The run-up to the Jackson Hole Symposium has been one in which yields have been rising, stocks selling, and the dollar surging. Why? On expectations that the Federal Reserve is going to need to be more aggressive in its rate stance. After the end of July’s meeting the Fed prompted a move higher in stocks, a drop in the USD, and a move lower in yields as the market saw them as taking a dovish stance in moving to a meeting by meeting basis.
The expectations are that Jackson’s Hole meeting will see a hawkish Powell who stresses the need for the Fed to tackle inflation as priority number one.
The best opportunity would come if Jerome Powell takes a more dovish stance and disappoints markets. The best markets to express a dovish Powell would most likely be silver and the EURUSD. The gold/silver ratio has been moving steadily higher, for details on how to use it see here.
Gold would also stand to benefit from a dovish Powell as yields and the USD would likely move lower.
The EURUSD is a different way of expressing dollar weakness. So, with the DXY’s 60% EUR weighting, we would reasonably expect a weak USD to send the EURUSD pair higher.
Other options JPY’s pairs
A couple of other options could be selling the GBPJPY and the EURJPY. Both the GBP and the EUR have reasons for weakness. The UK is rushing towards a recession and the eurozone is increasingly likely to enter one. A dovish Powell should send the US10Y yield lower and this should strengthen the JPY. Therefore, watch out for any EURJPY and GBPJPY selling on a dovish Powell.