EURUSD pair slipped below 1.1700 on Monday after briefly touching Friday’s high of 1.1742. Despite the pullback, the Euro is still holding most of its gains fueled by Federal Reserve Chair Jerome Powell’s unexpectedly dovish tone at the Jackson Hole Symposium.
Powell’s remarks pointing to rising risks to U.S. employment and the possibility of quicker-than-anticipated rate cuts sent the U.S. Dollar tumbling across markets last week. However, as the new trading week begins, traders are reassessing positions, with caution ahead of fresh U.S. economic data and key inflation figures due later this week.
Key Market Highlights
Powell’s dovish tone supports Euro: The Fed Chair’s acknowledgment of employment risks boosted market bets for a September rate cut.
German business confidence slightly improved: August IFO Business Climate Index rose to 89 from July’s 88.6, signaling modest optimism despite weak current conditions.
Upcoming U.S. events: Traders eye U.S. New Home Sales, speeches from Fed officials John Williams and Lorie Logan, and Friday’s PCE Price Index the Fed’s preferred inflation gauge.
Trump-Fed tensions persist: President Trump continues to pressure the Fed, this time targeting Governor Lisa Cook amid allegations she denies.
Market Sentiment and Fed Rate Cut Bets
Following Powell’s speech, Fed funds futures now price in nearly a 90% probability of a September cut, up from 75% before Jackson Hole. Markets also expect another quarter-point reduction before year-end, signaling that monetary easing is becoming a baseline scenario.
This shift has kept the U.S. Dollar under pressure, limiting any sustainable rallies despite short-term rebounds. However, traders remain cautious until the PCE report confirms whether inflation trends support the case for deeper cuts.
Eurozone Outlook: German Data Shows Mixed Signals
Germany’s IFO data provided a slight boost to market optimism, with business expectations for the next six months improving to 91.6 from July’s 90.3.
Positive takeaway: Sentiment suggests businesses see potential stabilization in Europe’s largest economy.
Limitation: Current conditions slipped marginally to 86.4, reflecting ongoing industrial and export-related challenges.
Technical Perspective: EURUSD Levels to Watch
Immediate resistance: 1.1735 remains the key hurdle; a break above could open a path toward 1.1780.
Support zone: Holding above 1.1670 is crucial to maintain the pair’s short-term bullish tone.
Momentum indicators: RSI shows mild consolidation, hinting at range-bound trading until major data releases.
Key Events to Watch This Week
Monday: U.S. New Home Sales data; speeches from Fed officials John Williams and Lorie Logan.
Friday: Core PCE Price Index critical for gauging inflation momentum and Fed policy trajectory.
Ongoing: Political and trade headlines, especially Trump-Fed dynamics and Eurozone macro data.
Conclusion
While EURUSD has pulled back slightly, the overall tone remains constructive as traders anticipate the Fed to ease policy in the coming months. The Euro’s near-term direction will largely hinge on U.S. inflation data and Fed commentary later this week. A softer PCE reading could reignite bullish momentum for the pair, while stronger inflation could provide temporary relief to the U.S. Dollar.
