Jackson Hole Symposium Expectations

Tomorrow, members of the Federal Reserve Committee will meet at the Symposium in Jackson Hole to further discuss the rate path of monetary policy. Powell is going to speak as investors will try to interpret the clues offered in the speech. Here is what we can deduct to what would be the most likely outcome of future policy rates.

EdgeFinder Analysis

USDJPY is now sitting at a Bullish rating despite seasonality suggesting lower moves for the month. COT is still long the dollar while the yen remains heavily short. Retail is the opposite which suggests a bullish bias on the sentiment side of the data.

Tomorrow's Fed meetup will be rather impactful on the dollar going forward as investors try to guess where interest rates are headed for the remainder of 2023. The Fed's main goal - as stated before - is to bring inflation lower while achieving a soft landing that they desire. So far, the economy has proven to be more resilient than they anticipated, which could be a good sign that they will continue on their monetary path of restrictive policy.

This doesn't just mean that rates will stay high for a while, but it could also mean that we'll see another rate hike by year end. Gold is highly reactive to this sort of data which is pointing to lower moves on a 1D timeframe. Despite the recent run higher, gold could be gearing for another leg lower.

Price shot up yesterday after PMI data came in cooler than expected. Recently, the metal has been very directly correlated with the US stock market indices. But today's candle is suggesting some pullback. If price closes like this, we could see a retracement back lower to the $1880s range.

AU is another pair that moves pretty much with the stock market, but many factors say that this pair should move lower. Aussie is beat by the US in every category, making this score a "Very Bearish" -10 score overall. Trend readings, Seasonality, Sentiment, etc. all point lower on the pair.

The Fed's attempts at fighting inflation has been aggressive up until this year as we've seen less consecutive hikes. It's not that investors are brushing past the fact that the US will remain in restrictive territory, but they also are looking out for that soft landing goal Powell continues to talk about. As bond yields rise, it will continue to bring strength to the dollar. That's perhaps one of the most important indicators to watch when trading USD pairs.

Retail Spotlight

If we solely focus on USD pairs, retail investors are clearly bearish dollar right now. This is not a sign that USD will fall, in fact, it's quite the opposite. When retail has a strong stance against one asset, is usually means that asset will move the other way. In this case, it looks like the dollar will continue to be bullish overall.

Smart Money Spotlight

Something interesting to watch on the COT front is gold's institutional positioning. For the past couple weeks, smart money has greatly declined in net long positions, making gold a less bullish asset to watch. If the trend continues, and the Fed remains harsh, and the 2-year yield pushes past 5%, gold will likely continue its downtrend.

Fundamental Spotlight

Here are the central bank forecasts for the USD. As we can see, rates are expected to come up just a tad more near 5.5% by Q4 of this year. Then after, rates are expected to fall as the Fed discusses rate cuts. What investors want to know from the Symposium is whether they will keep rates or hike them this year. This forecast could change based on what they say tomorrow. However, it still seems likely that they will try to push higher one more time.