EURUSD Is Looking for another Upside Wave

The U.S. Dollar Index gained 0.20% this week to 98.06 points, while the EURUSD slipped by 0.24% to 1.16730. The currency market feels tense, with traders reacting to softer-than-expected U.S. consumer inflation, which briefly gave the Euro room to push toward resistance at 1.17000. Treasury Secretary Scott Bessent added fuel to the move when he called for an aggressive half-point rate cut in September, arguing that the Fed’s current policy rate sits well above neutral. His comments helped lift the EURUSD to 1.17300, and the pair even managed to close above 1.17000, which opened the door to a potential rally toward the 1.19500–1.20500 zone. However, the optimism was quickly challenged when July producer inflation surprised to the upside, with PPI surging to 3.3% YoY from 2.3% and the core reading hitting 3.7% — the highest since March 2023. That shock undermined Bessent’s dovish stance, pulling the EURUSD back to 1.16300. Weak retail sales then limited the Dollar’s rebound, reminding traders that economic momentum is softening, which brought the pair back below 1.17000.

Heading into this week, breaking higher ahead of Fed Chair Jerome Powell’s Jackson Hole speech feels risky. For Euro bulls, the best outcome would be a climb above 1.17000 before Powell speaks, as that would hint at expectations of a dovish tone. That scenario is gaining traction, especially with Michelle Bowman and Christopher Waller — the only two FOMC members who voted for a rate cut in July — scheduled to speak on Tuesday and Wednesday. Their view has since gained more support within the Fed, helped by the sharp downward revisions to Nonfarm Payrolls for May and June. The release of the FOMC minutes on Wednesday could also reveal more division in the committee than Powell suggested, which would add pressure on the Dollar.

If that coincides with weaker U.S. business activity data on Thursday, EURUSD could make another push to 1.17500, a level that would strongly reinforce the bullish case. Still, everything comes down to Powell’s speech on Friday. Jackson Hole is traditionally where the Fed outlines its policy path for the year ahead, but with Powell set to step down in May, possibly sooner, markets may discount any hawkish signals and overemphasize dovish ones. Large investors seem to be stepping back in anticipation of this. Last week, they sold $2.6 million in shares of the WisdomTree Bloomberg US Dollar Bullish Fund, a small reversal after the prior week’s $30.3 million inflow. While not a huge amount, it does suggest that big players might be comfortable letting EURUSD stretch toward 1.19500–1.20500, creating a better opportunity to buy Dollars at lower levels before a possible reversal.