- Fed Chair Powell pretty much confirmed a September interest rate cut.
- Lighter macroeconomic calendar ahead will keep the focus on political and fiscal woes.
- EUR/USD flirts with 1.1730, aims to retest 2025 high at 1.1830.
The US Dollar (USD) found fresh legs throughout the first half of the week but lost them on Friday, following Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole Symposium. The EUR/USD pair closes the week well above the 1.1700 mark, recovering from a Friday weekly low of 1.1583.
Trump, Russia, and Ukraine
Hopes that Russia and Ukraine could put a halt to their conflict dominated headlines at the beginning of the week, although such hopes faded as time went by. United States (US) President Donald Trump met with Russian leader Vladimir Putin to discuss the Moscow-Kyiv conflict and announced progress towards an end to the conflict. Trump also met with Ukrainian President Volodymyr Zelenskyy and other European leaders to discuss the matter.
The US President ended up claiming that Ukraine can end the war by not joining the North Atlantic Treaty Organization (NATO). But it is not as simple as that. It is clear that Putin wants to annex a chunk of Ukrainian territory, the strategic Donbas region, and does not want to give up on that. Extending diplomatic talks while continuing military attacks is playing well for Putin and eroding Kyiv’s resistance.
Meanwhile, Zelenskyy demands that post-war guarantees can’t happen without the US’s help. Trump may have rushed his offer to lift sanctions on Russia, while Putin seems little concerned about whatever the rest of the world thinks or does.
Beyond discussing the Russian-Ukrainian war, there were other headlines related to trade negotiations. The European Union (EU) and the US made a joint statement outlining a trade deal. Brussels and Washington delivered additional details, with the US committing to “apply the higher of either the US Most Favored Nation (MFN) tariff rate or a tariff rate of 15 percent, comprised of the MFN tariff and a reciprocal tariff, on originating goods of the European Union.” Adding it would cut auto levies on the EU to 15% after the latter eases US tariffs.
Federal Open Market Committee minutes
The Federal Open Market Committee (FOMC) released the Minutes of the July Federal Reserve (Fed) meeting on Wednesday. The document brought relief, as it showed that “almost all” officials preferred leaving rates unchanged. Market players were concerned ahead of the release that Fed Governors Christopher Waller and Michelle Bowman, who voted to lower interest rates, were pretty much alone. Additionally, the Minutes showed participants noted the impact of tariffs had become more apparent in goods prices, adding that it would take time to have more clarity on the magnitude and persistence of higher tariffs’ effects on inflation.
The USD firmed up on Thursday, following the release of the flash estimates of the S&P Global Purchasing Managers’ Indexes (PMI). The Composite PMI printed at 55.4, better than the 55.1 posted in July. The manufacturing index jumped to 53.3 from the previous 49.8, while the services output index resulted in 55.4, easing from the 55.7 posted in the previous month, yet still indicating solid expansion. The unexpected improvement in the manufacturing sector revived confidence in the US economic resilience, while weighing on the odds for a September interest rate cut.
European woes ease
Also on Thursday, the Hamburg Commercial Bank (HCOB) released the flash estimates of the Eurozone August PMIs. The Composite PMI surged to 51.1 from 50.9 posted in July, a 15-month high. Manufacturing output surged to an over three-year high of 50.5 from the previous 49.8, while the Services PMI eased to 50.7 from the 51.0 posted in the previous month. “The modest increase in business activity was the sharpest since May 2024. Output has now risen in each of the past eight months,” the official report stated.
Other than that, the Eurozone confirmed that the Harmonized Index of Consumer Prices (HICP) rose at an annualized pace of 2% in July, while the core reading printed at 2.3%, as previously estimated.
Germany published some mixed figures, as the July Producer Price Index (PPI) contracted by 1.5% from a year earlier, also down 0.1% in the month. The country also released a revision of the Q2 Gross Domestic Product (GDP), now at -0.3% on a quarterly basis vs the previous estimate of -0.1%.
Hell broke loose at Jackson Hole
The USD collapsed after Fed Chair Powell pretty much confirmed it would cut the benchmark interest rate in September. He was much more dovish and much clearer than usual on the matter, and as usual, unexpected news resulted in wild market moves.
Powell started noting that the downside risks to the labor market are rising. But he also noted that tariff-related inflation may have a short-lived impact. Additionally, he announced a new framework of flexible inflation targeting and eliminate the “makeup” strategy for inflation. The new framework is designed to work in a range of economic conditions, whereas the prior framework’s emphasis on an overly specific set of economic conditions may have led to some confusion. The new one calls for a balanced approach when the central bank’s goals are in tension.
The Greenback collapsed as speculative interest rushed to price in a fresh cycle of interest rate cuts.
What’s next in the docket
The upcoming days will be lighter in terms of macroeconomic data, with the United States calendar having little to offer. The country will release Durable Goods Orders on Tuesday and the second estimate of the Q2 Gross Domestic Product on Thursday. By the end of the week, the US will release July Personal Consumption Expenditures (PCE) – Price Index data, the Fed’s favorite inflation gauge.
Across the pond, the focus will be on Germany, which will kick-start the week by publishing the August IFO survey Business Climate. The country will later report July Retail Sales, and the preliminary estimate of the August HICP, expected to have ticked marginally higher. As for the EU, the Union will be offering the August Economic Sentiment Indicator.
EUR/USD technical outlook
The EUR/USD pair changed course and is ending the week with modest gains at around 1.1720. The bullish case is clear in the weekly chart, as the pair keeps developing above a firmly bullish 20 Simple Moving Average (SMA), currently at around 1.1510. At the same time, the 100 and 200 SMAs aim modestly higher, far below the short one. Finally, the Relative Strength Index (RSI) indicator consolidates at around 65, while the Momentum indicator heads firmly north, well above its 100 line, anticipating higher highs ahead.
The daily chart for the EUR/USD pair is also bullish. Technical indicators bounced from around their midlines, maintaining solid upward slopes. Throughout the week, buyers have defended the downside at around a mildly bearish 20 SMA, currently at around 1.1610. A bullish 100 SMA, in the meantime, provides relevant dynamic support at around 1.1480.
Immediate resistance comes at 1.1730, as the pair topped around the level for a second consecutive week. Gains beyond the latter expose the year’s peak at 1.1830, while additional advances could result in EUR/USD testing the 1.1900 threshold. Support, on the other hand, can be found in the 1.1650 region, ahead of the 1.1590 price zone.
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