The EURUSD pair has returned to levels seen before the Jackson Hole Symposium, with focus now on upcoming US data. The USD ended last week low despite Powell’s dovish stance. This week, attention is on US labour data, ending with the NFP report on Friday. The market sees an 89% chance of a rate cut in September, with 55 bps of easing by year-end.
Robust data might adjust the September cut probability to 50/50, supporting the dollar with more hawkish views. Weak data could increase the likelihood of further rate cuts, affecting the dollar negatively. The EUR weakened earlier due to French political issues but rebounded after Powell’s remarks. ECB members are neutral on rate cuts, with the market expecting minimal easing soon.
Technical Analysis
On the daily chart, EURUSD rallied to the trendline near 1.1740, with sellers possibly targeting a drop to 1.16. Buyers seek a break above 1.1740 for potential rise to 1.1790. The 4-hour chart shows resistance at 1.1740, with sellers poised below and buyers waiting for a break higher. The 1-hour chart reveals a minor upward trendline, with buyers and sellers watching for defined moves.
Upcoming catalysts include Eurozone CPI and US economic data, ending with Friday’s NFP report.
It appears the US dollar is on the back foot, mostly because of the dovish stance that came out of the Jackson Hole meeting last week. The market is now almost certain of a Federal Reserve rate cut this month, with the CME FedWatch Tool showing an 89% probability. This expectation has been fueled by recent data, such as initial jobless claims which we saw creep up to 245,000 in August, suggesting a cooling labor market.
This week is all about a string of US labor reports, with the big one, Non-Farm Payrolls, on Friday. A weak set of numbers would likely cement expectations for that September rate cut and could even lead markets to price in a third cut by the end of the year. For derivative traders, this could mean positioning for a break above the key 1.1740 resistance level in EURUSD, possibly through buying call options with a strike price around 1.1750.
Market Implications
On the other hand, strong US data would throw a wrench in the works, potentially causing a sharp repricing of interest rate expectations and a rally in the dollar. We remember how a surprise NFP beat back in the first quarter of 2025 caused a sudden drop in EURUSD, and a repeat could easily push the pair back towards the 1.1600 support. Traders anticipating this scenario might consider buying put options to protect against or profit from a decline.
Given the uncertainty ahead of the data, implied volatility on EURUSD options is likely to rise this week. For those who believe a significant move is coming but are unsure of the direction, a long straddle strategy could be useful. This involves buying both a call and a put option at the same strike price, profiting from a large price swing either up or down.
The European side of the equation seems much quieter, giving us less to worry about. Recent Eurozone inflation data for August was steady at 2.7%, giving the European Central Bank little reason to signal any further rate cuts. This suggests the primary driver for the EURUSD pair in the coming weeks will almost certainly be the US economic data and the resulting shifts in Fed policy expectations.
