USDCHF has sustained its bullish momentum for the past two weeks now. The pair is currently seeking to close the week higher by breaking above the resistance at $0.9649 but is presently facing a little opposition from the bears as the market awaits the outcome of Powell's speech today to determine the next direction for this pair and every other US dollar crossing in the market.
The Fed Chairman - Jerome Powell, will make a speech today at the Jackson Hole symposium in Jackson Hole valley, Wyoming, US. The tone of his speech today is essential to investors to know whether they are to buy more dollars or dump it at the peak of dollar dominance.
The Jackson Hole Symposium is an important economic event organised annually by the Federal Reserve Bank of Kansas City since 1978. During this event, economists, policymakers, central bank officials, and other global market participants gather to discuss the critical economic issue facing the US and every other country’s economy and share ideas on the way forward.
This year will mark the 45th Jackson Hole Symposium organised so far since this all-important economic event was created and will last from 25-27th August 2022.
Just like the Jackson Hole Symposium this week is focusing on the theme "Reassessing Constraints on the Economy and Policy”, all discussions are expected to consider how each country hopes to rescue their economy from the menace of global inflation through the policy adopted by its central banks.
Powell will have to reveal which policy the Fed, alongside all its committee members, hopes to adopt to overcome the current economic constraints on the US economy due to rising inflations. His speech will be delivered at 10 am Washington time today.
Further, during his speech, Powell is expected to tell all the assembled financial market participants from all countries comprising academics, market movers, central bank officers, policymakers, and others gathered for this Symposium the committee's current stance towards hiking the interest rate. His remarks here are critical as investors seek to clear their doubts about his ambiguous speech during the last Fed session, which simultaneously had a hawkish and dovish outlook.
During the Fed's meeting in July, the issue is that Powell acknowledged that some recent indicators are pointing to the fact that spending and production have softened. This means the labour which he has been boosting as capable of withstanding different series of aggressive interest rate hikes is now weakening.
This has led some investors to conclude that the Fed has succumbed gradually to hiking the interest rate and now sees the need to take a dovish shift.
This resulted in a significant drop in the dollar strength during this period and caused a short bullish trend for equities, stocks, and other risky assets.
However, the series of data released on the US economy has shown that the labour market is still solid and able to withstand further interest rate hikes. Other members of the Fed too, including James Bullard, the CEO and President of the Federal Reserve Bank of St. Louis, had come to rebuke this view earlier during their speeches that the Fed is not yet ready to slow down in hiking the interest rate until the Fed's interest rate target of 3.75% - 4% for the year is achieved.
While Powell abstained from making a definitive speech on the new Fed's outlook on fighting inflations after that, he will have to correct the market perception today that the Fed has finally succumbed to hiking the interest rate in the bid to fight inflations. A more hawkish outlook from his speech will disappoint the bears hoping to short the US dollar base pairs. At the same time, his dovish stance will trigger massive dumping for the US dollar today.
Many believe that Powell will not fail to re-emphasise the Fed’s resolve to keep raising interest rates to put inflation under control. The firmness of his position here will give investors a clue on the rate of an interest rate hike to expect in September.
Of course, Powell understands the impact of his speech today at this Symposium and will not likely give room for investors to dump the US dollar. However, he still has to face the reality of a recession awaiting the country if the current aggressive interest rate hike is not softened.
Generally, analysts expect that Powell will play into the market sentiment to strengthen the US by reaffirming the Fed's resolve to continue the fight against inflation even if it means going into recession.
How will Powell's speech today affect USDCHF?
Powell's speech will probably be a solid fundamental factor in determining the next direction for USDCHF, especially if the bulls will break the current resistance or disperse at this point.
The significant support needed for the bulls to break this resistance is for Powell to maintain a hawkish stance towards fighting inflation and assure investors of more aggressive rate tightening in September, notwithstanding its effects on the labour market.
Should Powell dance to the bull's demand and maintain a hawkish stance on the Fed's future policy to adopt in September, we can hope for a break above the current resistance. This means USDCHF can go higher to retest the weekly high at $0.9689. A break above it will push the price to the previous month's resistance at $0.9691.
On the contrary, should the Fed turn dovish this time and fail to incite the bulls, we can expect a feast for the bears on this pair with the first support of $0.9512. A break below it will result in further downside, with the next resistance as $0.9371.
In all, significant volatility is expected from USDCHF in the market today, and investors are expected to apply proper risk management in positions to guard against false breakouts.