Market Sector Scanner: Warsh’s Inflation Comments Raise September Rate Hike Probability
Warsh’s comments increased expectations of a September U.S. rate hike, lifting the dollar and pushing USDJPY above 160 while gold fell sharply. This week, markets will focus on Friday’s U.S. employment report, with several major markets likely to remain range-bound beforehand.
Financial markets were fairly quiet until Friday. U.S. inflation and GDP data were close to expectations, while stronger-than-expected durable goods orders had little impact on markets. Oil prices moved lower as the conflict in the Middle East did not escalate further, while strong NVIDIA earnings and a positive revenue outlook supported technology stocks. The main event of the week was Fed Chairman Warsh's speech at Jackson Hole on Friday. Warsh showed more concern about inflation than expected, saying the U.S. economy remained resilient and more progress was needed to bring inflation back to target. His comments strengthened the U.S. dollar, pushed USD/JPY higher, and sent gold sharply lower at the end of the week.
Key Events Calendar
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Market Outlook
Forex Market
USD/JPY
Last Week Recap
Following a quiet week, USD/JPY moved above 160 on Friday after Fed Chairman Warsh's comments increased expectations of a September U.S. interest rate rise as the Federal Reserve remains focused on bringing inflation under control.
Technical Picture
The Bollinger Bands have narrowed significantly, while USD/JPY is trading close to the upper band. This suggests range-trading conditions could continue ahead of Friday's U.S. employment report.
Outlook This Week
The move above 160 suggests USD/JPY could rise further, but trading may remain quiet until Friday's U.S. employment data provides the next direction.
GBP/JPY
Last Week Recap
GBP/JPY continued its recent recovery last week. Trading was quiet, with U.S. data close to expectations and no major U.K. economic releases.
Technical Picture
The rising 10-day moving average continues to provide support. With some distance remaining to the upper Bollinger Band, there may still be room for further gains.
Outlook This Week
The uptrend is starting to weaken, but the outlook remains bullish while GBP/JPY stays above the 10-day moving average.
EUR/USD
Last Week Recap
EUR/USD fell sharply on Friday after Fed Chairman Warsh expressed concern about inflation, increasing expectations that U.S. interest rates could rise at the September meeting.
Technical Picture
The sharp fall below the 10-day moving average suggests the short-term uptrend has ended, with sideways trading now more likely.
Outlook This Week
Friday's decline was quite large, so it may be better to wait for EUR/USD to recover closer to the 10-day moving average before looking for selling opportunities.
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Equities
U.S. Stock Market
Last Week Recap
The Nasdaq recovered some of its recent losses after NVIDIA reported better-than-expected earnings, improving sentiment toward technology stocks.
Technical Picture
The Nasdaq closed back above the 10-day moving average, but with the Bollinger Bands narrowing, range trading looks more likely in the short term.
Outlook This Week
With markets likely to remain quiet at the start of the week as the U.S. summer holiday period ends, range trading looks like the better strategy ahead of Friday's employment report.
Commodities
Gold
Last Week Recap
Gold extended its recent gains early last week before falling sharply on Friday. Traders sold after Fed Chairman Warsh's comments increased expectations of a U.S. interest rate rise in September.
Technical Picture
The close back below the 10-day moving average suggests the strong rise over the past month may be due for a pause. This would be understandable after gold had risen more than 15% from the start of August at one point last week.
Outlook This Week
Gold could recover in the short term after Friday's large fall. However, with expectations of a September U.S. rate rise increasing, selling near the 10-day moving average could provide a potential opportunity.
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Friday's U.S. employment report will be the main focus this week after last month's weak jobs data. Warsh's recent inflation comments could continue to support the U.S. dollar, while USD/JPY above 160 will be closely watched. Market volatility could also increase as investors return from the summer holidays.
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