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The EUR/USD extends its reversal from Friday's highs, at 1.1742 to levels below 1.1700 on Monday's European session. A slightly better-than-expected Business Climate reading in Germany has failed to support the Euro, which is still holding most of the gains taken on Friday, following the dovish turn by the Federal Reserve (Fed) Chairman Jerome Powell.

Powell surprised investors at the Jackson Hole Symposium, warning that "downside risk to employment is rising" and that if those risks materialize, they could quickly lead to a strong increase in unemployment. More specifically, he affirmed that the shifting balance of risks may warrant adjusting the bank's policy stance, which would be a clear indication of an immediate interest rate cut.

The US Dollar tumbled across the board following Powell's comments, with investors ramping up bets for some monetary easing at September's Fed meeting. The CME Group's FedWatch Tool indicates a nearly 90% chance of a 27-basis-point cut next month, down from about 75% before the Jackson Hole speech, and another quarter-point cut before the end of the year.

In Monday's economic calendar, US New Home sales data, New York Fed President John Williams and Dallas Fed President Lorie Logan speeches will provide some fundamental guidance for the Greenback, although the highlight of the week will be the US Personal Consumption Expenditures (PCE) Price Index, the Fed's inflation gauge of choice, which might pose a challenge for the central bank's policymakers.

Daily digest market movers: Fed easing hopes are likely to limit the US Dollar rallies

• The Euro is ticking lower against the US Dollar on Monday, but the scope for a significant reversal looks limited, considering the positive market mood. Rising hopes that the Fed will cut interest rates in September are likely to keep US Dollar bulls in check over the coming sessions.
• Earlier today, the German IFO Business Climate Index improved to 89 in August, from 88.6 in July, beating expectations of a steady reading. The assessment of the current conditions deteriorated slightly to 86.4 from 86.5 in the previous month, but business expectations for the next six months have improved unexpectedly, to 91.6 from 90.3..
• On Friday, Fed Chairman Jerome Powell staged a dovish turn in front of an audience of the world's leading central bankers, assuming that downside risks for the US economy are increasing and that the bank will need to adopt an easier monetary policy. Regarding inflation, his main concern up to date, he said that the theory of a one-off impact from Trump's tariffs looks "reasonable".
• US President Donald Trump continues with his relentless attacks on the Federal Reserve, this time on Governor Lisa Cook. The latest threat is to fire Cook, on an alleged mortgage fraud in Georgia, if she does not resign, a possibility that was refused by her last week.

Technical Analysis: EUR/USD bulls are back, key resistance is at 1.1735

EUR/USD bounced up sharply on Friday, favoured by broad-based US Dollar weakness. The daily chart shows a bullish engulfing candle, a figure pointing to a trend shift, which gives buyers hope of breaking through the resistance area between the August 13 high, at 1.1725, and the descending trendline from July 1 highs, now at 1.1735, which is holding price action right now.

Technical indicators are in positive territory, with the 4-hour Relative Strength Index (RSI) steady above 60 and the Moving Average Convergence Divergence (MACD) index showing a strong bullish momentum. Above 1.1735, the next target is the July 24 high in the area of 1.1790, ahead of the mentioned July 1 high, at 1.1830.

To the downside, immediate support is at the intraday low of 1.1695. Below here, the pair might find support at the August 21 high of 1.1660 and Friday's low at 1.1583.

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