The EURUSD pair has reverted to levels seen before the Jackson Hole Symposium, shifting focus to upcoming US data. Despite Powell’s dovish comments, the USD ended last week lower. This week, key attention will be on US labor data, culminating in the NFP report on Friday. The market believes there’s an 89% chance of a rate cut in September, with forecasts of 55 basis points of easing by year-end. If the data is strong, the probability of a September cut might drop to 50/50, positively impacting the dollar with more hawkish sentiments. Conversely, weak data could boost expectations for more rate cuts, negatively affecting the dollar. Earlier, the EUR weakened due to French political turmoil but recovered after Powell’s statements. ECB members maintain a neutral stance on rate cuts, with expectations of minimal easing in the near future.

Technical Analysis

On the daily chart, EURUSD has risen to the trendline around 1.1740, where sellers may target a decline to 1.16. Buyers aim for a break above 1.1740 to potentially rise to 1.1790. The 4-hour chart indicates resistance at 1.1740, with sellers waiting below and buyers looking for a breakout. The 1-hour chart shows a minor upward trendline, with both buyers and sellers observing for clear movements. Key upcoming events include Eurozone CPI and US economic data, leading up to Friday’s NFP report. The US dollar seems weaker due to the dovish outlook from last week’s Jackson Hole meeting. The market is almost certain a Federal Reserve rate cut will happen this month, with the CME FedWatch Tool indicating an 89% chance. This expectation has been supported by recent data, including initial jobless claims rising to 245,000 in August, suggesting a softening labor market. This week will focus on several US labor reports, with Non-Farm Payrolls on Friday being the most significant. If the numbers are weak, this will likely solidify expectations for a September rate cut and may lead the market to anticipate a third cut by year-end. Derivative traders might consider positioning for a breakout above the critical 1.1740 resistance level in EURUSD, potentially by buying call options around a strike price of 1.1750.

Market Implications

On the flip side, if the US data is strong, it could disrupt current expectations and trigger a rally in the dollar. A surprising NFP beat back in the first quarter of 2025 caused a quick drop in EURUSD, and a similar occurrence could push the pair back toward the 1.1600 support level. Traders who foresee this possibility might look into buying put options to either hedge against or profit from a decline. Given the upcoming uncertainty, implied volatility on EURUSD options is likely to rise this week. For those anticipating a significant movement but unsure of the direction, a long straddle strategy could be beneficial. This involves purchasing both a call and a put option at the same strike price to profit from substantial price swings in either direction. The European side seems relatively stable, offering less to be concerned about. Recent Eurozone inflation data for August was steady at 2.7%, providing the European Central Bank little reason to hint at further rate cuts. This indicates that the primary factor influencing the EURUSD pair in the coming weeks will likely be US economic data and shifts in Fed policy expectations. Create your live VT Markets account and start trading now.

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