At present, the euro is searching for reasons to rise, and the pound sterling is trying to break out of its sideways channel. Meanwhile, many investors may postpone major decisions until the end of August. This could be explained by a symposium that will be held in Jackson Hole this Thursday and Friday. Officials of major central banks worldwide will gather there. However, the closest attention will be paid to Jerome Powell, the chairman of the Federal Reserve, who is scheduled to speak Friday morning.
Last week, the US central bank released the minutes from its July policy meeting. The document revealed that most Federal Reserve officials see a significant risk of inflation rising. This could potentially lead to tighter monetary policy. On the other hand, two Federal Reserve members favored keeping interest rates unchanged. This was the first hint of differing views about the future path.
Recent key data has indicated that pressure on prices and wages is easing in the US. This could support arguments for halting rate hikes. However, there is ongoing growth in labor market indicators and consumer spending. This worries policymakers regarding the prospects of further inflation reduction.
In this light, Powell's view on the situation is of vital importance. Additionally, people will be waiting for any hints about how the central bank plans to handle rates in 2024. Many economists suppose that Powell will adopt a more balanced tone in Wyoming. He might point to the end of the tightening cycle and emphasize the need to keep interest rates higher for a longer period.
Apart from the Jackson Hole event, the US macroeconomic calendar is empty. It only includes reports on existing home sales, new home purchases, and durable goods orders.
Against this backdrop, the ongoing selloff in the Treasury bond market this month is not surprising. This week, the US Treasury will sell 20-year bonds and 30-year inflation-protected securities. Demand for these is known to be unpredictable. If investors remain cautious about buying these assets, higher yields might be needed to attract them.
Regarding currencies, demand for the US dollar might slightly weaken. This is especially possible amid profit-taking and a correctional movement in pairs like EUR/USD, which has dipped notably since mid-July. The British pound might even surge.
Regarding today's technical picture for EUR/USD, the pressure on the euro remains the same. To regain control, buyers should keep the price above 1.0890. This would pave the way to 1.1920 and allow the pair to test 1.0950. From there, the price may climb to 1.0980. However, it would be quite difficult without support from major traders. If the pair drops, I expect significant actions from major buyers only around 1.0860. If they fail to be active, it would be wise to wait for a low of 1.0840 or consider long positions from 1.0810.
Meanwhile, the pound sterling continues trading within the channel. The pound sterling will rise only after bulls gain control over the 1.2765 level. Regaining this range will boost hopes for recovery to 1.2810 and 1.2850, after which we can talk about a surge to around 1.2720. If the pair falls, bears will attempt to take control over 1.2680. If they succeed, a breakout of this range will hurt bulls' positions and push GBP/USD to a low of 1.2680, with the potential to drop further to 1.2650.
