Trading ideas for the week ahead

Brief overview of last week

Trading last week was mostly characterised by the following:

• Bank of England issues dovish comments on likely rate hike path within its quarterly inflation report, triggering yet more GBP weakness
• GBP/USD falls for a sixth week in a row, a trend not seen since 2009
• Positive week for European equities but late sell off on Friday after Ukraine and Russian military engagement highlights continued investor geo-political tension (the Wall Street index fell 200 points in late trading as nervous traders reduced risk ahead of the weekend on news of shooting between Ukrainian and Russian troops)

Key themes this week

Here are the key themes for me this week:

Jackson Hole Economic Symposium

It’s that time of year again, where the world’s financial leaders meet in Jackson Hole, Wyoming, to talk about the global economy and fiscal policy.

This is of course the first Jackson Hole for both Mark Carney and Janet Yellen as heads of their respective central banks and given the fact that both banks are on a road to hawkish monetary policy, this is certainly one Jackson Hole worth keeping an eye on. Of course there is no guarantee that we will hear anything different to last week’s BoE inflation report or indeed this week’s FOMC minutes. However, Jackson Hole has previously been a platform where central banks have been happy to test out new language and policy ideas some months before they look to refine and roll them out. So this is certainly not one event to turn a blind eye to, especially given the volatility of market reaction to commentary or guidance on monetary policy paths at both the Fed and BoE.

Do note that both Janet Yellen and Mario Draghi are both due to speak on Friday, 22nd August, when both the equity and FX markets are open, with the symposium continuing into the weekend.

A seventh weekly decline for GBP/USD?

The recent downward spiral in performance for the pound against the US dollar has been quite surprising and historically at least, very rare. Last week saw a sixth consecutive weekly decline of the GBP/USD forex pair, its first six-weekly decline since December 2009.

And what’s more concerning is that the pair fell below psychological support of $1.67. Last week saw the price fall below the pair’s 200 daily moving average and make a concerted break out of its long term upward channel. This means a continuation to the downside brings a test of support levels around $1.65 into focus. There needs to be a break back above $1.67. With the dollar index jockeying at similar levels for much of the last two weeks, it’s sterling strength that is going to be crucial in breaking the downward spiral in this pair.

The last time the FX pair fell for a seventh consecutive week was back between August and September 2008.

Will MPC minutes show dissent at the BoE?

On Wednesday we will learn the voting patterns for the Bank of England’s monetary policy committee (MPC) in its decision to keep rates on hold two weeks ago. Interestingly it won’t just be the minutes taken from the meeting that will take markets focus, it will be whether or not a committee member dissented against Carney and voted FOR a rate hike.

If we were to see this, it would indicate a potential shift in thinking within the MPC and this could add greater pressure to the rest of the MPC to hike rates sooner than the first quarter of next year, which is where the majority of the market is currently forecasting.

This could equally pose bullish implications for the pound sterling and also help it to recover some of the ground lost in the last six weeks.