EURUSD, DXY Analysis: DXY's 102 Support Challenges EURUSD's Uptrend

Key Events for the Week Ahead

• FOMC Member Bostic Speech (Tuesday)
• FOMC Meeting Minutes (Wednesday)
• French Flash Manufacturing & Services PMI (Thursday)
• German Flash Manufacturing & Services PMI (Thursday)
• US Unemployment Claims (Thursday)
• US Flash Manufacturing & Services PMI (Thursday)
• Jackson Hole Symposium (Thursday – Friday - Saturday)

Latest Statement from FOMC Member Musalem

From the perspective of FOMC member Musalem, there is a higher confidence with respect to the inflation track, the Labor market, and the overall health of the US economy. The chances for him supporting a rate cut in September are likely on the positive side.

CME Fed Watch Tool

Before the release of the July CPI results, the CME Fed Watch Tool indicated a 50-50 split between expectations for a 25 bp and 50 bp rate cut. However, recent economic data has shifted projections towards a 70% probability of a 25 bp cut in September, with only a 30% chance of a 50 bp cut.

Source: CME Fed Watch Tool

With further statements expected from FOMC members next week, the potential for heightened volatility in the EURUSD and U.S. Dollar Index (DXY) charts is closely tied to the release of the FOMC meeting minutes on Wednesday and the Jackson Hole Symposium on Friday.

Flash Manufacturing and Services PMI

Services inflation levels have been seen as a challenge towards the declining inflation track. High volatility can be expected on the EURUSD and DXY charts this week with the upcoming release of the Flash manufacturing and Services PMI across France, Germany, the Eurozone, and the US.

Jackson Hole Symposium

The Jackson Hole Economic Policy Symposium, featuring global central bankers, finance ministers, and financial market participants, will take place from Thursday to Saturday. The highlight will be Jerome Powell's speech on the economic outlook on Friday. Powell's remarks may clarify the mixed outlook among economists regarding the magnitude of the anticipated rate cut, in light of recent economic developments.

Technical Outlook

EURUSD, DXY Analysis: 3 Day Time Frame – Log Scale

Source: Tradingview

With the US Dollar still respecting the lower bounds of the consolidation range – formed between July 2023, December 2023, and August 2024 lows - above the 102-barrier, the EURUSD’s breakout potential remains uncertain. (Previous correlations are not guaranteed to be repeated in the future)

EURUSD Analysis: EURUSD – Daily Time Frame – Log Scale

Source: Tradingview

Questioning the leading correlation between the EURUSD and the DXY chart, two scenarios could unfold:

Bullish Scenario

With a supportive ground at the trendline connecting June, July, and August 2024 highs, in tandem with that of the trendline connecting July 2023, December 2023, and August 2024 highs, a bull trend can resume toward the December 2023 high at 1.114, given the close above the 1.1060 level.

Bearish Scenario

Given stability of the US dollar above its 102 ground and within the respective consolidation, a reversal can still take place below the 1.1060 mark back towards 1.07, with support levels along the track at 1.09, 1.0840, and 1.0780 respectively.

--- Written by Razan Hilal, CMT – on X: @Rh_waves