EUR/USD Forecasts: Bond-Buying & Jackson-Hole are Key Factors

Market impact: mixed, with a modest near-term EUR/USD bullish bias but elevated reversal risk.

The Treasury’s planned increase in long-end bond buybacks is dollar-negative if it succeeds in compressing 10- to 30-year yields without materially changing short-term rates. That would reduce the relative yield advantage of US assets and weaken one of the main supports for the USD. However, the program is designed as a liquidity operation rather than Federal Reserve quantitative easing, so its direct monetary stimulus—and therefore its sustained FX impact—should be limited.

The more important signal for markets may be fiscal credibility. If investors interpret the intervention as evidence that Washington is increasingly sensitive to high borrowing costs, the US term premium could remain elevated even after the buybacks begin. In that scenario, the Treasury action may initially weaken the dollar but ultimately fail to produce a durable decline in yields, creating two-way volatility in EUR/USD rather than a clean bullish trend.

Jackson Hole is the key validation event. A dovish Federal Reserve message, particularly if it reinforces expectations for lower policy rates while long-term yields stabilize, would support EUR/USD through both lower US rate expectations and reduced USD carry appeal. A hawkish message would likely override the Treasury-buyback narrative by lifting front-end yields and restoring dollar demand. The market reaction should therefore be judged by the interaction between Fed guidance and the US yield curve—not by the buyback announcement alone.

The main offset is geopolitical and energy risk. A further escalation involving Iran or the Strait of Hormuz could lift oil prices, weaken Eurozone growth expectations, and generate safe-haven demand for the USD. That combination is particularly negative for the euro: higher energy costs raise imported inflation while simultaneously increasing the risk of weaker activity and a more dovish ECB response. Consequently, a stronger EUR/USD requires either contained geopolitical risk or a sufficiently powerful decline in US yields to outweigh the energy and safe-haven effects.

Technically, the article identifies 1.1671 as immediate resistance, with a sustained break potentially exposing 1.1743 and 1.1813. Failure near that area would keep focus on 1.1621, then 1.1577 and 1.1506. These levels matter because they can help distinguish a genuine repricing of the USD from a temporary relief rally.

Trader focus:

US 10- and 30-year yields, the shape of the yield curve, Fed communication at Jackson Hole, oil and Middle East headlines, and whether EUR/USD can hold gains without a further deterioration in the US rate differential. The initial bias is moderately euro-positive, but the broader setup remains event-driven and asymmetric, with geopolitical escalation or hawkish Fed guidance capable of reversing the move quickly.