EUR/USD declines further as fading optimism over Fed rate cuts pressures the pair

The EUR/USD pair continues to retreat from Friday’s high of 1.1742, slipping below the 1.1700 level ahead of the US trading session on Monday. A slightly better-than-expected German Business Climate reading offered little support to the Euro, which remains buoyed by the prior session’s rally following a dovish shift from Federal Reserve (Fed) Chair Jerome Powell.

At the Jackson Hole Symposium, Powell surprised markets by highlighting increasing downside risks to employment, stating that if such risks materialize, they could lead to a sharp rise in unemployment. He also noted that the changing risk outlook could justify a policy adjustment—widely interpreted as a signal for an imminent interest rate cut.

Following Powell’s comments, the US Dollar weakened broadly as market expectations for monetary easing intensified. The CME FedWatch Tool now shows nearly a 90% probability of a 27-basis-point rate cut in September, up significantly from 75% prior to the speech. Markets are also pricing in the likelihood of an additional cut before year-end.

Looking ahead, traders will monitor Monday’s US economic data, including New Home Sales, along with speeches from New York Fed President John Williams and Dallas Fed President Lorie Logan. However, the spotlight remains on the upcoming release of the US Personal Consumption Expenditures (PCE) Price Index—the Fed’s preferred inflation measure—which could significantly influence the central bank’s next policy move.

Daily Market Movers: Fed Easing Expectations to Cap US Dollar Upside

• The Euro is edging lower against the US Dollar on Monday, but downside potential appears limited amid sustained optimism surrounding potential Federal Reserve (Fed) rate cuts. Market sentiment remains positive, with growing expectations that the Fed will ease monetary policy in September likely to keep US Dollar rallies contained in the near term.
• Earlier in the day, Germany's IFO Business Climate Index improved to 89.0 in August from 88.6 in July, beating forecasts for a flat reading. While the current conditions component slipped slightly to 86.4 from 86.5, business expectations for the next six months rose unexpectedly to 91.6 from 90.3, signaling growing confidence in the German economy.
• On Friday, Fed Chair Jerome Powell surprised markets with a dovish tone during his Jackson Hole Symposium address, acknowledging that downside risks to the U.S. economy are increasing. Powell also remarked that inflationary pressures from tariffs appear to be short-lived, supporting the case for potential policy easing.
• Meanwhile, political tensions continue to swirl in Washington. President Donald Trump has escalated his attacks on the Federal Reserve, now targeting Governor Lisa Cook with allegations of mortgage fraud in Georgia. Trump has threatened her dismissal if she does not step down—a claim she firmly denied last week.

Technical Outlook: EUR/USD Eyes Breakout Above 1.1735 Resistance

EUR/USD posted a sharp rebound on Friday, driven by broad-based US Dollar weakness. The daily chart shows a bullish engulfing candlestick pattern—often seen as a signal of a potential trend reversal—supporting the bullish case. The pair is currently testing a key resistance zone between the August 13 high of 1.1725 and the descending trendline from the July 1 high at 1.1735.

Technical indicators reinforce the bullish momentum. The 4-hour Relative Strength Index (RSI) remains steady above 60, and the MACD (Moving Average Convergence Divergence) indicator continues to show strong upside momentum.

A confirmed break above the 1.1735 resistance could open the door to the next key level at the July 24 high of 1.1790, followed by the major barrier at 1.1830, marked by the July 1 high.

On the downside, immediate support lies at the intraday low of 1.1695. Further support is seen at the August 21 high of 1.1660 and Friday’s low of 1.1583.