If the mountain does not go to the man, he goes to the mountain. For a long time, demanding signals from the Federal Reserve about a dovish shift in 2023, financial markets moved towards the central bank. They are setting expectations for a 75 bps increase in the federal funds rate in September with a probability of 57% and give an 85% chance of increasing it to 3.75% by the end of the year. The latter figure is in line with FOMC forecasts, although a few days ago it did not reach 3.4%. Investors have made a move towards the US central bank, which increases pressure on Fed Chairman Jerome Powell. One misspoken word at Jackson Hole could send the S&P 500 and EURUSD soaring.

To be sure, the Fed does not want financial conditions to improve due to a rally in stock indices, falling Treasury yields and the US dollar. Such dynamics of the indicator will delay the completion of the task of returning inflation to the target of 2%. But you need to be realistic: the readings of CME derivatives are in line with FOMC forecasts, which means that new arguments are needed for the fall of the S&P 500 and the strengthening of the US currency. Will Powell find them?

The main driver of the strengthening of the US dollar at the moment is the yield on debt obligations growing by leaps and bounds. However, it must be admitted that the rates for their German counterparts are rising even faster. The peak of European inflation, unlike the American one, is still far away, and the European Central Bank is simply forced in such conditions to increase the rate of monetary restriction. Money markets are starting to factor in the probability of a 75 bps increase in the deposit rate in September in the quotes of their instruments. At first glance, such a decision looks paradoxical in light of the serious weakness of the eurozone economy, but the ECB already surprised in July. Why doesn't it make another nice surprise for EURUSD fans?

US and German bond yield dynamics

ECB President Christine Lagarde and her colleagues are simply forced to be hawks in the current conditions. The minutes of the last meeting of the Governing Council showed the officials' serious concern about the depreciation of the euro against the US dollar. This increases imported inflation, as the cost of raw materials is pegged to the US currency. And those concerns were raised in July when EURUSD traded in the 1.015-1.03 range. Now it clings to parity, and large banks are scaring with forecasts for the pair to decline in the direction of 0.97 and even 0.95.

Thus, if Powell is not convincing enough in Jackson Hole and fails to knock down the bulls in US stocks with his speech, EURUSD, supported by the ECB, will begin to draw a correction. On the contrary, if investors find the Fed chairman's speech too hawkish, the bears will have a great opportunity to restore the downward trend.

Technically, on the 4-hour chart of the main currency pair, there is a splash and shelf pattern based on 1-2-3. It is recommended to place pending orders to buy EURUSD from the level of 1.003 and to sell the euro against the US dollar from 0.995.