Daily Technical Analysis EUR/USD: Moves Up to Around 1.1200 on Powell’s Conservative Fed Stance

The EUR/USD is extending its gains for the second session in a row, trading around 1.1190 during the Asian session on Monday. This rise in EUR/USD follows the weaker US dollar after the Fed Chairman’s dovish-sounding speech at the Jackson Hole Symposium last Friday.

Fed Chairman Jerome Powell said, “The time has come to tighten policy.” Although Powell did not indicate when the rate cuts will begin or their extent, markets are anticipating that the Fed will announce a rate cut of about 25 basis points at next month’s meeting.

Similarly, Philadelphia Fed President Patrick Harker stressed on Friday the need for the Fed to lower interest rates gradually. Conversely, Chicago Fed President Austan Goolsbee emphasized that monetary policy is at its most restrictive and that the Fed is focused on fulfilling its employment mandate.

Regarding the eurozone, Olli Rehn, a member of the European Central Bank’s Governing Council, said on Friday that slowing inflation and a weak economy in the zone strengthen the case for lower borrowing costs next month, according to Bloomberg. Growth estimates for Europe, particularly in the manufacturing sector, are highly subdued, further strengthening the case for a rate cut in September.

Additionally, Jane Foley, currency strategist at Rabobank, highlighted on Friday that the EUR/USD is expected to trade at 1.1200 on a three-month horizon. Foley added that the recent breakout and the start of a new Fed policy cycle seem to indicate a new trading range may be forming. However, she also stated that if key US data released in early September is stronger than market estimates, it could lead to potential pullbacks to around 1.1000 for the EUR/USD.

EUR/USD Daily Technical Analysis for August 26th:

Bids in EUR/USD remain bullish after the pair managed to bounce from the last swing low at the 200-day Exponential Moving Average (EMA) near 1.0850. In the absence of a significant break above 1.1300, investor short interest could once again push prices lower in the near term.

We will also need to closely watch how the pair trades at the start of the week following the Fed’s statements and their potential impact on Europe.