• EUR/USD forecast points to a mildly bullish tone as markets eye Jackson Hole
• Dollar likely to stay largely offered with benign global conditions and risk appetite intact
• European exports under pressure from tariffs, but euro benefits from lower energy costs

US dollar in mild rebound ahead of Jackson Hole summit

Friday’s US-Russia meeting turned out to be a non-event, although financial markets are trading as if there might still be a path—however uncertain—towards an eventual peace, as highlighted by lower oil prices and relatively calm financial markets. That perception, coupled with a relatively light data calendar, is leaving conditions fairly benign for now. With the spotlight turning to Friday’s Jackson Hole symposium, where expectations lean dovish, the dollar may struggle to make a meaningful comeback. Against this backdrop, the EUR/USD forecast remains modestly positive despite the pair trading lower today.

The US dollar has struggled in recent weeks, with investors growing confident that the Federal Reserve will cut interest rates two or three times this year. Volatility has remained low, with traders shrugging off trade and other macro concerns, continually buying the equity market dips since markets bottomed in April. This backdrop doesn’t do the dollar any favours. Unless Jerome Powell springs a hawkish surprise at Jackson Hole, the greenback may well remain gently offered through the week.

The Jackson Hole Economic Policy Symposium, which starts on Friday, gathers global central bankers, finance ministers, academics, and market participants. Though closed to the press, officials often speak with reporters, and their remarks can spark significant market volatility. The focus will be on Powell after weaker jobs data raised speculation of multiple rate cuts. Will the Fed Chair give the greenlight?

EUR/USD forecast: Few drivers for euro this week

The euro has fallen a little so far today, though it is clinging onto most of its recent gains, underpinned by falling energy prices. Provided Ukraine-Russia talks don’t collapse, and commodity markets stay subdued, the euro should retain its support.

But one area of concern remains exports. Eurozone trade data for June shows exports falling 2.4% on the month, with shipments to the US and China down sharply amid tariff pressures. Automotive and steel producers, already under heavy duties, have taken a clear hit. Broader uncertainty over global trade, combined with a stronger euro, makes it difficult to see exports returning as a robust growth engine anytime soon.

Meanwhile, the eurozone calendar offers a few talking points except the August flash PMIs on Thursday and Christine Lagarde’s remarks in Geneva in midweek and at Jackson Hole at the weekend. As far as the PMIs are concerned, well they are leading indicator of economic health, given that businesses’ purchasing managers hold the most current and relevant insight into the company’s view of the economy. What they report in these surveys tend to move markets. Activity has been flatlining in both services and manufacturing sectors of Germany and the Eurozone. Any noticeable changes should move the euro and European stocks.

With markets pricing barely one more ECB rate cut over the next year, the PMIs will need to be very weak to rock the boat on Thursday, which we don’t think will be the case. Against this backdrop, we don’t anticipate a material drop in the euro, which makes us retain a mildly bullish EUR/USD forecast especially if Powell is dovish at the Jackson Hole summit.

Technical EUR/USD forecast: Key levels to watch

The EUR/USD chart has formed a couple of lower highs after peaking at 1.1830 in July. However, the dips have been shallow, and price has remained above all its main support levels for them most part. Until we see a proper breakdown in the market structure of higher lows, the path of least resistance and thus the technical EUR/USD forecast will remain bullish. Interim resistance is now seen around 1.1700. Break that and we could see the path clear towards the July peak, and eventually the 1.20 hurdle. On the downside, support comes in at 1.1600 and then 1.1500.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R