The EUR/USD pair has seen a recent pullback after hitting YTD highs above 1.1170, with the US Dollar regaining strength and testing the 1.1100 level. Investors are now eagerly awaiting Federal Reserve Chair Jerome Powell’s speech for confirmation on a potential rate cut next month.
The US Dollar Index (DXY) bounced back from 2024 lows, fueled by a loss of momentum in the risk market following the release of FOMC Minutes hinting at a rate cut in September. This, coupled with a surge in US yields, has boosted the Greenback and exerted downward pressure on EUR/USD.
Meanwhile, mixed data from euro area PMIs and ECB Accounts indicating no immediate need for rate cuts have weighed on the pair. However, expectations of a rate cut by the Fed in September, supported by statements from various Fed officials, have kept the market sentiment cautious.
Looking ahead, Powell’s speech at Jackson Hole and Bank of Japan Governor Kazuo Ueda’s testimony will be crucial in shaping market expectations. The CME Group’s FedWatch Tool currently shows a high probability of a 25 bps rate cut in September.
In the short term, EUR/USD may face resistance at 1.1174 and 1.1200, with support at 1.1028 and 1.0949. The overall trend remains bullish as long as the pair stays above the 200-day SMA.
While a rate cut by the Fed could narrow the policy gap with the ECB and push EUR/USD higher, the long-term outlook favors the US economy over Europe, suggesting any dollar weakness may be temporary.
Stay tuned for Powell’s speech for further clues on the future direction of the EUR/USD pair.
Analysis Breakdown:
The EUR/USD pair has experienced a setback as the US Dollar strengthens and tests the 1.1100 level. Investors are awaiting Powell’s speech for clarity on a potential rate cut next month. Mixed data from the euro area and Fed officials’ statements have kept the market uncertain. Short-term resistance lies at 1.1174 and support at 1.1028, with a bullish trend as long as the pair stays above the 200-day SMA. Overall, the US economy is expected to outperform Europe in the long term, suggesting any dollar weakness may be temporary.