FX market ripe for volatility with /Jackson Hole/

The scuttlebutt around Wall Street is that this year’s economic symposium in Jackson Hole, Wyoming, a who’s who of central bankers and global policy makers, will be a dud as far as financial markets are concerned.

On the off chance it’s not, however, currency traders should expect some chop Friday. European Central Bank President  Mario Draghi takes the stage at 22, just a few hours after Fed Chair Janet Yellen. Crowded wagers, especially those betting on a stronger euro and weaker dollar, as well as
the usual thin liquidity on Friday afternoons in August, means the market may be vulnerable to frenetic, outsized moves, participants say.

We really don’t expect much action from Jackson Hole, but our traders certainly won’t be headed to the pub quite as early this week," said Karl Schamotta, director of foreign-exchangeresearch and strategy at Cambridge Global Payments in Toronto.

While Draghi isn’t planning on delivering a new policy message at the conference, market-moving pronouncements are commonplace at the forum. Three years ago, his comments on inflation fanned speculation the ECB was heading toward quantitative easing.

The latest ECB minutes showed policy makers were concerned about the common currency’s strength."Every measure of positioning shows the euro is frothy, the U.S. dollar is stretched to the downside, every major currency looks stretched from the topside, and there is a lot of potential for a squeeze said Mark McCormick, a currency strategist at TD Securities. "Friday afternoon, extreme
positioning, thin liquidity -- you could get some volatile moves on very little news.”

Euro net-long positioning among hedge funds and other largespeculators is hovering near its most bullish in six years,  according to Commodity Futures Trading Commission.

 Eric Theoret, a currency strategist at Scotiabank, also pointed to extended bearish yen positioning as a potential source of risk. If Yellen mentions any of the concerns Fed Vice Chairman Stanley Fischer highlighted during a June speech -- such as high student loan debt or excessive corporate-sector leverage markets could see turbulence and forced position adjustment.

Source: Bloomberg Pro Terminal

Junior Trader Stefan Panteleev

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