The EUR/USD exchange rate was flat this week as market participants reflected on key events, including the statement from Jerome Powell and the important macro data from the United States and Europe. It was trading at 1.1665 on Friday as investors waited for the upcoming US PCE report.
Focus on the US monetary policy
The EUR/USD pair moved sideways as investors reacted to the ongoing happenings on the US monetary policy following last week’s statement from Jerome Powell on interest rates.
In his speech at the Jackson Hole Symposium, Powell noted that the bank would likely start cut interest rates, citing the developments on the labor market, which has deteriorated in the past few months.
The view was supported on Thursday by Christopher Waller, a Fed governor who has advocated for rate cuts in the past few months, and who is being considered to replace Jerome Powell when his tenure ends next year.
Waller has always argued that cutting rates would be appropriate as inflation remains subtle and that the risks to the labor market are significant. He said:
“With underlying inflation close to 2%, market-based measures of longer-term inflation expectations firmly anchored, and the chances of an undesirable weakening in the labor market increased, proper risk management means the FOMC should be cutting the policy rate now.”
The EUR/USD exchange rate also reacted to the latest US consumer confidence data, by the Confirmed Board. This report showed that confidence dropped this month, likely because of the rising unemployment rate and the rising consumer inflation in the country.
On the positive side, the Bureau of Economic Analysis (BEA) reported a strong GDP number on Thursday. This report showed that the economy grew by 3.3% in the second quarter, higher than the previous estimate of 3.1%.
There are two important economic numbers that will move the EUR/USD pair in the coming days. First, the US will publish the latest personal consumption expenditure (PCE) data later today. Economists expect the data to show that the headline PCE inflation rose by 2.6% in July, while the core PCE rose to 2.7%.
The other notable data to watch will be the upcoming US nonfarm payrolls (NFP) data, which will come out on Thursday Friday next week.
Economists expect the data to show that economy created 78,000 jobs in August, while the unemployment rate rose to 4.3%. A weak jobs report will likely lead to confirm the coming interest rate cut.
EUR/USD technical analysis
The eight-hour chart shows that the EUR/USD exchange rate has moved sideways in the past few days. It has remained above the 50-day and 100-day Exponential Moving Averages (EMA).
The pair has formed an inverse head and shoulders pattern, which is often a sign of a bullish reversal. It is hovering slightly below this pattern’s neckline.
Therefore, the pair will likely have a strong bullish breakout in the coming weeks, with the next level to watch being at 1.1830. A move above the slanting trendline will confirm this breakout.
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