All Eyes on US CPI: Can Inflation Data Shift the Fed?
The week’s primary intrigue centers on the US Consumer Price Index (CPI) release—a defining event for currency markets. The trajectory of inflation will shape the odds of near-term Fed easing. FOMC minutes revealed growing internal debate: while some officials signaled rate cuts as soon as July, the majority remain concerned about persistent inflation, especially following President Donald Trump’s announcement of sweeping new tariffs.
Trade tensions are again intensifying. Trump introduced 20–40% tariffs on products from 40 countries, while key sectors like copper and Brazilian goods face duties of up to 50%. Relations with China, Canada, and the EU remain strained, keeping markets nervous and supporting the dollar’s safe-haven appeal.
Trump’s Trade Offensive and the Fed: Shaping Market Uncertainty
The US has failed to secure major new trade agreements, aside from minor deals with select Asian nations. Trump continues to pressure the Fed, demanding immediate rate cuts and a change in Fed leadership—calling for Chair Powell to be replaced by a more loyal figure. Public rhetoric and attacks on the central bank are deepening policy uncertainty, as markets weigh the likelihood of a monetary shift in the months ahead.
Candidates reportedly under consideration for Fed Chair include Treasury Secretary Scott Bessent, Vice Chair Michelle Bowman, NEC head Kevin Hassett, and Fed Governor Christopher Waller. The process could be protracted, keeping the dollar in limbo.
Macro Divergence: Eurozone Momentum Fades, US Awaits Data
Eurozone: Recent data continues to disappoint. May retail sales fell -0.7% after April’s modest 0.3% increase, and German inflation remains stalled at 2%. Sentix investor confidence improved to 4.5 (from -0.2), but this uptick is insufficient for a euro rebound.
United States: FOMC minutes point to a possible rate cut by year-end, but this week’s CPI and retail sales data will prove decisive for Fed policy direction.
Any signal of accelerating inflation could recalibrate rate expectations. A sharp CPI rise may undermine hopes for imminent easing, while a soft print would support EUR/USD bulls.
Market Sentiment and Cross-Asset Dynamics
- US equities are consolidating after strong gains, as investors book profits ahead of CPI.
- Gold is steady near $2,390, reflecting persistent risk aversion.
- Bitcoin is ranging between $111,000–$118,000 after notching a new all-time high, with ETF inflows and Fed speculation supporting sentiment.
In previous cycles (2020, 2023), similar EUR/USD corrections resolved either with rapid support tests and rebound or with prolonged sideways action pending Fed clarity. This time, macro signals will be decisive.
Technical Outlook: EUR/USD Walks a Tightrope
On the weekly chart, EUR/USD has worked off extreme overbought conditions. Technicals remain “bullish” on balance: the 20-week SMA holds above the 100- and 200-period lines, but upward momentum is fading. Price remains above 1.1650 (the 23.6% Fibonacci retracement of the May–July rally), with major support at 1.1540 (38.2% Fib).
On the daily chart, indicators are trending lower but haven’t signaled a full reversal. Sellers are active at 1.1720 and 1.1770—breaks above these could target 1.1830 and beyond. Support is found at 1.1650 and 1.1540.
Key EUR/USD Levels This Week
- Support: 1.1650 (primary), 1.1540 (major), 1.1470 (extended)
- Resistance: 1.1720, 1.1770, 1.1830
Scenarios and Trading Strategies: Navigating New Risks
- Base case: EUR/USD stays in the 1.1650–1.1770 range, awaiting CPI outcome.
- Bullish: Breakout above 1.1770 opens the way to 1.1830+, if Fed messaging softens and CPI underwhelms.
- Bearish: Sustained move below 1.1650 brings 1.1540–1.1470 into play, especially if inflation surprises on the upside or trade risks escalate.
Short-term traders should act on breakout/reversal signals at key levels. For medium-term positioning, monitor US CPI, retail sales, and Fed communications closely.
Global Context: Echoes of Past Cycles
EUR/USD’s current trajectory mirrors previous volatile cycles—reacting to policy rhetoric and macro data. In past cycles, US inflation has been the principal driver for the dollar, a pattern that continues in 2025.
While summer is typically a period of low liquidity, 2024 has proven different: trade wars, shifting monetary policy, and fresh inflation shocks are keeping volatility—and risk—elevated for traders.
Conclusion: EUR/USD Faces Critical Test
The near-term outlook for EUR/USD remains uncertain. US macro data will determine whether the dollar extends its rally or if the euro mounts a recovery. Key thresholds are 1.1650 (support) and 1.1770 (resistance)—their breach will set the tone for the medium-term trend. Investors should manage volatility risk and ensure portfolio diversification in this environment.