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• European equity markets traded cautiously on Friday, with investors awaiting key speeches from Federal Reserve Chair Jerome Powell and ECB President Christine Lagarde at Jackson Hole.
• These speeches are anticipated to provide insights into the future direction of interest rates, considering recent weaker-than-expected business activity data in both the US and Europe.
• Despite signs that central banks might be nearing the end of their current policy tightening cycles, US weekly unemployment insurance figures reminded investors of the tight labor market.
• Germany’s economy stagnated in Q2, following a winter recession, while business morale deteriorated for the fourth consecutive month in August, reaching its lowest point since October.
• The euro extended its losses, dropping below $1.08, as weak European economic data heightened expectations of the European Central Bank pausing its rate hikes.
• German business morale reached a 10-month low in August, and Eurozone business activity contracted significantly, indicating economic challenges.
• Investors are keenly focused on key speeches by ECB President Christine Lagarde and Federal Reserve Chief Jerome Powell at the Jackson Hole Symposium for insights into central banks’ monetary policy outlook.
• The yield on the German 10-year Bund declined to around 2.5%, from a recent five-month peak of 2.71%, driven by weak German business activity data and anticipation of central bank speeches at Jackson Hole

The euro has experienced a slight 0.1% decline against the dollar, but the presence of dollar absorption around the current lows could potentially push the European currency, known as the euro or ‘fiber,’ higher. The positive yield on the 10-year Bunds, coupled with a negative volatility on the euro, presents a mixed perspective that might contribute to a potential rotational scenario, contingent on the upcoming speeches at the Jackson Hole conference.

Analyzing the weekly perspective, we can observe a persistent imbalance against the dollar for several weeks, which could lead to dollar absorption and trigger a potential pullback in the median-term perspective.

Meanwhile, the Euro Stoxx index is trading higher by approximately 0.3%. The market has encountered buying interest around the lower extreme of the current balanced price range on the daily interval. Investors are eagerly anticipating more insights about the evolving path of the monetary policy, which is expected to influence market dynamics.

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