Buy the rumor, sell the fact. This is old stock market wisdom, and right now, EUR/USD is demonstrating it in its purest form. The currency pair has been stuck in place for three days, not because the market has nothing to talk about, but because all discussions have already been factored in. Now, it's just a matter of waiting for the main event—the speech by the Fed Chairman in Jackson Hole.

Dynamics of French economy

Formally, there is a reason for movement even without Warsh. The French economy narrowly avoided recession. GDP fell by 0.2% in the first quarter and stagnated for the next three months. The blame lies with the abnormal heat that devastated crops and paralyzed agriculture.

Inflation in Spain has more than doubled the ECB's target, soaring to 4.5%, the highest level since 2023. Prices in France accelerated to 2.7%. As a result, investors have little doubt that the ECB will raise rates by a quarter point to 2.5% in September, and another hike could happen by spring. This seems to be a reason for the euro to strengthen, as the divergence in monetary policy is shaping up in its favor.

Dynamics of inflation in Spain and France

However, against this backdrop, the euro appears to be a mere bystander. The main character in this story is the dollar, or rather, the trust in it. The yield on 30-year US Treasuries has reached a peak not seen since 2007, PCE inflation is holding at 3.7% against a target of 2%, and the Federal Reserve has not been able to tame it for five years. Scott Bessent's Treasury is trying to contain the sell-off of long bonds, but interventions alone won't convince the market.

That's why JP Morgan, Apollo, and Morgan Stanley agree that Warsh has a chance, perhaps his last, to prove through action that his fight against inflation isn't just rhetoric. According to Bank of America, the right words can smooth the yield curve, strengthen global risk appetite, and support the dollar. If he falters, long-term yields will surge back to where Bessent tried to pull them from. Capital will flee to safe assets, leaving cyclical stocks and risk currencies behind.

The market has become accustomed to buying any hint of decisiveness ahead of time, creating the ground for classic FOMO or the fear of missing out on profit. But one hint is not enough. If words do not lead to actions once again, the effect will last at most a couple of hours.

At the same time, BofA reminds us that the market still believes in an ideal scenario. Without slowing the economy, without rising rates, without cuts to AI spending, and without a Democratic victory in the midterm elections in November. The list is too long not to raise questions.

In any case, the words of policymakers have long been valued less than their nominal worth. The market wants actions. Wait for Friday evening. Jackson Hole will reveal whether the Fed still has the right to speak in the first person, or if it will have to, as before, justify itself before the bonds. Will the market believe Warsh the first time?

Technically, on the daily chart, EUR/USD continues to trade near the upper band of the fair value range of 1.135-1.165. A consolidation above this level would signal buying opportunities, while a decline would signal selling opportunities.