EUR/USD jumps sharply from 1.1100 as Fed Powell emphasize on policy adjustment

EUR/USD delivers a sharp upside to near 1.1160 from the intraday low of 1.1100 in Friday’s New York session. The major currency pair strengthens as the US Dollar (USD) dives after Federal Reserve (Fed) Chair Jerome Powell delivers a dovish guidance on interest rates in his speech at the Jackson Hole (JH) Symposium.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls vertically to near a more-than-seven-month low of 101.00 from a short-lived pullback to nearly 101.60. In his speech at the JH Symposium, Jerome Powell emphasized the need to reduce interest rates. Powell said, "The time has come for policy to adjust." Fed Powell showed concerns over easing labor market conditions, saying "The balance of risks to our mandate has changed," and " We will do everything we can to support a strong labor market." 

On the inflation outlook, Powell remained confident that price pressures are sustainably declining to the bank's target of 2%. He refrained from committing a pre-defined rate-cut path and preferred to remain data-dependent.

Earlier, the US Dollar's pullback move came after the flash US S&P Global PMI report for August showed that the Composite PMI came in better than estimated at 54.1. Overall, the report showed that business activity was boosted by a robust expansion in the services sector, while the manufacturing part of the economy contracted at a faster-than-expected pace.

Daily digest market movers: EUR/USD surges at the cost of US Dollar

• EUR/USD bounces backs trongly from the round-level support of 1.1100 as investors underpin the Euro (EUR) against the US Dollar. However, the Euro is underperforming against other major peers as markets increasingly expect the European Central Bank (ECB) to reduce interest rates again in September.
• Rising expectations of ECB rate cuts in September are supported by the uncertainty over the Eurozone’s economic outlook and cooling wage pressures. 
• The flash Eurozone HCOB PMI report for August, released on Thursday, rose to 51.2, higher than expected, indicating that overall business activity expanded at a faster pace. However, this rosy picture signaled by the PMI surveys was linked to strong demand from the Olympic Games in Paris and it is likely to be short-lived rather than structural. Therefore, the uncertainty over the economic performance in the coming months remains intact.
• PMI data also signaled that business activity in the Eurozone’s largest economy, Germany, declined sharply mainly due to a significant drop in foreign demand, with no recovery in sight, signaling the need for fresh stimulus to boost demand.
• Meanwhile, a sharp decline in the Q2 Negotiated Wage Rates propelled hopes of more ECB rate cuts this year. The data, which was released in Thursday’s European trading hours, showed that Negotiated Wage Rates grew at a slower pace of 3.55% from 4.74% in the first quarter this year, easing fears of inflation remaining persistent.
• Economists at ING said in a note on Thursday, "The European Central Bank has remained uncomfortable with cutting interest rates while wage growth is elevated.” Lower wage growth in Q2 should help ease policymakers’ concerns in this matter.

Technical Analysis: EUR/USD aims to recapture 1.1200

EUR/USD holds above the round-level support of 1.1100, with investors focusing on Fed Powell’s speech at the JH Symposium. The outlook of the shared currency pair has remained upbeat after a breakout of a channel formation on a daily time frame. All short-to-long-term Exponential Moving Averages (EMAs) are sloping higher, suggesting a strong uptrend.

The 14-day Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, touching overbought levels but still suggesting a strong upside momentum.

In case of a decisive break above the December 28, 2023, high at 1.1140, Euro bulls could aim to recapture round-level resistance of 1.1200. On the downside, the round-level figure of 1.1100 acts as a major support zone.