The EUR/USD pair continued to face selling pressure during the Asian session on Friday, slipping to around 1.1595, a decline of roughly 0.10% on the day.
This move marked a critical breach below the 1.1600 psychological level, reflecting renewed strength in the US Dollar (USD) as traders positioned themselves ahead of the Jackson Hole Symposium, where Federal Reserve (Fed) Chair Jerome Powell is set to deliver a pivotal speech. The article by ProDivia Group broker Ana Markovic offers an in-depth analysis of the matter.
US Dollar Rebounds Ahead of Powell’s Speech
The weakness in the euro-dollar exchange rate was largely driven by a rebound in the Greenback, which had been under pressure earlier in the week following a softer-than-expected US jobs report for July. Downward revisions to May and June payrolls further fueled speculation that the Fed could move toward an interest rate cut in the upcoming September meeting.
However, the USD regained traction as Fed officials struck a more cautious tone. Inflationary risks remain embedded in the latest US macroeconomic data, including stronger-than-expected price indicators, which tempered dovish bets.
As a result, market expectations for a 25 basis point (bps) cut in September have moderated. According to the CME FedWatch Tool, the probability of a cut now stands near 75%, down sharply from 92% just a week ago.
Powell’s upcoming remarks at Jackson Hole, one of the most closely watched events on the central banking calendar, could provide vital clues on the near-term monetary policy trajectory. If Powell signals flexibility and emphasizes downside risks to the economy, the USD could come under renewed selling pressure.
Conversely, a firmer stance on inflation risks and policy caution would bolster the Greenback, keeping EUR/USD under pressure.
Eurozone Business Activity Shows Signs of Improvement
While dollar dynamics dominate the short-term outlook, the Eurozone backdrop has also been in focus. The latest flash HCOB Purchasing Managers’ Index (PMI) data for August revealed mixed signals but tilted slightly positive.
The Manufacturing PMI improved to 50.5, returning above the 50 threshold that separates contraction from expansion, compared to 49.8 in July. This was also stronger than market forecasts of 49.5, hinting at stabilization in the industrial sector.
Meanwhile, the Services PMI came in at 50.7, only marginally softer than July’s 51.0, but still above the consensus estimate of 50.8. Taken together, the figures suggest Eurozone business activity accelerated modestly in August, offering some support for the euro even as the broader trend remains fragile.
The data provide some relief to the European Central Bank (ECB), which has been closely monitoring growth dynamics while calibrating its monetary policy stance. With inflation cooling gradually, the ECB is widely expected to maintain its deposit rate at 2.0% when policymakers reconvene in September.
This would extend the pause initiated in July after an extended cycle of rate cuts, signaling a shift toward a more wait-and-see approach.
Technical Picture for EUR/USD
From a technical analysis standpoint, EUR/USD breaking below 1.1600 has important implications. The pair now faces immediate support at 1.1570, followed by a stronger demand zone near 1.1520. On the upside, resistance is aligned at 1.1625, with a break above that level potentially exposing 1.1670 and 1.1700.
Momentum indicators such as the Relative Strength Index (RSI) on the four-hour chart show bearish tendencies but remain above oversold territory, suggesting scope for further downside before a corrective bounce. The 20-day Simple Moving Average (SMA) is trending lower and currently caps upside moves, reinforcing the bearish bias.
Market participants will be closely monitoring price action during Powell’s speech. A dovish surprise could see EUR/USD reclaim 1.1600 and retest higher resistances, while a hawkish or cautious Powell could open the door for a test of the mid-1.1500s in the sessions ahead.
Outlook
Heading into the weekend, the EUR/USD outlook hinges almost entirely on Powell’s messaging from Jackson Hole. A dovish tilt could undermine the USD, providing a short-term tailwind for the euro. However, stronger-than-expected rhetoric on inflation risks would likely extend the pair’s downside momentum, with sub-1.1550 levels coming into play.
Beyond Jackson Hole, the upcoming release of the German GDP Q2 data later on Friday will also be watched for fresh cues on the euro area’s economic resilience. Together, these events set the stage for a potentially volatile close to the week in FX markets.
In the medium term, the interplay between Fed rate expectations, Eurozone growth stabilization, and broader risk sentiment will dictate the trajectory of EUR/USD. For now, traders remain cautious, keeping their focus squarely on Powell’s much-anticipated remarks.
