EUR/USD is showing resilience as it approaches 1.1590 during the early hours of the European session on Monday. Fed’s Warsh signalled that further tightening may be needed to curb price pressure. The first upside barrier is identified at 1.1677, while the initial support level is observed at 1.1570. The EUR/USD pair is currently positioned in positive territory, trading around 1.1590 during the early hours of European trading on Monday. However, the potential upside for the major pair may be constrained as traders increased their positions on a rate hike following hawkish comments from Federal Reserve Chair Kevin Warsh. Fed Chairman stated on Friday at the Jackson Hole economic symposium that the US central bank will “have work to do” if policymakers do not gain the confidence required that inflation is moving toward 2%. His hawkish comments have fuelled expectations of a September rate hike, supporting the US Dollar against the Euro. Traders prepare for the initial release of the Consumer Price Index inflation data from Germany, set to be published later on Monday. Any indications of rising inflation in Germany may bolster the value of the shared currency in the short term.
Strategists highlight that “the main theme on Friday was the hawkish repricing of Fed expectations” in the wake of Fed Chair Kevin Warsh’s Jackson Hole speech. They note that Warsh warned inflation is “not meaningfully slowing” and reaffirmed that the Fed’s 2% inflation target is “firm and fixed,” while stressing that policymakers have “work to do” if they cannot be confident that underlying inflation is returning toward the target. Fed Chair Warsh conveyed a distinctly more hawkish tone, as evidenced by the FXS Speechtracker score of 7.4, surpassing the historical average of 6.5. This reflects an increased emphasis on price stability, even in the context of robust growth and stable labour markets. The insistence that the Fed must be confident underlying inflation is moving to objective or “we have work to do,” combined with comments that financial conditions are not restrictive and credit markets show few signs of policy restraint, indicates a bias toward further tightening or a prolonged restrictive stance.
This is evident even as headline inflation data have improved, while underlying trends are largely assessed as unchanged. Warsh’s assertion that the Fed’s 2% PCE target is “firm and fixed” and that the primary focus should remain on prices underscores the notion that the inflation struggle is far from decisively resolved, a context that typically bolsters the Dollar during downturns. The FXS Fed Sentiment Index remained stable, holding at 129.70, indicating that the overall policy stance continues to be firmly hawkish despite the decision made in July to pause. The combination of a high index level and an above-baseline FXS Speechtracker score indicates that markets will likely maintain a pricing structure reflective of a vigilant Federal Reserve stance, with the Dollar expected to remain supported as long as inflation progress is perceived as incomplete.
In the daily chart, EUR/USD maintains a slightly bullish near-term outlook as the spot price stays above the 100-day simple moving average, while hovering just below the 20-day Bollinger SMA, which serves as an immediate pivot. The Relative Strength Index (14) at 52.8 is positioned just above its neutral line, suggesting that buyers maintain a slight edge while avoiding overbought territory. On the topside, initial resistance is positioned at the August 26 high of 1.1677. A more formidable resistance is observed at the upper Bollinger band near 1.1710, as it approaches the May 8 peak of 1.1788. On the downside, the 100-day SMA at 1.1570 provides initial support, succeeded by the low from August 13 at 1.1511. A more distant Bollinger lower band level is situated around 1.1480, where a more pronounced pullback would probably meet stronger buying interest.
