Powell's Jackson Hole Address Sets Stage for Dollar and Asset Volatility

The Technical Calm Before the Storm

EUR/USD currently paints a picture of market indecision. Trading around 1.168, the currency pair sits just 14 points below the critical July 1 resistance at 1.182. On the surface, momentum indicators suggest equilibrium: RSI hovering at 50 reflects neutrality, while a flat MACD signals neither buyers nor sellers have seized control. However, this technical equilibrium masks underlying tension. A single catalyst—Federal Reserve Chair Jerome Powell’s speech—could shatter this fragile balance.

Year-to-date, EUR/USD has appreciated 13%, supported by expectations of U.S. monetary policy easing. Yet momentum remains capped, waiting for directional confirmation. The psychology is clear: traders sense movement incoming, but uncertainty about its direction keeps positions cautious.

When Powell Speaks: Two Divergent Paths

On Friday at 14:00 GMT, Powell will address the Jackson Hole Economic Policy Symposium (August 21-23, 2025), an event the market treats as a policy forecast. The Federal Reserve’s next decision arrives September 17, and the stakes are enormous.

Markets currently price in an 83% probability of a 25 basis point rate cut to 4.25%—a significant decline from the 94% expectation just seven days prior. This swing reflects growing uncertainty about the Fed’s appetite for monetary accommodation.

Dovish Scenario: A Powell speech emphasizing softening inflation and labor market cooling could trigger immediate action. EUR/USD would likely break through 1.182, targeting the psychological 1.2 level. From there, the May 2021 high of 1.227 becomes achievable, with January 2021’s 1.235 peak within striking distance. Lower rates weaken dollar returns, redirecting capital toward riskier assets—equities, cryptocurrencies, and non-dollar currencies.

Hawkish Scenario: Should Powell signal patience and highlight geopolitical or inflation risks, the dollar reclaims strength. EUR/USD drops below 1.16, potentially cascading toward 1.14 support. The technical downside extends further, with 1.10 representing a deeper washout scenario. Traders holding profitable euro longs face liquidation pressure.

The Macro Themes Behind the Move

Three factors weigh on Powell’s deliberations. Trade policy remains fluid, with tariff uncertainty involving Europe, Japan, and China creating supply-chain disruptions. Geopolitical tensions—including U.S.-Russia negotiations over Ukraine—inject unpredictability into risk sentiment. Meanwhile, the labor market shows softening: the latest non-farm payroll data revealed hiring slowdown and creeping unemployment, justifying rate cut arguments.

These macro themes don’t exist in isolation. Increased military spending across the EU and tariff-driven supply chain shifts have historically supported the euro, yet the Fed’s policy path ultimately determines the currency pair’s trajectory. Powell’s commentary on these factors will guide rate expectations for the remainder of 2025.

Historical Precedent: Powell’s Market Impact

The Fed chair’s words carry outsized influence. On August 26, 2022, hawkish comments triggered a dollar surge and S&P 500 sell-off. Fast forward to August 23, 2024: dovish remarks sparked a stock market rally and broad dollar weakness. Repetition isn’t guaranteed, but the pattern illustrates volatility potential when Powell speaks.

The Risk Setup

Current conditions favor explosive moves:

• Narrow technical range: EUR/USD oscillates in confined territory, with RSI at 50 providing minimal overbought/oversold bias
• Leverage exposure: EUR/USD trading often involves leverage, amplifying small price moves into significant P&L swings
• Positioning vulnerability: Euro longs accumulated throughout 2025’s rally face sudden profit-taking if the dollar strengthens unexpectedly
• Macro catalyst clarity: Unlike ambiguous setups, Powell’s speech represents a known event with directional unknowns

Preparation for Impact

Traders should monitor three zones: a break above 1.182 initiates the bullish scenario toward 1.2 and beyond, while a drop below 1.16 signals the bearish case targeting 1.14. The 1.168-1.182 range has become a pressure cooker—once pressure releases, it won’t return quickly.

Volatility will likely spike immediately following Powell’s 14:00 GMT remarks. Cross-asset reactions—particularly in cryptocurrencies, stocks, and gold—should reinforce or contradict the currency move, confirming broader sentiment shifts. The Jackson Hole address may very well establish the tone for global markets through year-end 2025.