The EURUSD pair rose after a dovish speech from Fed Chair Powell. He hinted at possible changes in monetary policy due to the current balance of risks. This led to an expectation of an 85% chance for a rate cut in September and 54 basis points of easing by the end of the year. The US dollar weakened mainly because of hedge unwinding rather than changes in interest rate forecasts. Now, all eyes are on the upcoming US Non-Farm Payroll (NFP) report, which may impact these rate expectations. Strong employment data could lower the chances of a September rate cut, while weak data might increase those chances. The European Central Bank (ECB) remains neutral, with markets predicting minimal easing by year-end, indicating an end to the easing cycle.

Technical Analysis of EURUSD

The technical analysis indicates that EURUSD has reached a key trendline near 1.1750, where sellers might come in, causing a possible drop back to 1.16 support. Buyers, on the other hand, are aiming for a breakout to achieve higher prices. On the 4-hour chart, Powell’s dovish comments sparked momentum, while the 1-hour chart shows a minor counter-trendline, suggesting potential for both bullish progress and bearish pullbacks. Upcoming US reports, including Consumer Confidence, Jobless Claims, Eurozone inflation, and the PCE price index, could further sway market movements. After Powell’s dovish indication at Jackson Hole last Friday, the US dollar weakened significantly, moving EURUSD closer to a crucial resistance level. This signals that the Federal Reserve might be ready to start cutting interest rates after an extended period of tightening. As a result, the market is now looking at an 85% chance of a rate cut in September, a sharp turnaround from a few weeks ago. This shift by the Fed appears to be reinforced by recent economic data. The latest CPI report for July 2025 shows US inflation cooling to 2.7%, and average monthly job creation has slowed to about 150,000, compared to much stronger figures in 2024. These numbers provide the Fed with the rationale to ease policy, helping a weakening economy.

ECB Stance and Market Implications

In contrast, the European Central Bank seems to have finished its easing cycle for now, creating a clear policy gap. Eurozone inflation remains stable at around 2.2%, and growth is stagnant, leaving the ECB with little reason to lower rates further. This makes the euro more appealing compared to a dollar nearing a rate-cutting phase. For derivative traders, the 1.1750 level in EURUSD presents a pivotal point. With strong upward momentum, purchasing call options with a strike price just above 1.1750 could be a smart move to take advantage of a potential breakout. This could set the stage for a continued rally if upcoming data confirms the US economy’s weakening trend. Nevertheless, after the aggressive rate hikes throughout 2023 and 2024, traders should be cautious about a reversal at this key trendline. Those who think the dollar’s weakness is overstated might consider buying put options with a strike price around 1.1650. This would help protect against a strong US data release next week, which could make the market rethink the timing of Fed rate cuts. The focus shifts to this Friday’s US PCE inflation data and, importantly, the US Non-Farm Payrolls report next week. A weak jobs report would likely reinforce expectations for a September cut, potentially pushing EURUSD through resistance. Conversely, a surprisingly strong report could reverse this entire trend, making the upcoming weeks crucial for determining direction. Create your live VT Markets account and start trading now.

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