EUR/USD Analysis: The Euro Maintains a Neutral Bias Ahead of Jackson Hole

The EUR/USD has recorded a modest variation of just 0.5% over the past three trading sessions and has started to show a consistent neutral bias as the Jackson Hole symposium approaches. For now, the market remains in a state of steady neutrality, as investors cautiously await fresh signals on central bank dynamics in the short term following this important gathering. As long as monetary policy remains the key driver, it is likely that neutrality will continue to dominate the pair’s movements until central bank leaders’ remarks provide clarity on the path of interest rates.

What to Expect from Jackson Hole?

The Jackson Hole Economic Policy Symposium will take place from August 21 to 23 this year and, as always, will be a crucial event for anticipating the monetary policy outlook from both the Federal Reserve and the European Central Bank in the near term. This year’s discussions are expected to focus on the evolution of global employment trends and economic productivity, in a context still shaped by ongoing trade tensions.

For the Federal Reserve, markets hold firm expectations that an interest rate cut will be confirmed, bringing the benchmark rate down to 4.25% from the current 4.5%. This would mark a reduction of 25 basis points, the first such cut since early 2025. However, uncertainty remains as to whether Jerome Powell will stress that inflation risks are still present. If he does, the start of a prolonged rate-cutting cycle could be delayed.

On the European Central Bank’s side, Christine Lagarde is expected to address the 2% inflation target and highlight the progress the eurozone has made in managing this challenge. Her remarks may suggest the continuation of current interest rates, signaling a more neutral stance for future policy decisions.

Against this backdrop, the interest rate differential remains decisive: while U.S. rates stand at 4.5%, Europe’s are at 2.15%, significantly lower. This gap has prevented the euro from consolidating a stronger upward trend against the dollar, as the higher U.S. yield continues to attract demand.

Source: TradingEconomics

Even so, the picture could shift after Jackson Hole. If the Fed confirms a more flexible stance and the ECB maintains a neutral tone, the rate differential could begin to narrow through the rest of 2025. Such a scenario would weaken the dollar’s advantage, allowing the euro to regain ground and potentially build a more sustained bullish pressure on EUR/USD in the short term.

 

Is the Dollar Struggling to Recover?

The U.S. dollar’s weakness remains evident, reflected in the performance of the DXY index, which tracks the greenback against a basket of currencies. The index has pulled back toward the 98-point area, extending a bearish correction that highlights the dollar’s inability to reclaim levels above 100 points.

Source: Marketwatch

This retreat is closely tied to expectations of a more flexible Fed in the near term. Should Powell reinforce this view at Jackson Hole, demand for the dollar could remain under pressure, giving the euro more room to advance and reinforcing a potential buying bias in EUR/USD.

 

EUR/USD Technical Outlook

Source: StoneX, Tradingview

• The Uptrend Attempts a Comeback: After recent bearish corrections broke through the previous ascending trendline, the EUR/USD has begun showing signs of recovery. The pair is once again testing the year’s highs, though for now it holds a neutral stance. A stronger wave of buying pressure could allow the uptrend to regain control of the chart in the short term.

Technical Indicators:

• RSI: remains near the neutral 50 level, reflecting an equilibrium between buying and selling pressure over the last 14 sessions.

• MACD: the histogram is hovering close to the 0 line, confirming the lack of clear direction in short-term momentum.

Both indicators highlight the prevailing neutral sentiment ahead of this week’s key events. However, this calm could break, paving the way for a more decisive directional move in the coming sessions.

Key Levels:

• 1.18196 – Major Resistance: this corresponds to the year’s highs and represents the most critical barrier for buyers. A sustained breakout above this level could open the door to new highs and consolidate a stronger bullish phase.

 

• 1.16420 – Near-Term Support: aligned with the 50-day simple moving average, this level may serve as temporary support during corrections. Holding above this zone will be crucial to preserving the bullish bias.

 

• 1.14167– Critical Support: aligned with the 23.6% Fibonacci retracement, this level is the most significant from a support perspective. A drop toward this area could trigger a structural shift and pave the way for a more defined bearish trend.

 

Written by Julian Pineda, CFA – Market Analyst

Follow him: @julianpineda25