EUR/USD: traders' focus remains on Jackson Hole meeting

KEY TECHNICAL FACTORS

The dollar is regaining some ground against the euro following a series of US data releases that reinforce the Federal Reserve's cautious stance. EUR/USD is currently trading around 1.1650 as investors gradually reassess the likelihood of further monetary tightening in the United States.

US inflation remains high enough to keep pressure on the Fed. In July, the PCE price index - the central bank's preferred measure - rose by 0.2% month-on-month, versus the 0.1% expected. Year-on-year inflation came in at 3.6%, unchanged from June but slightly above the 3.5% consensus. The core PCE index, which excludes food and energy, rose by 0.2% for the month and remained at 3.2% year-on-year.

Other published data paint a picture of a US economy that is slowing down, but not stalling. 2nd quarter GDP growth was confirmed at an annualised rate of 1.5%, following 2% in the first quarter. Meanwhile, household income rose by 0.4% in July - double the expected rate - while consumer spending increased by 0.2%. Domestic demand thus remains resilient enough to complicate a rapid return of inflation to the 2% target.

These figures have naturally led to a rise in interest rate expectations. The probability of a 25-basis-point hike at the Fed's September meeting has climbed back to around 40%, up from approximately 35% prior to the releases. US bond yields also reacted, with the 10-year rate returning to around 4.66% and the 2-year rate hovering near 4.22%.

Attention will now shift to Jackson Hole, the key macroeconomic event of the week. Kevin Warsh's speech on Friday will be closely watched. Investors will primarily seek to determine the extent to which the Fed remains concerned about persistent inflation and whether it considers another rate hike necessary. In an environment characterized by resilient growth and geopolitical tensions likely to sustain price pressures, the central bank has little room to adopt a decidedly accommodative stance.

In the EU, the monetary policy stance is also hardening. Several European Central Bank officials have recently highlighted the need for continued tightening in the face of inflationary risks. For now, this outlook limits the monetary policy differential favoring the dollar and helps keep the EUR/USD pair at relatively high levels.

From a technical perspective, the euro is currently consolidating its upward momentum near its 200-day moving average. This level represents a key test following the pair's recent gains. As long as EUR/USD manages to hold above this moving average on a closing basis, the technical bias remains positive, and any pullbacks can be viewed as mere pauses within the broader uptrend. In this scenario, the target remains around $1.18.

MEDIUM-TERM FORECAST
Based on the key chart factors mentioned above, we hold a positive medium-term outlook for the EUR/USD.

Our entry point is $1.1655. The price target for our bullish scenario is $1.1800. To protect capital, we recommend placing a stop-loss order at $1.1300.

The expected return for this forex strategy is 145 pips, with a potential loss of 355 pips.