The EURUSD pair experienced an increase following a dovish speech by Fed Chair Powell. He implied potential policy adjustments due to the balance of risks, resulting in expectations for a rate cut in September with an 85% probability and 54 bps of easing by year-end. This sentiment impacted the US dollar, mainly due to unwinding of hedges rather than repricing of interest rate expectations.
Attention now shifts to the upcoming US NFP report, which could influence rate expectations. Strong data might reduce the probability of a September cut, while soft data might increase expectations for further easing. Meanwhile, the ECB remains neutral, with the market pricing in minimal easing by year-end, suggesting an end to the easing cycle.
Technical Analysis of EURUSD
Technical analysis shows EURUSD reaching a major trendline around 1.1750, where sellers may enter for a potential drop back to 1.16 support. Buyers seek a breakout to push for new highs. On the 4-hour chart, Powell’s dovish stance propelled momentum, while on the 1-hour chart, a minor counter-trendline shows potential for both bullish advancements and bearish retreats.
Upcoming US reports on Consumer Confidence, Jobless Claims, and Eurozone inflation, as well as the US PCE price index, could further influence market movements.
Following the Fed’s dovish signal at Jackson Hole last Friday, the US dollar weakened significantly, pushing EURUSD towards a major resistance level. This shift suggests that after a long period of tightening, the Federal Reserve may be ready to start cutting interest rates. Markets are now pricing in an 85% probability of a rate cut in September, a stark change from just a few weeks ago.
This potential pivot by the Fed is supported by recent economic figures. We have seen US inflation cool to 2.7% in the latest CPI report for July 2025, and monthly job creation has moderated to an average of about 150,000, down from the much stronger figures seen in 2024. These numbers give Fed officials the justification they need to begin easing policy to support a slowing economy.
ECB Stance and Market Implications
In contrast, the European Central Bank seems to have already completed its easing cycle for now, creating a clear policy divergence. Eurozone inflation has remained stable around 2.2%, and growth has been flat, giving the ECB little reason to cut rates further. This makes the euro relatively more attractive than a dollar that is on the cusp of a rate-cutting cycle.
For derivative traders, this creates a clear focal point around the 1.1750 level in EURUSD. Given the strong upward momentum, buying call options with a strike price just above 1.1750 could be a strategy to capitalize on a breakout. This would position for a continued rally if upcoming data confirms the US economy is indeed weakening.
However, after the aggressive rate hiking cycle we saw through 2023 and 2024, there is reason to be cautious about a reversal at this major trendline. Traders who believe this dollar weakness is overdone could consider buying put options with a strike price around 1.1650. This would offer protection if strong US data next week forces the market to reconsider the timing of Fed rate cuts.
All eyes are now on this Friday’s US PCE inflation data and, more importantly, the US Non-Farm Payrolls report next week. A soft jobs number would likely cement expectations for a September cut and could send EURUSD through resistance. Conversely, a surprisingly strong report could unwind this entire move, making the next few weeks critical for setting direction.
