There has been a flight from risk assets since the beginning of the week on the FX market. US equity benchmarks have been on a downward trajectory since August 17. Shares started to sell off on Wednesday, after the release of minutes from the July FOMC meeting. The dollar and the yen acted as defensive assets, while even gold got caught up in the selloff. During Asian trading on Thursday, many currencies retraced to 12-month lows. In the upshot, the S&P 500 slid 1.07% to 4,400.
The FOMC minutes initially exerted pressure on the dollar, which then pared all losses. The minutes highlighted a discrepancy in politicians' comments in favor of a monetary policy adjustment. FOMC members voiced dissatisfaction with the recovery in employment. There is no common understanding about when to start cutting QE or how long it will last. One thing is clear though – bond purchases will be scaled back before long. Many pundits expect the Fed to announce tapering at its monetary policy meeting scheduled for September 21-22. Others have advised to start scaling back bond purchases in early 2022.
In European trading, the DXY has been trading in negative territory, even though all major currencies are stuck in the red. This is due to a rebound in the EURUSD pair. The reason for this is that the euro/dollar pair accounts for about 57% of the dollar index, so strength in the euro will push the dollar index down. If the DXY closes below 93.20, we could see a false breakout occur at the resistance, while short positions could be set in the key pairs.
Since the beginning of the week, the bitcoin bulls have pumped up the price action a couple of times – by 3% and 4%. All attempts have failed miserably. From $48,053 the price dropped 8.59%. No matter how hard the bulls try, there is little they can do in the face of massive dollar buying.
Now, support for Bitcoin has been at least at $43,770 since August 12. The bulls are running out of steam, so if the dollar rally continues, they will have to retreat to $42,650.
The Jackson Hole Symposium remains one of the key events to watch for in August. FX players are advised to keep an eye on the EURUSD pair. If it starts to rise sharply, the dollar index will fall. A correction in the dollar will be supportive of crypto buyers. The bulls need to consolidate above $47k. This is only way for them to keep alive the bullish trend that kicked off at $29,278 (July 20).