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A highly-anticipated speech by none other than the Federal Reserve Chairwoman, Janet Yellen, is set to happen on Friday at an annual meeting of central bankers in Jackson Hole, Wyoming.

The yearly conference for 2016 will have its focus on how to improve central banks’ “toolkit.” However, the undivided message from the Fed's leading policymakers is that those tools are barely sufficient.

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“Monetary policy is not well equipped to address long-term issues like the slowdown in productivity growth,” said Fed vice chair Stanley Fischer on Sunday. He mentioned it was up to the administration to capitalize more in infrastructure and education.

But besides that, markets are looking forward to this much-awaited speech with expectations that there will be clues on the timing of the next US rate hike—depending on whether Yellen will echo those of policymakers who expressed hawkish remarks, or reiterate what was in the minutes of July’s policy meeting.

With this, the dollar has been steadily rising in the past few days, buoyed by rate hike hopes and anticipation. It remains stable despite the release of weak US existing homes sales yesterday.  But as the event draws near, dollar slipped against its rivals on Thursday as investors became more cautious with Friday’s speech.

Later in the day, US jobless claims and durable goods orders are due to be posted.

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Analysis

Previously, US housing data for June published July 21 unexpectedly rose by 1.1% to 5.57 million units, topping a consensus forecast of declining 0.5% to 5.48 million units. However, other data released that day were mixed, such as a downbeat manufacturing index and a decline in individuals filing for initial jobless benefits.

As such, US housing data had at least curb losses, and the greenback traded close to 4-month highs, in which it touched the next day—a week ahead of the Fed’s two-day policy meeting.

July 21’s release of US jobless data underlined the optimism over the health of the US labor market. In a report, the US Department of Labor cited the number of individuals filing for initial jobless benefits in the week ending July 16 fell by 1,000 to a seasonally adjusted 253,000 from the week prior’s total of 254,000, beating estimates of an 11,000 increase to 265,000.

For July’s jobless data announcement, we expect the US jobless claims figures to be steady at this declining pace, spelling another buoy for the dollar.


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(Chart by tradingview.com)

As for durable goods orders, June’s figures posted July 27 were weak after the Commerce Department confirmed that total durable goods orders plunged 4.0% in June, worse than economists’ estimates of a meager 1.1% decline.

For August’s July durable goods orders report, we project a rebound in figures; an increase for the first time since April. An upsurge is forecasted due to the pickup in new home sales complemented by the current improvement in the labor market. These may encourage greater demand for US durable goods, and in turn, a positive development may spark a larger boost within the Federal Open Market Committee (FOMC).

The greenback plunged on July 29, when weak US GDP (gross domestic product) data was posted. The US currency never quite recovered to levels prior the aforementioned date, and was continuously lower until it
hit an eight-week trough on August 18 upon the release of Fed minutes which revealed the policymakers were divided on pursuing a rate increase and they required more upbeat economic data to do so.

As of 12:35 GMT, the US dollar is trading 0.14% lower to 94.67. In a weekly view of the greenback’s chart since the beginning of 2016, it has not reached level since its February free fall and touched its lowest level last seen on January 2015 between late April and the first week of May. This is the period wherein expectations of the Fed to normalize rates waned due to global economic slowdown worries.

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(Chart by tradingview.com)

The greenback is nearing its support level of 94.66. One week prior, it dropped from the resistance level of 95.88 and wedged through the current support level, and the past days of this week had the dollar hover just above it.

Conclusion

There is a possibility that the dollar may fall, as it remains with barely any changes despite the focus on Yellen’s remarks tomorrow. Nonetheless, there are US unemployment claims and durable goods orders figures to be announced in the session which are mainly forecasted positively, and this could bring a huge lift for the US dollar, in a short-time interval, that is.

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