The economic calendar for the upcoming week is packed with fundamental events. Speeches from Federal Reserve representatives, PMI indices, FOMC minutes, the minutes of the European Central Bank's July meeting, and reports on the American housing market are all on the agenda. However, all these fundamental factors will be overshadowed by the month's key event: the annual economic symposium held in Jackson Hole, Wyoming.
It is no exaggeration to say that this is a significant event for the U.S. dollar. The Jackson Hole symposium is known as the "barometer" of central bank sentiment from leading nations. As is well known, the forum is attended by central bank governors from major countries (usually at the level of chairpersons or their deputies), finance ministers, leading economists and analysts, and heads of major global conglomerates and banking giants. Over three days, they discuss pressing issues, crystallize certain signals, and determine key guidelines for future actions.
Typically, the financial elite discusses the most pressing issues of the moment. Last year, the focus was on combating inflation. Nearly a decade ago, in 2015, the "number one" topic was the crash of the Shanghai Stock Exchange. In the following year, 2016, Brexit's consequences were the main topic, while in 2017, discussions centered on widening bond spreads and further steps by the Fed and ECB. The 2018 symposium focused on the trade war between the U.S. and China (or its consequences), and in 2019, the global trade conflict was again on the agenda. The coronavirus crisis dominated the 2020 symposium, and in 2021, the effects of the pandemic were the central theme. As mentioned earlier, last year's key issue at Jackson Hole was inflation. It is clear that this week, participants will also focus on inflation, but with new "inputs." The focus will be on geopolitical tensions, the slowdown in the Chinese economy, the risk of a U.S. recession, and the recent stock market crash. As they say, "There's a lot to discuss."
Over the three-day symposium commencing on Thursday, August 22, leaders and representatives from numerous central banks will speak, potentially outlining their future actions in the context of monetary policy prospects. Of particular interest is Federal Reserve Chairman Jerome Powell's speech on Friday. This will be his first public appearance since the disappointing Non-Farm Payrolls report, the 'Black Monday ' incident, and the strong U.S. retail sales data.
There is no doubt that the Fed will begin to ease monetary policy in September, but recent macroeconomic releases keep the pace of easing in suspense. The probability of a 50-basis-point rate cut is 25%, while a 25-basis-point cut stands at 75%.
Powell could strengthen the market's dovish sentiment if he allows a 50 basis point rate cut at the upcoming meeting. Conversely, a more optimistic tone could boost the dollar across the market. Either way, volatility for the EUR/USD pair (as well as other dollar pairs) is, as they say, guaranteed.
The Jackson Hole symposium is the week's most important event, but it is not the only one. For instance, several Fed representatives are scheduled to speak during the week in addition to Powell's Friday speech. On Monday, Fed Governor Christopher Waller will present his position; on Tuesday, Atlanta Fed President Raphael Bostic and Fed Vice Chair Michael Barr will speak; and Powell will make his previously mentioned address on Friday.
The minutes from the Fed's July meeting will be released on Wednesday. On one hand, this document will help understand the prevailing sentiments within the Fed's Committee. On the other hand, the July meeting occurred before the release of July's inflation data and the Non-Farm Payrolls report. Therefore, the relevance of the minutes is somewhat questionable, especially with the Jackson Hole symposium approaching.
On Thursday, key European countries will release their PMI indices (preliminary estimates for August). Specifically, the German manufacturing PMI is expected to remain in contraction territory but show minimal positive movement, rising from 43.2 to 43.4. Conversely, the German services PMI is expected to stay above the 50-point mark but might decrease to 52.3. The composite European PMI indices are likely to drop by a few points (both in manufacturing and services). The U.S. manufacturing PMI is expected to rise to 49.8 from the previous value of 49.6. For dollar bulls, the figure must return to expansion territory, meaning it exceeds the 50-point mark contrary to forecasts. Also, the existing U.S. home sales figures will be released on Thursday. This indicator has been in negative territory for four consecutive months, and July is expected to be the fifth month in this trend (with a forecasted annual decline of 4.7%).
However, all these reports will have a limited impact on the EUR/USD pair. All attention will be focused on the symposium and Powell's Friday speech. His remarks will set the direction for the price in the medium to long term. For EUR/USD buyers, staying above the 1.1020 target (the upper line of the Bollinger Bands in the 4-hour chart) is important. Technical signals indicate a priority for long positions, with the initial and currently primary target at 1.1110 (the upper line of the Bollinger Bands on the monthly time frame).
