The coming week promises to be volatile. The central event of the week—and arguably the entire month—is the economic symposium to be held at the Jackson Hole ski resort in Wyoming. All attention will be on the Fed Chair's speech, which will either confirm or contradict market expectations. Jerome Powell may reinforce the dovish sentiment (which has recently prevailed) or, on the contrary, cast doubt on the likelihood of a rate cut in September.
The symposium will begin on Thursday (August 21), but this is not the only significant event next week.
On Tuesday (August 19), U.S. building permits data will be released. This is a leading indicator of economic activity and may affect EUR/USD, especially if the numbers significantly exceed or miss forecasts. In June, the indicator came in at 0.2% after two months in negative territory. In July, growth is expected at 0.1%. For dollar bulls, this indicator must remain in positive territory.
Also on Tuesday, Federal Reserve Governor Michelle Bowman will deliver a speech. Recall that at the July meeting, she voted for a 25-basis-point rate cut (as did Christopher Waller). If Bowman maintains her dovish stance (despite the acceleration in core CPI and PPI), the dollar will come under additional pressure.
The key release on Wednesday is the publication of the minutes from the July FOMC meeting. Recall that at that meeting, policymakers kept the federal funds rate unchanged. Powell, however, made it clear that prospects for a September rate cut were highly uncertain. At the same time, two Committee members (as mentioned earlier—Waller and Bowman) voted for a cut. In addition, some wording in the accompanying statement was altered compared to June's version. For example, in June, the Federal Reserve noted that macroeconomic indicators "continue to grow at a solid pace." In July, however, the central bank downgraded its economic assessment, stating that "recent reports indicate that economic activity slowed in the first half of the year."
The minutes will help gauge the strength of dovish sentiment within the Committee. Depending on the tone of the document, the dollar may either receive support or come under added pressure. That said, Fed minutes typically have a limited impact on EUR/USD, given that they are released two weeks after the meeting (by which time many FOMC members have already voiced their positions). Moreover, the July minutes will be published just one day before the Jackson Hole symposium begins.
On Thursday, PMI indices (flash estimates for August) will be published. Forecasts suggest little change compared to July. Specifically, Germany's manufacturing PMI is expected to remain in contraction territory, slipping slightly from 49.1 to 48.8. The services PMI should stay above the 50-point threshold (50.5). However, the eurozone services PMI could edge closer to contraction, projected to fall to 50.5 after rising to 51.0 in July.
The U.S. manufacturing PMI is expected to remain near last month's level (49.8 in July; forecast for August: 49.9). For dollar bulls, it is important that this index climbs out of contraction territory, i.e., rises above 50.
Also on Thursday, the Jackson Hole symposium will begin. Known as the "barometer" of leading central banks' sentiment, this annual event focuses on a central, timely theme each year. For example, in 2015, discussions centered on the Shanghai stock market crash, while during the pandemic, the focus was on the economic fallout of COVID-19. This year's central theme will be the labor market (official title: "Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy"). A very relevant topic, especially in the context of July's NonFarm Payrolls, which showed a 73,000 increase in jobs along with significant downward revisions to previous months—258,000 jobs in total.
It should be noted that, according to CME FedWatch data, the probability of a 25-basis-point rate cut at the September meeting currently stands at 92%. For the October meeting, the probability is 55% (assuming a cut in September). This suggests that if Jerome Powell again takes a cautious, "moderately hawkish" stance, the dollar will enjoy increased demand across the market, including against the euro. But if the Fed Chair signals support for a rate cut next month (despite accelerating core CPI and both headline and core PPI), the greenback will come under heavy pressure.
Powell's speech at the Jackson Hole symposium is the most important event of the upcoming week. All other fundamental factors will play a secondary role.
From a technical perspective, on the four-hour chart, the pair is trading between the middle and upper Bollinger Bands lines, as well as above the Ichimoku Kumo cloud and the Tenkan-sen and Kijun-sen lines. The Ichimoku has formed a bullish "Parade of Lines" signal. This setup favors long positions. The first upside target is 1.1750 (upper Bollinger Band on H4), with a key target at 1.1830 (upper Bollinger Band on D1).
