EUR/USD Forecast: Powell may send it below 1.1000 after failing to rise on two positive developments

• EUR/USD has failed to hold onto EZ-data related gains.
• The focus of the day is on Fed Chair Jerome Powell's critical speech.
• Friday's four-hour chart is a tad bearish.

When a currency pair is unable to advance on good news – the direction is clear – down. EUR/USD has already hit fresh three-week lows, but there may be more in store.

Thursday's euro-zone Purchasing Managers' Indexes (PMI) for August beat expectations on all data points – including the critical German Manufacturing PMI. The derailing of the continent's locomotive is not that severe. Moreover, French industry is growing, and services sectors across the continent seem to be doing fine according to Markit's forward-looking surveys.

The euro initially advanced with EUR/USD topping 1.1100. However, optimism faded away quickly. Taking a step back from expectations and focusing on the absolute numbers, the PMIs still paint a potential recession in Germany – and that may drag the whole euro area down. 

For EUR/USD traders, another ominous sign came from the failure to ride alongside the pound. GBP/USD jumped on optimism that a hard Brexit may be avoided. In the past, significant moves in sterling – either up or down – triggered some reaction in EUR/USD. A no-deal UK exit from the EU also has an adverse impact on the euro. However, that did not materialize.

Powell: To cut or not to cut?

The focus now shifts to the US and the crucial speech by Federal Reserve Chair Jerome Powell at Jackson Hole. While the weekend in Wyoming is mostly an academic affair, former heads of the world's most powerful central bank used the venue to send markets a message about future policy.

Investors are at the edge of their chairs, wanting to know if the Fed will cut interest rates in September or not. Leading to his speech, several officials have given television interviews but repeated their well-known stances. Esther George, President of the Kansas City branch of the Federal Reserve, has reiterated that she does not see a need to reduce rates. On the other hand, Robert Kaplan, President of the Dallas branch of the Federal Reserve, has called for a cut – echoing previous statements. Overall, recent comments reflected a split central bank – already seen earlier this week in the FOMC Meeting Minutes.

Markets are fully pricing in another 25 basis point cut in September, contradicting Powell's previous message that the last move was only an "insurance cut" as the economy is doing well. However, deterioration in other parts of the world and concerns about a recession may have tilted the balance in favor of taking action soon. 

For EUR/USD traders, the weakness exposed in recent days implies that it may fall sharply if Powell refrains from hinting about a cut – a break of 1.1000 cannot be ruled out. If he aligns himself with markets and sets the ground for more stimulus, the currency pair's gains may be limited. 

See The audiences of Chairman Powell

EUR/USD Technical Analysis

EUR/USD is trading in a moderate downtrend channel since late last week. The range is tight, and while momentum on the four-hour chart leans down, it is modest. The pair also trades below the 50, 100, and 200 Simple Moving Averages.

Some support is found at the daily – and three-week low – of 1.1060. The next level is critical – the 2019 low of 1.1027. Further down, the psychologically important level of 1.1000 awaits EUR/USD, followed by 1.0960. 

Looking up, the daily high of 1.1090 may provide some resistance. It is followed by 1.1115 which was the high point this week, and then by 1.1130 and 1.1160 which defined a trading range back then.