The week has started off with a whimper as markets cast their steely gaze towards the Jackson Hole Economic Symposium set for later this week. As we discussed on Friday, Jackson Hole is the big event on this week’s economic docket, and with speeches to be delivered on Friday from Fed Chair Janet Yellen and ECB President Mario Draghi, the potential for volatility remains high going into next weekend.
The big topic at the Symposium will be Quantitative Tightening. In the United States, the Fed is staring down the highly-untested route of balance sheet reduction while in Europe, expectations are raging for the European Central Bank to finally start stepping back from their massive stimulus outlays. To date, the ECB has delivered zero solid details about when or how this might happen; and the Fed has been very ‘Fed-like’ in delivering elusive details, saying that they’re planning on starting balance sheet reduction ‘relatively soon’.
At last year’s Jackson Hole, the Fed had the looming prospect of a Presidential Election just a couple of months later. The Dollar had spent most of last year with some form of weakness as we moved into the Symposium, but the one-two combo of Fed Chair Janet Yellen and Vice Chair Stanley Fischer were able to invoke enough motivation around the prospect of near-term rate hikes that the Dollar started to get strong, and continued to run-higher as that November election approached.
Will the Fed be able to evoke another run of strength in the Greenback? So far, 2017 has been brutal for the U.S. Dollar, as the currency remains more than 10% off of this year’s highs. Since we’ve come into August, buyers have appeared to have started trying to carve out a bottom in the Dollar, but sellers have yet to relent and price action remains pegged-down towards one-year lows.
On the chart below, we’re going back to the beginning of 2016 in ‘DXY’ as a representation of the U.S. Dollar. In Maroon, we can see the Dollar’s weak price action going into last year’s Jackson Hole Symposium. In Blue, we have the initial incline in the Dollar around Yellen and Fischer’s comments, and in Green we have the follow-thru of that movement that also includes the ramp from the Presidential Election. And then in red, we have 2017, erasing the entirety of last year’s post-Jackson Hole gains.
