The month of August has left with a bang, with Friday ending with the week's key event - the much-awaited speech by Federal Reserve Chairman Bernanke on Jackson Hole, Wyoming.
The Asian markets' Friday close were mostly negative, with only the indices of Singapore, the Philippines, and Indonesia managing to end in positive territory. Japan's Nikkei lost more than one percent, while the rest lost less than one percent. Notably, Nikkei ended the week down but it is up 1.7 percent for August, its best August performance in six years.
Bernanke’s 24-page speech revealed the Fed will continue its monetary policy accommodation to reduce US unemployment and spur economic growth. “The Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” Bernanke told central bankers and economists in the annual economic-policy symposium in Jackson Hole.
Commodities, Stocks, Currencies react to Bernanke Speech
Commodities welcomed Bernanke's remarks. Gold moved to its highest since April, while oil seized its biggest monthly gain in 11 months.
Bernanke's speech also lifted equity investor sentiment. Dow Jones, S&P 500, Nasdaq, and all indices in Europe were positive with the exception of UK's FTSE100.
On the currency front, EURUSD was one of the main beneficiaries of the risk-on effect of Bernanke’s remarks. The currency pair pierced through 1.2600 for the first time since early July, closing the week at 1.2577. Bulls need to contend with 1.2750 next; a substantial move above will create more steam for a push towards 1.2800, and perhaps 1.3000. On the downside, 1.2500 should hold as strong support to maintain the current bullish bias.
After a brief foray above 79.00, USDJPY has gone back to its tight 100-pip range which started in late July.
Meanwhile, GBPUSD is ending the month of August around 200 pips higher at 1.5863, after a brief breach of 1.5900. Economic data pointed to a deepening recession in the UK, bolstering speculation that BOE might need to prolong the use of monetary stimulus measures to prop up the ailing economy.
For its part, AUDUSD ended the month at a five-week low, closing at 1.0319. AUDUSD showed a relatively steady decline after touching 1.0600 in early August. Lingering concerns about slowdown in China, its largest trading partner, is putting pressure on the currency.
Friday's data showed China's manufacturing surprisingly contracted. Manufacturing orders dropped and output rise was at a much slower pace. This is the first time China's manufacturing contracted in nine months. China's economic activity is drastically affected by the unprecedented unemployment rate in the Eurozone and high jobless rate in the US.
The Week Ahead
Although the US will have its Labor day holiday on September 3, the week is fully packed and the market will focus on speeches of ECB's Draghi and BOJ Governor Shirakawa; US ISM Manufacturing data; Employment and Unemployment data from Australia, US, and Canada; and interest rate decisions and statements of Reserve Bank of Australia, Bank of Canada, Bank of England, and European Central Bank.