EUR/USD grips gains slightly below 1.1100 ahead of Jackson Hole meeting

• EUR/USD holds onto gains below 1.1100 due to weakness in the US Dollar.
• The US Dollar faces a sell-off amid firm Fed September rate-cut bets.
• ECB Rehn sees market expectations for rate cuts in September as appropriate.

EUR/USD trades close to a more than seven-month high slightly below the round-level resistance of 1.1100 in Tuesday’s European session. The major currency pair holds gains as the US Dollar (USD) continues to face a sheer sell-off, weighed by firm expectations that the Federal Reserve (Fed) will begin cutting interest rates in September.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers near a seven-month low at around 101.80. 

Market speculation for Fed interest rate cuts has strengthened as officials seem to be more worried about the United States (US) labor market and remain confident that price pressures are on track to the 2% target. 

On Monday, Minneapolis Fed Bank President Neel Kashkari cited concerns over signs of weakening labor market conditions and favored rate cuts in September. “The balance of risks has shifted, so the debate about potentially cutting rates in September is an appropriate one to have,” he said in an interview with The Wall Street Journal.

“If we saw some quicker deterioration in the labor market, then that would tell me, ‘well, we need to do more, quickly, to support the labor market, even if we have uncertainty about where our ultimate destination is going to be,” he added. However, Kashari pushed back expectations of the Fed’s jumbo rate cuts citing that layoffs remain low and higher jobless claims are not a sign of labor market deterioration.

For more cues on the interest rate path, investors will focus on the release of the Federal Open Market Committee (FOMC) minutes for the July meeting on Wednesday, and the Fed Chair Jerome Powell’s speech at the Jackson Hole (JH) Symposium, which will be held from August 22 to 24.

Daily digest market movers: EUR/USD sees more upside amid US Dollar’s weakness

• EUR/USD exhibits strength amid weakness in the US Dollar. The Euro outperforms the Greenback but is sluggish against other peers on expectations that the European Central Bank (ECB) could cut interest rates two more times this year. The ECB is widely anticipated to cut interest rates for the second time in its September meeting.
• This week, investors will focus on the preliminary Eurozone HCOB Purchasing Managers’ Index (PMI) data for August and Q2 Negotiated Wage Rates, which will be published on Thursday. Economists estimate that the Composite PMI barely improved amid the contraction in activities in the manufacturing sector. As for the Negotiated Wage Rate, a key measure of wage growth rose to 4.69% in the first quarter of this year and ECB officials would be pleased with a lower reading for the second quarter.
• The economic outlook of the Eurozone is vulnerable as its largest economy, Germany, struggles to maintain a firm footing due to poor demand from domestic and overseas markets. Amid downside risks to the Eurozone economic outlook, ECB policymaker and Finnish central bank chief Olli Rehn has shown comfort for market expectations pointing to rate cuts in September. 
• In a speech to the European American Chamber of Commerce in New York, Rehn said: "The recent increase in negative growth risks in the euro area has reinforced the case for a rate cut at the next ECB monetary policy meeting in September, provided that disinflation is indeed on track," Reuters reported.

Technical Analysis: EUR/USD aims to recapture 1.1100

EUR/USD turns sideways after rising to a fresh seven-month high near the round-level resistance of 1.1100. The major currency pair strengthened after a breakout of a channel formation on a daily time frame. Upward-sloping 20-day and 50-day Exponential Moving Averages (EMAs) near 1.0945 and 1.0880, respectively, suggest that the overall trend is bullish.

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

The immediate resistance for the Euro bulls would be the 28 December 2023 high at 1.1140. On the downside, the August 15 low at 1.0950 will be a key support area.