EUR/USD Analysis: Is the Dollar Rally Really Over?
AI Market Analysis
Market impact: Moderately bullish EUR/USD, but vulnerable to a sharp policy-driven reversal.
The dollar weakness described in the article reflects a repricing of the Fed outlook: if slowing US growth and softer inflation increase confidence in future easing, US Treasury yields and the dollar’s rate advantage could decline, supporting EUR/USD. The key near-term catalyst is Fed Chair Kevin Warsh’s Jackson Hole speech on Friday, August 28, 2026, followed by US PCE inflation data. A hawkish message or evidence that inflation remains persistent would challenge the current dollar-negative narrative.
The euro has an additional, though less powerful, support factor: euro-area inflation at 2.9% in July may limit expectations for further ECB easing, narrowing the potential policy divergence with the Fed. However, this is not an unambiguously bullish euro signal; elevated inflation could also weigh on European growth and risk sentiment if driven by energy costs.
Technically, the setup favors continuation while EUR/USD holds above the reported 1.1579 Fibonacci level and the 100-period EMA near 1.1546. The immediate test is 1.1714; a sustained break could expose the 1.1775–1.1800 area and reinforce the interpretation that the broader dollar uptrend has reversed. Failure near 1.1714 followed by a move below 1.1579 would instead suggest that the rally is corrective, with downside risk returning toward the 1.1546–1.1495 support zone.
For traders, the important distinction is between a temporary dollar pullback and a genuine regime change. The bullish EUR/USD case requires confirmation through softer US inflation, weaker growth data, falling yields, or clearly dovish Fed communication. Conversely, resilient PCE inflation, rising long-term yields, or Warsh emphasizing that September easing is not assured could trigger position unwinding and a renewed dollar recovery.
The initial impact is therefore short-term bullish EUR/USD but highly event-sensitive, with medium-term direction dependent on US rate expectations. Monitor the Fed’s communication, PCE inflation, US Treasury yields, and whether EUR/USD can hold above 1.1579 after testing resistance.