EURUSD has broken Ascending channel in downside
#EURUSD Analysis Video
EUR/USD Rises as Traders Await Powell’s Speech at Jackson Hole
The EUR/USD pair is inching higher as the US Dollar weakens, drawing traders’ attention to the upcoming speech by Federal Reserve Chair Jerome Powell at the Jackson Hole Symposium. With this significant event on the horizon, investors are eager for any hints on future interest rate changes, not just for September but for the remainder of the year.
The Anticipation Surrounding Interest Rate Changes
As we approach September, there’s a growing expectation that the European Central Bank (ECB) will cut interest rates once again. The EUR/USD is currently gaining some ground as investors back the Euro against the weakening US Dollar. However, it’s worth noting that the Euro isn’t performing as well against other major currencies. This underperformance is primarily driven by the market’s belief that the ECB is likely to implement another rate cut, a sentiment that has only grown stronger due to the current economic uncertainty in the Eurozone and the cooling of wage pressures.
One of the key indicators fueling these expectations is the flash Eurozone HCOB PMI report for August, which showed a rise to 51.2—better than anticipated. This uptick indicates that overall business activity expanded at a quicker pace. However, it’s important to take this with a grain of salt. The boost in activity is largely attributed to strong demand spurred by the upcoming Olympic Games in Paris. This demand is likely to be short-lived, meaning that the underlying economic uncertainty in the Eurozone remains unchanged.
In particular, Germany, the largest economy in the Eurozone, saw a sharp decline in business activity, primarily due to a significant drop in foreign demand. Without a clear path to recovery, there’s a pressing need for new stimulus measures to kickstart demand.
Wage Growth and Its Impact on ECB’s Decisions
The conversation around interest rates has also been influenced by the recent data on Q2 Negotiated Wage Rates. A sharp decline in these rates has reignited hopes for more rate cuts by the ECB this year. The data, released during Thursday’s European trading session, revealed that Negotiated Wage Rates grew at a slower pace of 3.55%, down from 4.74% in the first quarter. This slowdown in wage growth eases fears that inflation will remain stubbornly high, potentially giving the ECB more room to cut rates.
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Economists from ING commented on this situation, noting that the ECB has been hesitant to cut rates while wage growth was high. The recent decline in wage growth might help to alleviate these concerns, making the prospect of a rate cut more likely.
Fed Powell’s Speech: What’s at Stake?
As we turn our attention to the US, the EUR/USD has seen a mild recovery, reaching near 1.1120 during Friday’s European session. This comes after a dip from the year-to-date high of 1.1174 on Thursday. The US Dollar’s recent weakness has played a significant role in this recovery, with traders exercising caution ahead of Jerome Powell’s speech at the Jackson Hole Symposium.
The US Dollar Index (DXY), which measures the Greenback’s value against a basket of six major currencies, has dropped to around 101.30. This decline follows a brief recovery to nearly 101.60 after the flash US S&P Global PMI report for August showed a better-than-expected Composite PMI of 54.1. This report highlighted a robust expansion in the services sector, even as the manufacturing sector contracted more than anticipated.
EURUSD has broken Symmetrical in upside
The stakes are high for Powell’s speech. Scheduled for 14:00 GMT, it’s expected that Powell will offer insights into future interest rates and the overall economic outlook for the US. Investors are particularly interested in whether there will be interest rate cuts in September. According to the minutes from the Federal Open Market Committee (FOMC) meeting held on July 30-31, a “vast majority” of officials indicated that if economic data continues to meet expectations, it would likely be appropriate to ease policy at the next meeting.
The Soft Landing Dilemma
Another critical aspect of Powell’s speech will be the discussion surrounding the possibility of a “soft landing” for the US economy. With price pressures seemingly on track to return to the desired 2% rate, the chances of avoiding a recession have become a hot topic. However, fears of a potential recession were exacerbated by the July Nonfarm Payrolls (NFP) report, which indicated a significant slowdown in labor demand and a rise in the Unemployment Rate to 4.3%—the highest level since November 2021.
Many analysts don’t expect Powell to provide a definitive path for interest rates. Instead, he may signal that rate cuts in September are appropriate, particularly since risks have expanded to both aspects of the Fed’s dual mandate—inflation and employment. The dual mandate requires the Fed to promote maximum employment and stable prices, and with both areas facing challenges, the possibility of a rate cut seems more likely.
What to Watch Moving Forward
As we look ahead, it’s clear that both the ECB and the Fed have critical decisions to make. For the ECB, the focus will be on whether the recent decline in wage growth and ongoing economic uncertainty will push them to cut rates again in September. For the Fed, Powell’s speech at Jackson Hole will be closely scrutinized for any clues on the direction of US monetary policy.
Investors and traders should keep an eye on these developments, as they will likely have significant implications for the EUR/USD pair. The interplay between the economic outlook in the Eurozone and the US, coupled with central bank policies, will continue to drive movements in this major currency pair.
In summary, the EUR/USD has seen a slight uptick as the market awaits key decisions from central banks. The anticipation surrounding Powell’s speech and the ECB’s potential rate cuts makes this a pivotal moment for traders. Stay tuned for more updates as the situation unfolds.
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