EUR/USD Price Forecast: Euro Holds Above 1.17 as Fed Signals Drive Rally

EUR/USD (EURUSD) Surges Above 1.17 After Powell Hints at Rate Cuts

The EUR/USD pair rallied strongly on Friday, climbing nearly 1% to trade at 1.1718, after Federal Reserve Chair Jerome Powell signaled at Jackson Hole that the balance of risks is shifting toward slower growth and potential rate cuts. Traders quickly repriced expectations, with the CME FedWatch tool showing the probability of a September 25 bps cut rising to 85%, up from 72% just a day earlier. This dovish tilt from the Fed hit the U.S. dollar hard, pushing the Dollar Index (DXY) down more than 1% to 97.55, allowing the euro to outperform despite weak economic data in Europe.

Policy Divergence Between the Fed and ECB Supports EUR/USD

The policy gap between the Federal Reserve and the European Central Bank has become a dominant driver of EUR/USD flows. While Powell left the door wide open for easing, the ECB is expected to remain on hold, with markets pricing a 94% chance of no cut at the next meeting. Even with Germany reporting a disappointing -0.3% QoQ GDP contraction for Q2, worse than the expected -0.1%, the euro shrugged off the weak print because U.S. monetary conditions remain the bigger story. On a year-over-year basis, German GDP slowed sharply from 0.4% to 0.2%, highlighting structural weakness in the eurozone’s largest economy, yet the market narrative was dominated by Fed dovishness.

Technical Breakout Clears 1.17, Next Resistance at 1.1829

From a technical perspective, the pair broke above both its 100-hour and 200-hour moving averages at 1.1692 and 1.1712, giving buyers fresh momentum. Resistance now stands at 1.1750, followed by the psychological 1.1800 level. A sustained close above 1.1800 would open the path toward the yearly peak of 1.1829, last touched in early July. The daily chart confirms momentum with the RSI trending higher, while MACD has turned positive, adding conviction to the bullish case. If the pair fails to hold above 1.1700, support is layered at 1.1692 and 1.1650, where demand previously stepped in.

Macro Risks Ahead: U.S. Inflation and Jobs Data Critical

Although Powell’s comments boosted EUR/USD, the September decision is not yet locked in. The Fed has made it clear that inflation data remains pivotal, and upcoming releases will decide if the cut is delivered. The Core PCE index due Friday is expected at +0.3%, a reading that could reinforce or temper expectations. The August CPI and Nonfarm Payrolls will follow before the September FOMC, making each release a potential catalyst for sharp moves in the pair. Traders remain alert to the risk that strong inflation or labor market data could delay easing, which would strengthen the dollar and pressure EUR/USD back toward the mid-1.16s.

Market Sentiment Favors Euro Upside

The price action around Jackson Hole highlights how sensitive the pair remains to shifts in Fed policy expectations. With Powell acknowledging risks to employment while still warning about tariffs pushing inflation higher, markets interpreted the overall tone as accommodative. Across the Atlantic, ECB officials remain cautious but are unlikely to move until later in the year, meaning rate differentials skew in the euro’s favor for now. Traders are increasingly treating dips toward 1.1650–1.1690 as buy opportunities, with conviction building for a test of 1.1800–1.1830 in the near term.

That's TradingNEWS