FX Update: Choppy waters until Jackson Hole on Friday?

FX Trading focus: Treading water until Friday?

 Seeing some signs of consolidation in recent trends in places this morning as we see EURSEK rolling over after its steady recent ascent and EURCHF jerking back higher from new cycle lows on a stronger than expected set of preliminary August PMI’s, with Germany’s manufacturing survey at a solid 49.8, a nudge higher from the July level and far better than the 48.0 expected. The Germany Services survey was weaker than expected at 48.2 but is not the focus. For the Eurozone-wide survey, the manufacturing survey was likewise steady at 49.7 vs. 49.8 in July and vs. 49.0 expected. The resilient data didn’t suit the market action as EURUSD had plunged to new lows below parity yesterday and was posting fresh lows this morning just ahead of the releases. Given the scale and speed of the slide from above 1.0300 in EURUSD just over a week ago, it’s tough to argue that the USD will continue to move in a straight move higher as we await Fed Chair Powell’s speech at Jackson Hole. The title of the Jackson Hole conference is Reassessing Constraints on the Economy and Policy, which between the lines suggests the Fed is set to assess the reasons why it was so wrong and why it policy has little ability to affect the (a slightly more cryptic and academic version of the BoE’s recent throwing of the hands in the air at its own irrelevance, in other words).

Chart: GBPUSD
A rather steep pace of declines for GBPUSD since the pair peaked out above 1.2250 in the wake of the late July FOMC meeting and then on the retest higher after the slightly softer US July CPI release on August 10. Cable managed to test new lows for the cycle this morning below 1.0760 before rebounding slightly and UK rates are off to the races again to new highs for the cycle after a firmer than expected preliminary August Services PMI suggesting moderate expansion. If the US dollar treads water for a couple of sessions ahead of Jackson Hole, there may be some room for the price action to consolidate – certainly a tough area to initiate a USD long position here below 1.1800 in risk/reward terms. Eventually looking for the pair to challenge lower still until either Europe finds some sudden source of relief on its energy emergency or the market begins to price the Fed to ease again (too early for the latter).