The EUR/USD currency pair shows resilience as it holds steady above the key support level of 1.1100, with the US Dollar (USD) exhibiting weakness ahead of Federal Reserve Chair Jerome Powell’s highly anticipated speech at the Jackson Hole Symposium. EUR/USD Holds Key Support as Markets Await Powell’s Jackson Hole Speech for Rate Guidance. This speech, scheduled for 14:00 GMT, has traders and investors on edge as they await fresh guidance on interest rates for September and the outlook for the remainder of the year.
EUR/USD Movement and Market Sentiment
In the European session on Friday, EUR/USD managed to recover slightly, reaching near 1.1120. This follows a corrective move from a fresh year-to-date high of 1.1174 on Thursday. The pair’s rise comes as the US Dollar resumes its recent trend of weakening, despite a brief recovery earlier in the week. Traders remain cautious ahead of Powell’s speech, with many looking for clues on the Federal Reserve’s future monetary policy direction.
The US Dollar Index (DXY), which measures the USD’s value against a basket of six major currencies, has dropped to around 101.30. This decline comes after a recovery from a more-than-seven-month low of 101.00 to nearly 101.60 on Thursday. The USD’s bounce earlier in the week was driven by the flash US S&P Global PMI report for August, which indicated stronger-than-expected business activity, particularly in the services sector, while the manufacturing sector continued to contract.
EUR/USD Daily Price Chart
Source: TradingView, prepared by Richard Miles
Powell’s Speech and Market Expectations
All eyes are on Jerome Powell’s speech at the Jackson Hole Symposium, as market participants eagerly await any indications regarding the future path of interest rates and the broader US economic outlook. According to the minutes from the Federal Open Market Committee (FOMC) meeting held on July 30-31, a “vast majority” of officials believe that if economic data continues to align with expectations, it may be appropriate to ease monetary policy at the next meeting. This has fueled speculation about the potential size of interest rate cuts in September.
The possibility of a “soft landing” for the US economy is also a key focus for investors. Recent data, such as the July Nonfarm Payrolls (NFP) report, which showed a slowdown in labor demand and an increase in the unemployment rate to 4.3%, has heightened fears of a potential recession. Despite this, there is cautious optimism that inflationary pressures are on track to return to the Federal Reserve’s 2% target.
While Powell is not expected to lay out a predetermined path for interest rates, many analysts anticipate that he may signal that rate cuts are likely in September, particularly given the dual mandate of managing inflation and employment risks.
EUR/USD Market Movers and Technical Outlook
The EUR/USD’s slight recovery from the 1.1100 support level reflects investor confidence in the Euro, despite the broader underperformance of the currency against other major peers. This underperformance is largely attributed to growing expectations that the European Central Bank (ECB) will cut interest rates again in September. Such expectations are supported by ongoing uncertainty surrounding the Eurozone’s economic outlook and signs of easing wage pressures.
The flash Eurozone HCOB PMI report for August, released on Thursday, showed a rise to 51.2, exceeding expectations and indicating that overall business activity is expanding. However, the positive PMI data is believed to be temporary, driven by strong demand related to the upcoming Olympic Games in Paris, rather than indicative of a broader, sustained recovery. Consequently, uncertainty about the Eurozone’s economic performance in the coming months remains high.
In particular, Germany, the Eurozone’s largest economy, continues to face significant challenges. The PMI data highlighted a sharp decline in business activity, primarily due to a substantial drop in foreign demand, with no signs of recovery on the horizon. This has led to calls for additional stimulus measures to boost demand.
Adding to the case for ECB rate cuts is the sharp decline in Q2 Negotiated Wage Rates, which grew at a slower pace of 3.55% compared to 4.74% in the first quarter. This deceleration in wage growth has eased concerns about persistent inflation, making it more likely that the ECB will opt for further rate cuts. ING economists noted that the ECB has been hesitant to cut rates while wage growth remained elevated, but the latest data may alleviate some of these concerns.
From a technical perspective, EUR/USD remains supported above the 1.1100 level, with investors closely monitoring Powell’s upcoming speech. The currency pair has maintained a bullish outlook, following a breakout from a channel formation on the daily chart. All short-to-long-term Exponential Moving Averages (EMAs) are trending higher, reinforcing the strong uptrend.
The 14-day Relative Strength Index (RSI) is currently in the bullish range of 60.00-80.00, indicating strong upside momentum, though it is approaching overbought levels. Should EUR/USD decisively break above the December 28, 2023, high at 1.1140, Euro bulls could target the next round-level resistance at 1.1200. On the downside, the 1.1100 level remains a crucial support zone, with a break below this level potentially signaling a shift in sentiment.
In summary, the EUR/USD is navigating a complex landscape of economic data and central bank expectations, with Powell’s speech likely to set the tone for the coming weeks. Investors are bracing for potential volatility, as the market digests new information and reassesses the outlook for both the Euro and the US Dollar.
