Hawkish Powell: US Dollar’s Bullish Surge

Anticipating Key Economic Reports & Fed’s Response. NFP Takes Center Stage.

The US Dollar is still flexing its muscles in front of other currencies, after an injection of bullish remarks from US Federal Reserve Head Jerome Powell, made last week. At the Jackson Hole Symposium, Chair Powell mentioned potential measures to achieve the 2% inflation target, highlighting concerns about the recent surge in economic activities that are putting pressure on prices.

Powell generally leaned towards a cautionary but slightly hawkish stance and mentioned the possibility of further interest rate increases due to persistent high inflation. Yet, he also recognized that inflation is tamer and emphasized the need for the Federal Reserve to make careful decisions about future monetary tightening.

According to CME’s FedWatch tool, there is now about a 50% likelihood of a 0.25% rate increase by the Federal Reserve in November, a significant jump from last week’s 33% prediction. As far as the September meeting is concerned, the same tool shows an 80.5% possibility that the rate will remain unchanged.

Attention is now shifting toward the upcoming data on US manufacturing, services, Core PCE, and the Non-Farm Payrolls report that will come out later in the week. Lower numbers in any of these areas could cause a drop in the probability of the November hike.

Key Data for the Week Ahead

The first notable release of the week is scheduled for Tuesday at 2:00 pm GMT in the form of the U.S. Consumer Confidence survey. Financial confidence is a leading indicator of consumer spending, which in turn is a major part of the entire economic activity.

Wednesday at 12:00 pm GMT we take a look at German inflation with the release of the German Prelim CPI, followed at 12:30 pm GMT by the U.S. Prelim GDP.

The action picks up Thursday with the Eurozone Core CPI Flash Estimate scheduled for release at 9:00 am GMT and followed at 12:30 pm GMT by the U.S. Core PCE Price Index, which is one of the main gauges of inflation in the U.S.

The last and possibly most important release of the week will be the jobs data scheduled for Friday at 12:30 pm GMT. The Average Hourly Earnings, Unemployment Rate, and the Non-Farm Employment Change will paint an accurate picture of the jobs market in the United States and will offer more clues about the Fed’s next move co counter inflation.

Technical Outlook – EUR/USD

The pair is currently trading at 1.0815, after a minor bounce at 1.0775 support. It must be noted that this is not a major S/R level because the price has been moving through it with relative ease in the past.

The RSI is approaching oversold, which combined with the strength of the lower Bollinger Band (and 1.0775 support), could generate bullish movement. For a rally to gain additional strength, we would need to see the pair climb above the bearish trend line seen on the chart below.

Keep in mind that we have a very busy economic week ahead, so the technical aspect may become secondary.