell to levels not seen in about six years.[Currency Trading Strategy]
We will refrain from trading USD/JPY. A range-bound market without a clear direction has continued. However, there is a sense that upside momentum is increasingly capped. There is no need to act immediately, but if we cannot break above 106.65, selling pressure may build. From a broader view, the range is between 105 and 107, and failure to break 106.65 could lead to testing lower levels. Still, as long as 105 holds, it remains a range. There is no rush to enter. If, however, 105 is broken, there will likely be meaningful movement. Preparing for that is what should be done now. This applies to other currency pairs as well. Directionality has yet to emerge.That said, the pound appears to be moving. It may still be within a range of short-covering, but future moves could be driven by Prime Minister Johnson’s statements. So far, the market has been heavily selling the pound, keeping shorts piled up; if a reversal begins, moves could be substantial. Of course, there are profit opportunities, so the pound warrants close attention.
The market is watching Powell’s Jackson Hole speech closely. It could serve as a trigger for volatility. Of course, predicting the exact content in advance is not meaningful, so the priority is to observe the speech and market reaction. It is unclear how candid Powell will be. If he touches on whether the July rate cut was mid-cycle adjustment or indicates the start of a rate-cut cycle, the market could react strongly. After the last July FOMC when President Trump announced raising tariffs on China, the Fed’s stance may have shifted, so this is also worth monitoring.
To reiterate, August is highly likely to be a yen-strengthening month. The month ended July at 108.74, already indicating substantial yen strength. However, the odds of surpassing this level are very low. Since the Trump administration, 114 has been a ceiling, with moves in 6-yen increments. That means 114 minus 6 is 108, and minus another 6 is 102. This is an important support level. If breached, the year’s previously noted low around 96 becomes visible. Whether moves will follow the typical price range is unclear, but it is a potential target to watch.
Since the start of the year, May, August, and November have been difficult months. A severe stock sell-off occurred in May, and now it is August. The trends of yen appreciation and stock weakness are already appearing, and I want to monitor carefully whether the current trend will continue. The final push is in November, at which point risk in U.S. stocks may increase. Be mindful of risk asset selling. If the yen strengthens clearly, there could be a drop to as low as 96 by year-end.
We will change our trading strategy to focus on major currency pairs, excluding emerging-market currencies due to their high volatility. The focus will be on major currency pairs: USD, JPY, EUR, GBP, AUD, NZD, and CAD.
USD/JPY: none
EUR/USD: none
GBP/USD: short-cover
AUD/USD: none
NZD/USD: short
USD/CAD: longEUR/JPY: none
GBP/JPY: none
AUD/JPY: none
NZD/JPY: none
CAD/JPY: noneEUR/GBP: none
EUR/AUD: none
GBP/AUD: none
EUR/NZD: short
GBP/NZD: newly long
EUR/CAD: none
GBP/CAD: none
AUD/CAD: none
NZD/CAD: short
From “Tetsu Emori's Real Trading Strategy” (Tetsu Emori)quote.
Today, Powell is scheduled to speak at 23:00. By examining the content of his remarks and market reactions, try to use this for weekend trading. (Editorial staff)
