- • US Fed chief Janet Yellen to speak on financial stability
at 1400 GMT
- • ECB president Mario Draghi to speak at Jackson Hole
at 1900 GMT
- • Yellen's speech poses a hawkish risk, therefore USD-supportive: Hardy
- • EUR vulnerable to potentially dovish Draghi message: Hardy
- • Hurricane Harvey in the Gulf of Mexico shuts refineries, lifts gasoline prices
- • Harvey has had two-way effect on oil prices, both lifting and weighing: Hansen
- • Harvey could wreak huge damage, with up to 1 metre of rain in worst case
- • Gold stuck in $1,280 to $1,295/oz range
By John Acher
Financial markets are bracing for huge gusts of wind on Friday — from a tropical storm dubbed "Hurricane Harvey" in the Gulf of Mexico and from speeches by central bankers at the Fed's annual Jackson Hole symposium.
US Federal Reserve chief Janet Yellen is scheduled to speak about financial stability at the Jackson Hole, Wyoming conference at 1400 GMT, and European Central Bank president Mario Draghi will follow her at the podium at 1900 GMT.
Saxo Bank's FX strategy chief John J Hardy says that Yellen's speech mainly poses a risk of a hawkish tilt, which would be supportive of the US dollar, while the risks for Draghi's message lie in the dovish direction, which would weaken the euro.
Especially given where the market is now, "I think we are going to see her tilting hawkish," Hardy says. (Read also Hardy's latest FX Update here on TradingFloor
The market-implied probability of a Fed rate hike in December has drifted all the way down to one-third, which Hardy says is likely "too low in the Fed’s eyes."
"The Fed has a lot of work to do to raise market expectations,”
Overall, Yellen's message is likely to be one of caution, he adds.
The ECB's Draghi, however, tends to wax dovish in public speaking engagements, and Hardy says he expects that to happen again today. A vague, dovish message from Draghi could knock EURUSD
lower, with 1.16 and 1.15 being potential areas for further "solid consolidation" from current levels around 1.1792.
EURUSD vulnerable to dovish Draghi message
Source: Saxo Bank
The Texas Gulf Coast lies in the path of Hurricane Harvey, which is already having a two-way impact on oil prices and could wreak huge damage in the days to come.
Preparations for Harvey's landfall have already shut some refining activity, which reduces demand for crude oil and is therefore a negative price factor. But surging gasoline prices and a halt to imports into Houston-Galvaston ports have
the opposite, lifting, effect on crude oil prices.
“Yesterday we saw gasoline prices spike higher,” says Saxo Bank's head of commodities strategy Ole Hansen.
RBOB gasoline surges to highest in four months as refineries
accounting for half of US capacity begin to shut down
Source: Saxo Bank
Fortunately for the refinery areas and most of the population, the storm is expected to hit further south, but it could still wreak billions of dollars of damage, with rains of up to 1 metre, says Hardy.
"The refining capacity is somewhat away from where the epicentre of the landfall is, but it is a major storm so we need to keep an eye on it in the coming hours," says Hansen.
The storm could also have a political fallout. "This could be a test for Trump, like [Hurricane] Katrina was a test that George W. Bush failed miserably in 2005," Hardy says.
The storm could also damage cotton and soybean crops, Hansen adds.
Meanwhile, gold prices remain stuck in a range of $1,280 to $1,295/oz. “A lot will depend on the comments coming out of Jackson Hole and the impact on the dollar," says Hansen.