What to Know

  • EUR/USD has continued the downward move that began after the pair peaked at 1.1711 on August 20.
  • Market participants are watching a bearish trade framework that targets 1.1475 with a stop-loss at 1.1700 over a 1-2 day timeline.
  • A bullish alternative framework focuses on a potential move toward 1.1700 with a stop-loss at 1.1475.
  • Odds of a Federal Reserve interest-rate increase by 25 basis points at the December meeting rose to 65% on Polymarket and Kalshi.
  • The shift followed a hawkish statement from Jerome Powell at the Jackson Hole Symposium, where inflation risks remained central to the policy debate.
  • Headline and core Personal Consumption Expenditure inflation readings remained above 3% in July, still above the Federal Reserve’s 2% target.
  • Recent data showed the economy lost 23,000 jobs last month, while consumer confidence dropped in August.
  • Traders are also pricing the possibility of a European Central Bank rate increase of 0.25% at the September meeting.
  • The euro area’s upcoming flash inflation reading is expected to show prices rising 3.3% in August, compared with 2.9% previously.
  • Technical traders are monitoring 1.1474 to 1.1475 as a key downside area, while the 50-day Exponential Moving Average remains an important support reference.

EUR/USD Stays Heavy After August Peak

EUR/USD remains under pressure as the market extends a retreat that began after the pair reached 1.1711 on August 20. The latest move reflects a shift in sentiment toward the US dollar after the Jackson Hole Symposium sharpened attention on Federal Reserve policy risks. While the euro still has its own support from expectations that the European Central Bank may remain active against inflation, the near-term balance has tilted toward dollar strength as traders reassess the probability of another US rate increase.

The current market setup has drawn attention to two competing scenarios. The bearish view centers on selling EUR/USD with a take-profit at 1.1475 and a stop-loss at 1.1700, using a 1-2 day timeline. The bullish view, by contrast, involves buying the pair with a take-profit at 1.1700 and a stop-loss at 1.1475. These levels underline how compressed the immediate debate has become, with traders watching whether the recent downside momentum can continue or whether support near the mid-1.14s can trigger a rebound.

Fed Rate-Hike Bets Lift the Dollar

The US dollar strengthened after traders increased bets that the Federal Reserve will raise interest rates by 25 basis points at the December meeting. Odds of that move rose to 65% on Polymarket and Kalshi, highlighting a meaningful shift in market expectations after Jerome Powell’s remarks at Jackson Hole. Powell’s message was interpreted as hawkish because he maintained that inflation remains stubbornly high and suggested that the central bank may still need to act.

For currency markets, that matters because interest-rate expectations are one of the core drivers of exchange rates. When traders believe US rates may rise, the dollar can become more attractive relative to currencies backed by central banks viewed as less aggressive or less certain. Higher expected rates can increase the appeal of holding dollar-denominated assets, especially when inflation remains above target and the central bank signals that policy may need to stay restrictive.

The inflation backdrop remains central. The latest Personal Consumption Expenditure data showed that headline and core readings stayed above 3% in July. Inflation has also remained above the Federal Reserve’s 2% target for the last five years. That persistence complicates the policy outlook because it gives the Fed a reason to maintain a tough stance, even as parts of the economy show signs of cooling.

Soft Labor Data Creates a Policy Challenge

The Federal Reserve’s challenge is that inflation has stayed elevated while the labor market has weakened. Recent data showed that the economy lost 23,000 jobs last month, while consumer confidence fell in August. That mix places policymakers in a difficult position. A rate increase may help reinforce the inflation fight, but tighter policy can also add pressure to activity at a time when labor data and confidence indicators are already softer.

For EUR/USD, the tension between inflation and growth is important because markets often move not only on what central banks do, but also on what traders believe they are willing to tolerate. If policymakers appear more focused on inflation than growth, the dollar can remain supported. If economic weakness becomes more prominent, the market may question how far the Fed can go, potentially limiting dollar gains. At present, however, the rise in December hike odds has kept the pair under pressure.

ECB Inflation Risks Keep the Euro in Play

The euro side of the equation is not one-directional. Traders are also betting that the European Central Bank will raise interest rates by 0.25% at the September meeting. The reason is familiar: inflation in the bloc remains elevated. The upcoming flash inflation report is expected to show that prices rose 3.3% in August, up from 2.9% in the previous month. One factor behind that expected acceleration is the rise in diesel prices, which have climbed to the highest level in years.

An ECB rate increase would normally provide support for the euro because higher rates can improve a currency’s yield profile. However, the euro’s response depends on how investors compare the ECB’s outlook with the Fed’s. If the market believes both central banks are likely to remain hawkish, the relative strength of the dollar and euro will depend on which policy path looks more durable, and which economy appears better positioned to absorb tighter conditions.

That is why incoming macroeconomic data remains crucial. Inflation readings, consumer indicators, employment figures, and business surveys can all influence rate expectations. In the coming sessions, flash manufacturing and services PMI numbers are expected to provide fresh insight into the health of the US and European economies. Weak activity data could complicate the case for further tightening, while resilient data may give central banks more room to stay firm.

