Fed: once again in a time crunch, but no options left

#EURUSD

Key zone: 1.1600 - 1.1720

Buy: 1.1750 (on a strong breakdown of 1.71) ; target 1.1950-1.2000; StopLoss 1.1680

Sell: 1.1600 (on strong negative fundamentals) ; target 1.1450-1.1300; StopLoss 1.1670

The market is waiting for Powell to provide clear information on the Fed’s actions at the September 17 meeting, and the reaction will depend on his fundamental stance: does Jay personally allow for a rate cut or not.

Last week turned out to be a serious disappointment for traders. The reaction to key US economic data was illogical — markets chose to focus on politics instead. But as awareness and clarity set in, a strong reaction should eventually emerge, possibly in the coming days.

• Markets ignored the rise in US core CPI, which came in 0.2% y/y higher than in June. The maximum inflation impact from tariffs will likely be visible between September and the Christmas holidays, as the rule allowing Americans to import duty-free goods worth up to $800 expires on August 29.

• US PPI inflation shocked with an unjustified rise, but the dollar’s reaction was weak, and early Fed comments that a September rate cut was still possible triggered another wave of dollar selling.

• Retail sales came out strong with an upward revision for June, but markets didn’t react at all.

We hope that after today’s discussion on the Ukraine conflict, political pressure will ease slightly and the market will start responding more adequately to statistics.

Attention is now on the August PMI data for the Eurozone and the UK. The impact of Trump’s tariffs remains unclear, but this is the first serious report that will show consumer sentiment after the US-EU trade deal. Forecasts are quite optimistic, but reality may turn out negative.

Now, all hopes rest on the next Fed discussion club meeting in Jackson Hole. The opening statement of the Fed Chair at the summit has always been important, usually signaling the direction of Fed policy for at least the next six months. Powell will not be able to dodge the question this time — everything is already obvious (except for the quality of statistics to be drawn by the new BLS head, Trump’s protégé).

By the way, the symposium also gives Fed colleagues a chance to show support for Powell amid Trump’s constant criticism. The issue of true central bank independence will also be among the key topics discussed in the corridors of the conference.

Powell’s speech could be a harsh disappointment for markets. Speculative volumes are accumulating on both sides, and trading on such “news” is not recommended.

So we act wisely and avoid unnecessary risks.

Profits to y’all!