The Waiting Game : Jackson Hole


Traders have been reticent overnight with the currency mired in tight ranges.

BOJ stimulus talks versus the Fed dovishness outlook: Traders are stuck in limbo, aware that there is some BOJ uncertainty on how they will deal with a strengthening Yen; while the near-term Fed outlook is equally clouded, not the best landscape to look for absolute trends.

In the early trade we’ve seen USDJPY move higher on escalating geopolitical tensions over the North Korea missile launch, which flew 500 kilometres, eventually falling in the Sea of Japan and reportedly inside of Japan’s Air Defence Identification Zone. PM Abe called the launch “Unforgivable conduct”. The launch contravenes the United Nations ban on any use of Ballistic Missiles, but with Jackson Hole and monetary policy in both Japan and US taking centre stage we expect limited follow through, but traders will keep an eye out for an escalation of political tension.


The oil market has reacted favourably to positive signals out of Iran that they may be willing to support other OPEC member in production freezes. From the market’s perspective, the fact that they are coming to the table is very encouraging.

In the past, Iran was concerned about sanctioning themselves after emerging from the economically crippling decade-long global sanctions. But with Iran nearing its pre-sanction production run, they appear more flexible and open to discussion leading up to next month’s OPEC summit.

Given the topsy-turvy world of oil prices, WTI has once again turned lower following the API headline inventory report, which unveiled a colossal build in crude stocks.

Australian Dollar

The Australian Dollar performed poorly overnight, likely bogged down by more regional downgrades after the S&P Global Ratings warned of the risk factor to New Zealand Banks amidst rising house prices. Overall, losses have been very limited.

In the lead up to  Jackson Hole, there is an increasing level of uncertainty weighing on trader’s sentiment, while others are viewing the eventuality of a US rate hike as negative for carry. The later usually makes a negative impression on FX Risk and Carry in the run-up to an eventual rate hike.

When economic policy uncertainty increases, currency yield appeal tends to tarnish, which is likely weighing on investor sentiment?

Also, much of the Post Brexit Aussie rally was in anticipation of additional BOE and EU stimulus, but with UK economic indicators challenging post-Brexit fear and the UK appearing to recover well from the post-Brexit tremors. Some of the “haven” low volatility Aussie Yield appeal is losing its shine. At a minimum, there are some price retracements in play.

USD Asia

The North Korea missile news will probably have a knock-on effect in regional EM ASIA, which is currently back peddling on heightened uncertainty over US Fed monetary policy. When economic uncertainty increases, the FX Risk and Carry positions tend to do poorly, so Emerging Markets fall under pressure.

On the MYR, expect the market to remain bid on dips until the Fed uncertainty clears up after Jackson Hole.

One Thai person was reported killed and 30 wounded as two bombs ripped through a Southern Hotel in the coastal town Pattani. Given that tourism contributes a hefty 10% of the Thai economy, this ongoing act of domestic terrorism may have travellers second guessing their Thai holidays.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes
Stephen Innes

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