Powell's Jackson Hole Address: When Technical Calm Meets Policy Uncertainty

The financial markets are entering a critical juncture this Friday. Federal Reserve Chair Jerome Powell will take the stage at the Jackson Hole Economic Policy Symposium at 14:00 GMT, and his remarks could reshape expectations for dollar weakness, rate cuts, and risk asset valuations for the remainder of 2025.

The Fundamental Crossroads

The United States faces a peculiar macroeconomic puzzle. Inflation has softened considerably, and recent labor market signals—particularly the latest non-farm payroll data showing slower hiring and rising unemployment—suggest an economy losing momentum. Under normal circumstances, these conditions would justify an immediate shift toward monetary easing. Yet geopolitical tensions and trade policy uncertainties complicate the narrative, creating headwinds for rapid Fed pivots.

Currently, the market prices in an 83% probability of a 25 basis point rate cut on September 17, down from 94% just one week prior. This 11-percentage-point swing reflects growing hesitation about the timing and magnitude of Fed accommodation. The federal funds rate stands at 4.5%; a cut would bring it to 4.25%.

Why does this matter? Lower borrowing costs historically redirect capital away from safe-haven assets like U.S. Treasury securities and into riskier venues: technology stocks, cryptocurrencies, and non-dollar currencies. The inverse relationship is equally powerful—a hawkish pivot strengthens the dollar and triggers selloffs in equities and commodities.

The Macro Backdrop: More Than Just Rates

Powell’s speech will inevitably touch on several interrelated themes:

Employment and Growth: The non-farm payroll figures reveal a labor market in transition. Hiring has slowed, unemployment is creeping upward, and wage pressures are moderating. These data points typically support a case for rate cuts, yet they also signal potential economic weakness that the Fed may wish to address carefully rather than aggressively.

Trade and Tariff Uncertainty: Ongoing trade tensions involving Europe, Japan, and China continue to inject inflation into supply chains. Military investments across the EU and supply chain relocations are adding structural pressures that central banks can do little about with policy rates alone.

Geopolitical Risks: Peace negotiations between the U.S. and Russia regarding Ukraine remain fragile. Any escalation could reignite energy and commodity price spikes, complicating the Fed’s calculus.

The market’s interpretation of Powell’s comments on these topics will be as important as any explicit forward guidance on rates.

Historical Precedent: When Powell Moves Markets

The Fed Chair’s Jackson Hole appearances carry outsized market impact:

August 26, 2022: Powell signaled an unwavering commitment to fighting inflation through sustained rate hikes. The dollar index surged dramatically, while the S&P 500 faced sharp selling pressure. Risk assets were crushed.

August 23, 2024: Powell adopted a dovish tone, hinting that rate cuts were coming soon. Stock markets rallied broadly, and the dollar weakened across the board. The lesson is clear: tone matters enormously.

This Friday’s speech could trigger a similar magnitude of movement, especially given the current level of uncertainty.

EUR/USD: A Barometer of Dollar Sentiment

The EUR/USD currency pair serves as a reliable proxy for dollar momentum and risk appetite. When Fed policy shifts dovish, EUR/USD typically advances as capital flows away from dollar-denominated assets.

Current Setup:

• Year-to-date performance: +13% in 2025
• Current price: Trading near 1.168
• Key resistance: 1.182 (July 1 high)
• Psychological target: 1.2 level

The euro has benefited from expectations of U.S. monetary easing and a more expansionary fiscal stance within the Eurozone. Increased defense spending across EU member states and tariff-driven supply chain relocations further underpin the currency.

The Dovish Scenario: If Powell signals readiness to cut rates promptly, EUR/USD could breach 1.182 relatively quickly. A decisive move above 1.2 would target the May 2021 high of 1.227, with the January 2021 peak of 1.235 as the ultimate upside target.

The Hawkish Scenario: Should Powell emphasize patience and risks, the dollar strengthens sharply. EUR/USD could fall below 1.16, potentially declining toward the 1.14 support level that held earlier in the year. In an extreme downside scenario, technical support could extend as low as 1.10.

Technical Picture: The Calm Before the Storm

Momentum indicators are flashing a neutral signal—a textbook “calm before the storm” setup:

• RSI (Relative Strength Index): Trading at 50, indicating neither overbought nor oversold conditions. To reach overbought territory (70), EUR/USD would need to rally decisively above the July 1 resistance of 1.182. On the downside, substantial weakness would be required to push RSI toward 30, which aligns with support near 1.14.

• MACD: Flat with no crossovers or momentum divergence signals. This confirms that directional bias remains absent as traders await catalysts.

• Price Action: EUR/USD sits in a narrow technical range, having pulled back slightly from the 1.182 resistance. The lack of clear technical bias, combined with a known macro catalyst (Powell’s speech), sets up a high-probability breakout scenario.

The technical setup suggests that once Powell speaks, volatility will expand significantly. The pair’s next major move is likely to be a range breakout driven by headline reactions to his remarks.

Trading Considerations and Risk Management

Volatility Setup: With technicals neutral and a major catalyst on the horizon, traders should prepare for sharp moves. A narrow range often precedes explosive breakouts.

Leverage Sensitivity: EUR/USD is typically traded with leverage. Even moderate price moves can generate substantial profits or losses depending on position sizing. Risk management becomes paramount.

Profit-Taking Risk: Many traders have accumulated long EUR/USD positions year-to-date (the pair is up 13%). A hawkish surprise from Powell could trigger broad dollar buying and rapid liquidation of these profitable positions. The risk of a flash crash in EUR/USD longs is real.

Rate Cut Probabilities: Monitor how market participants adjust their September 17 rate cut odds following Powell’s speech. Shifts in these probabilities will confirm whether his tone was dovish or hawkish.

Cross-Asset Reactions: Watch for correlated moves in cryptocurrencies, equity indices, and precious metals. A weak dollar typically lifts risk assets broadly, while dollar strength triggers the opposite effect.

Key Dates and Action Items

• Friday, 14:00 GMT: Powell’s Jackson Hole speech
• September 17: Federal Reserve policy decision and rate announcement
• Immediate watch levels for EUR/USD: 1.182 (resistance), 1.16 (support), 1.2 (psychological level)

Bottom Line

The Jackson Hole symposium has always been a marquee event for central banks and financial markets. This year, it may prove to be the inflection point for dollar sentiment and global risk asset positioning. Powell’s commentary on rates, labor market conditions, trade tensions, and geopolitical risks will set the tone for market behavior through year-end.

Traders currently holding moderate positions should prepare for volatility. The technical neutrality we see today is unlikely to persist beyond Powell’s opening remarks. Whether the next major move is higher (dovish scenario) or lower (hawkish scenario) remains the market’s defining uncertainty heading into Friday’s session.