The Speech That Spooked the Market

📰 Almost everything we track got moved by one speech. And it wasn't even bad news exactly; it was clarity, and the market didn't love the clarity it got. On Friday, August 28, Fed Chair Kevin Warsh spoke at Jackson Hole Symposium, and everyone expected him to play it safe. Instead, he came out tough on inflation. Within hours, the odds of a September rate hike jumped from about 1 in 3 to more than half. Gold dropped. The Euro dropped. Stocks wobbled.

Here’s what moved the market, why it matters, and what to watch next week.

The tough talk didn't start with Warsh. The day before his speech, three other Fed officials got there first. Cleveland's Beth Hammack didn't hold back: "Now is the time to act" on rates, she said. Chicago's Austan Goolsbee warned that "everybody should be on edge" because of rising costs tied to tariffs and energy. Kansas City's Jeffrey Schmid said inflation is "still stubborn," though he wanted more data before backing a September hike outright.

There was also a quieter story running underneath all of this. In the weeks before the speech, Treasury Secretary Bessent had been leaning on the bond market in a way a lot of people read as an attempt to push interest rates down himself and by extension, pressured Warsh to go easier. That made Friday's speech about more than just numbers. It was a test of whether the Fed would stick to its own plan under pressure. Harvard economist Ken Rogoff later said Warsh "showed courage" for not backing down.

So what did Warsh actually say? He pointed out that prices are still rising fast; up 3.7% from a year ago, and even faster, 4.1%, if you only look at the last six months. Both numbers are well above the Fed's 2% goal. He questioned whether current policy is even doing much to slow things down, saying there's little sign that borrowing money has gotten harder. He also said the Fed won't promise a fixed plan for rates going forward, it'll decide one meeting at a time. And he didn't dodge the blame, saying the Fed itself is responsible for more than five years of high inflation.

What moved as a result:

That's the backdrop for everything below. One speech, one stronger dollar, three markets telling a similar story.

If you want to see just how much this speech mattered, look at gold first. It dropped almost 4% in a single day, falling below $4,500 to close near $4,493, its lowest price since August 20. The reason is simple: when interest rates look like they're heading higher, gold becomes less appealing, because gold doesn't pay you anything for holding it. At the same time, a stronger dollar makes gold cost more for buyers using other currencies. Two reasons pushing the same way, on the same day.

Looking at the hourly chart, gold's slide from its highs near $4,700 is still playing out.

We want to see gold trade down into that $4,301-$4,372 zone, then watch closely how it behaves there before deciding if the pullback is over.

Stocks actually held up better than you might expect. NQ futures, which track the Nasdaq, sit around 29,491, down about 0.7% on the day. ES futures, tracking the S&P 500, are around 7,722, down roughly a quarter of a percent. Both still finished the week higher despite Friday's dip, which could be a pause inside an uptrend, and not a real reversal.

Looking at the 4-hour chart, NQ got firmly turned away from a resistance zone (Daily Bearish FVG) between 29,800 and 30,100 after touching 30,380 earlier in the month. Since then, it's drifted back down and is now moving sideways around 29,510.

We're not picking a side until we see that first full trading day play out.

Out of everything that moved on Friday, this is the one we think matters most this week, because the story is the cleanest. The Japanese yen has two central banks pulling against each other right now; the Fed leaning tougher, and Japan's central bank also leaning toward higher rates, plus talk of government intervention, which makes it a messy one to trade. The euro doesn't have that problem. It's a simple tug of war: a tougher-than-expected Fed pushing the dollar up, against a European story that hasn't changed, still expected to see higher rates over the next year, with its next big meeting on September 10.

Looking at the 4-hour chart, EUR/USD's pullback from highs near 1.1700 is now testing an old, familiar level.

We want to see price trade down into that 1.1510-1.1540 zone (marked POI), then watch closely how it reacts before calling the pullback finished.

👁️‍🗨️ The Trade Idea

We like this as a short, on the idea that Friday's drop still has room to run before Europe's own story pulls things back the other way. We're watching two possible entries, depending on how far price bounces back up first.

What could prove us wrong: the US jobs report on Friday, September 4, is the biggest risk to this trade. A weak jobs number would quickly cool off bets on more rate hikes, and the dollar could give back Friday's gains just as fast as it made them. This is a trade to watch closely, not one to set and forget.

One speech didn't just make headlines last week, it knocked gold down 4% in a day, broke a level we'd been watching in the euro for two weeks, and gave stocks their first real test of tougher Fed talk in a while. The simple version: Kevin Warsh chose to be clear instead of comfortable, and the market is still deciding how much of that to believe. Friday's jobs report will be the next big vote on that question.

We're waiting for Monday and/or Tuesday to close before drawing any firm conclusions on direction, and once those closes are in, we'll share intraday and monthly targets to watch on Wednesday 2nd September.

None of these ideas need to work out right away. What matters is having a plan for when they don't. That's why every level above comes with a line we're watching, not just a target we're hoping for.

Stay Informed, Stay Patient, and as always… Happy Trading!

— The UE Market Letter Team 👁️‍🗨️

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