Expectations regarding the possible signals from M. Draghi at the Jackson Hole Symposium are overestimated.
Markets, in our view, are waiting without good reason for the ECB President M. Draghi to send a speech during a speech in Jackson Hole this Friday regarding the prospects for a soft monetary policy. This can be explained by the recent emergence of ambiguous, albeit generally positive, economic statistics from Germany and the eurozone. The main obstacle to stopping stimulus measures is still the low level of inflation of 1.3%, which is noticeably below the target level of 2.0%.
We can assume that the ECB has not yet made a definite decision on this issue. If it was so, then they would have already given a more extensive signal at the speech in Germany in order to prepare financial markets. However, that did not happen. The ECB President spoke on the topic of non-traditional measures in the economy in reference to stimulation and pointed to the whole complexity of the situation and probable challenges in the future. He did not, however, say a word about whether something will change in monetary policy at the bank's September meeting or not. Take note that the meeting will be held on September 7.
Assessing the likely contradictions in the opinions that are present among the representatives of the European regulator, we expect that a half-hearted decision may be taken at the September meeting. This will happen only if the ECB decides that the strengthening of the euro, primarily against the dollar, yen, and sterling, will not threaten exports from the euro area. By the way, German car manufacturers are already experiencing problems in the US market.
In addition to Draghi's commentary, the speech of the US Federal Reserve Chairman J. Yellen will also be in focus. Investors will closely follow her words, to hear signals about the likelihood of continuing on its course to raise interest rates, as well as disclosing details to reduce the balance sheet. Here, we are also not very optimistic. This is due to the fact that the bank still considers it necessary to raise rates further. Therefore, they will try to assess the new portion of economic data prior to the meeting on September 19-20, before deciding anything in this regard. As for the details of reducing the balance, it is also not worth expecting them.
To summarize, in our opinion, we note that the expectations for Draghi and Yellen's performances in Jackson Hole are unreasonably high. We predict that these events will not have a significant impact on the markets, unless, of course, the development of events goes according to the market's expected scenario.
Forecast of the day:
The EURUSD pair is trading in the range of 1.1685-1.1825. We expect that it will remain in this range until the ECB meeting on September 7. It is likely that in the wake of M. Draghi's speech, if he does not say anything substantive about the prospects of price incentive measures, it can adjust to the lower limit of the range of 1.1685.
The GBPUSD pair found support at 1.2775. It can adjust upwards to 1.2890, before, possibly, continuing its fall to 1.2700.