Technical Picture Points to a Bearish Bias

Technical traders have focused on the daily timeframe, where EUR/USD formed two shooting star candlesticks last week. A shooting star often signals that buyers attempted to push prices higher but failed to hold those gains, leaving a long upper wick and a small body. When such patterns appear near a recent high or after a sustained advance, chart watchers often read them as potential signs of upside exhaustion.

After those candles formed, EUR/USD began falling moderately, and the decline accelerated after the Jackson Hole Symposium. The pair has now moved below the strong pivot reverse level of the Murrey Math Lines tool. That break has strengthened the near-term bearish reading for some technical traders, especially as the move followed a clear rejection from higher levels.

Even so, the downside case is not without limits. The pair remains slightly above the 50-day Exponential Moving Average, which has offered meaningful support. Moving averages are widely followed because they can identify trend direction and areas where buyers or sellers may become active. As long as EUR/USD stays near this support area, traders may be cautious about assuming a straight-line decline.

The key downside reference remains the Major S/R pivot point around 1.1474, closely aligned with the 1.1475 take-profit level in the bearish framework. A move toward that area would represent a continuation of the current decline. However, some chart watchers also see the possibility of a bounce from that zone if sellers begin taking profit or if incoming data weakens the dollar’s momentum.

Trading Levels in Focus

The immediate bearish framework is straightforward: sell EUR/USD, target 1.1475, and use 1.1700 as the stop-loss. This view is built around continued dollar strength, rising Fed rate-hike odds, and the technical rejection that followed the August 20 peak. It assumes that the pair remains vulnerable in the near term and that support around the mid-1.14s can be tested within the 1-2 day window.

The bullish framework uses the same levels in reverse: buy EUR/USD, target 1.1700, and place a stop-loss at 1.1475. This view depends on the idea that the pair can defend support and recover, potentially helped by ECB rate expectations or a pullback in dollar momentum. It is a counterweight to the prevailing downside pressure, but it remains highly dependent on price action around the 1.1474 to 1.1475 area.

For FXCOINZ readers, the main takeaway is that EUR/USD is sitting at the intersection of monetary policy expectations and technical momentum. The dollar has the advantage for now because Fed hike odds have risen and Powell’s Jackson Hole tone reinforced the inflation fight. Still, ECB inflation risks and the pair’s proximity to a key moving-average support zone mean the market has not fully ruled out a rebound.

What Could Shift the EUR/USD Outlook?

The next catalyst could come from flash manufacturing and services PMI numbers in the US and Europe. These indicators are important because they offer timely evidence of business activity across major sectors. Stronger US data could reinforce the case for a more hawkish Fed and keep pressure on EUR/USD. Softer US data, particularly if paired with resilient European numbers, could reduce dollar momentum and allow the euro to recover.

Inflation data will also remain decisive. If euro area inflation comes in near the expected 3.3% for August, compared with 2.9% previously, traders may continue to expect the ECB to act at the September meeting. At the same time, if US inflation continues to sit above 3% and above the Fed’s 2% target, markets may keep pricing a higher chance of US tightening in December.

Until the next major data point arrives, EUR/USD is likely to remain sensitive to shifts in rate expectations and technical levels. The 1.1475 area is the downside marker that bears want to see tested, while 1.1700 is the level bulls want to reclaim. A decisive move through either side would help clarify whether the decline from 1.1711 is extending or whether the pair is preparing for a rebound.

Frequently Asked Questions (FAQs)

Why is EUR/USD under pressure?

EUR/USD is under pressure because the US dollar strengthened after traders raised the probability of a Federal Reserve rate increase at the December meeting to 65% on Polymarket and Kalshi. The move followed a hawkish message from Jerome Powell at the Jackson Hole Symposium.

What is the bearish EUR/USD setup?

The bearish setup focuses on selling EUR/USD with a take-profit at 1.1475 and a stop-loss at 1.1700. The timeline for this view is 1-2 days, reflecting a short-term trading framework rather than a long-term forecast.

What is the bullish EUR/USD setup?

The bullish setup focuses on buying EUR/USD with a take-profit at 1.1700 and a stop-loss at 1.1475. This view depends on the pair defending support and rebounding from the current pressure zone.

Why did Fed rate-hike odds increase?

Fed rate-hike odds increased after Jerome Powell delivered a hawkish statement at the Jackson Hole Symposium. He maintained that inflation remains stubbornly high and suggested the Federal Reserve may need to act.

What inflation data is affecting the dollar?

The most recent Personal Consumption Expenditure numbers showed that headline and core inflation remained above 3% in July. Inflation has also stayed above the Federal Reserve’s 2% target for the last five years.

What is the ECB expected to do?

Traders are betting that the European Central Bank may raise interest rates by 0.25% at the September meeting because inflation in the bloc remains elevated.

What eurozone inflation number is expected?

The upcoming flash inflation report is expected to show that prices rose 3.3% in August, compared with 2.9% in the previous month. Higher diesel prices are one reason behind the expected increase.

What technical level matters most for EUR/USD?

The 1.1474 to 1.1475 area is the key downside level being watched by technical traders. The pair also remains slightly above the 50-day Exponential Moving Average, which has acted as support.

What data could move EUR/USD next?

Flash manufacturing and services PMI numbers from the US and Europe could influence the next move. These indicators will help traders assess the strength of both economies and the outlook for central bank policy.

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