August 28: Overnight Market Wrap

August 28: Overnight Market Wrap

Key notes:

Fed’s Powell confirms ‘average inflation targeting’

US jobless claims slightly weaker but GDP better

US 10year yields move higher boosting USD/JPY

Well the key risk event came and went with Powell confirming the Fed approach to average inflation targeting but little in the way of any detail to how that’s measured. USD bears got the headlines they wanted and the greenback sunk on the initial comment but soon retraced aggressively with some profit taking on the buy the rumour sell the fact. However, by the end of the day, month end USD selling for rebalancing saw most pairs fall back to not far where they were pre-Powell. The big exception was USD/JPY which benefitted from the rise in US 10 year yields greater than other pairs. Prior to Powell we saw a weaker jobless claims print but stronger GDP data which saw little price action. Stocks were mixed, having jumped initially the Dow Jones gave back some of its gains, the S&P500 closed at a new record high but the Nasdaq underperformed having been the better performer in recent days. Gold having moved from 1930 to 1977 on Powell’s confirmation then sank back to 1910 before closing back at 1930 proving metals to once again be by far the most volatile risk asset of the day. The commodity bloc currencies all surged but also fell back from their highs mirroring the metal’s price action but in a more moderate way. AUD stopped just short of 0.7300, USD/CAD couldn’t break 1.31 and the NZD peaked at 0.6675. From here we wait to see if this proves to give the USD some resurgence or if the recent weak momentum will continue, so we stand at a crossroads for DXY from here with key support around 92.00/20 still the key for a bigger move lower. Jackson Hole continues with other central bankers talking, BOE’s Bailey the highlight tonight but unlikely to cause too much of a stir to the end of the week. Markets need to be cautious of Japanese PM Abe’s presser today during the Asian session where there’s some speculation that he may step down due to his current health problems. Canadian GDP the highlight of a quiet economic calendar.

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