There will be volatile trading late in Friday's European session with Fed Chair Powell's speech in focus, Friday's fix, and notable position adjustment ahead of the key events during the weekend.

There has been further mixed rhetoric from Fed's regional Presidents this week and further comments are inevitable during the Jackson Hole Symposium.

Judging by the overall rhetoric, the market expects a 0.50% rate cut in Setpember while some committee members will not back any further cut at this stage.

There is a possibility of a New Zealand style aggressive 0.50% cut to lessen the risk of taking more aggressive monetary easing later, but this looks unlikely at this stage.

Powell will inevitably be very careful with his wording, especially after the strong criticism received after July's rate cut and mid-cycle adjustment comments.

Overall, he is likely to reiterate that the Fed will take appropriate action to sustain the economic expansion and will be data dependent. In this context, he is unlikely to be very dovish in his comments.

There has already been a notable shift in Fed Funds futures with markets now pricing out completely the possibility of a 0.50% cut at the September meeting with a 10% chance of no move to cut rates. Longer-term bond yields have also recovered with the 10-year rate just above 1.65% in early European trading.

Overall, the Fed is likely to be comfortable with current pricing and not looking to trigger a further adjustment. Given the market-pricing already seen, there is reduced scope for dollar gains.

There will also be caution ahead of the G7 summit at the weekend, especially given the threat of unpredictable comments from President Trump and risk of fresh escalation in US/EU trade tensions. There will be significant caution and position adjustment into the weekend, especially with Trump's anti-China rhetioric and Fed's criticism.

USD/JPY is expected to break above tough resistance 106.75 following Powell's comments, although it could prove to be a false break in very choppy trading.