Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1300.
- Add a stop-loss at 1.1140.
- Timeline: 1-2 days.
Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1140.
- Add a stop-loss at 1.1300.
The EUR/USD exchange rate surged to its highest point since July 2023 after Jerome Powell’s dovish statement at the Jackson Hole Symposium. It soared to a high of 1.1200, continuing the strong comeback that started in April when it dropped to 1.0600.
Federal Reserve rate cuts
The EUR/USD pair soared as the US dollar index crashed to $100.5, its lowest level since December last year after Jay Powell’s statement.
In it, he confirmed that the Fed would consider cutting interest rates in its September meeting as most analysts were expecting. Analysts now expect the bank to cut rates by 0.25% in that meeting.
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His statement came after the Bureau of Labor Statistics (BLS) hinted that the labor market was weaker than expected. The economy created 818,000 fewer jobs in the 12 months to March, the biggest downward revision since 2009.
Other numbers have shown that the economy was softening. For example, the latest flash manufacturing PMI report by S&P Global revealed that the sector remained in a deep contraction mode in August.
Meanwhile, European inflation is expected to continue falling in the next few months. The closely watched five-year forward inflation swap dropped below 2.1% last week, for the first time since October 2022.
Still, in a statement, Philip Lane, ECB’s chief economist, warned that the bank’s goal to bring inflation back to 2% was not secure. He believes that interest rates need to remain higher for a while to bring prices lower.
The next important EUR/USD economic numbers to watch will be Tuesday’s US consumer confidence report and Friday’s US personal consumption expenditure (PCE) report. While these are important numbers, they will unlikely change the Federal Reserve’s view of interest rates.
EUR/USD technical analysis
The EUR/USD pair continued its strong rally and reached its highest level in over a year. It flipped the important resistance at 1.1140 (December 28 high) into a support level. The pair has also formed a golden cross as the 50-day and 200-day Exponential Moving Averages (EMA) crossed each other.
The Average Directional Index (ADX) rose to 38, its highest point since November, signaling that the bullish trend is gaining momentum. Therefore, the long-term outlook for the pair is bullish, with the next point to watch being 1.1300. However, a pullback to the support at 1.1140 might happen since Powell’s dovish view was priced in.
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