The EUR/USD edged higher after last week’s big 4.5% rally. Last week saw the dollar sell off following the release of several weaker-than-expected macro pointes, culminating with a not-so-strong non-farm jobs report on Friday. Traders also tried to make sense of several conflicting headlines about tariffs, with reports that Russia was willing to discuss a temporary truce in Ukraine helping the euro. The US dollar is likely to remain under pressure this week as weakening US data raises the prospects of a sooner-than-expected rate cut by the Federal Reserve, keeping the EUR/USD forecast bullish. We reckon the single currency is heading to $1.10 following last week’s bullish reversal.

Trump to keep traders on their toes

Last week was anything but dull for the markets, with the ebb and flow of trade tensions keeping investors on their toes. Risk assets took a sharp tumble as Trump slapped tariffs on Canada and Mexico, only to stage a midweek rebound before slipping once more—then bouncing back yet again on Friday after the US President dramatically widened the list of goods exempt from the very tariffs he had imposed just two days prior. 

Adding to the turbulence, Trump later rattled markets with the prospect of fresh tariffs on Canada, triggering further intraday volatility on Friday. He also announced he was “strongly considering” sweeping sanctions and tariffs on Russia, contingent on a ceasefire in Ukraine. Yet, in characteristic fashion, he soon shifted tone, suggesting that dealing with Ukraine was proving “more difficult, frankly, than Russia” in efforts to broker peace, before declaring that US relations with Moscow were “doing very well.”

This is the sort of an environment we are at right now, so expect lots of headline-driven moves this week. But on the whole, the FX markets have favoured a weaker US dollar and I don’t see that changing in the near-term outlook.

What’s on the calendar for this week’s EUR/USD forecast?

The coming week is set to deliver a flurry of key economic reports, with at least four major releases demanding attention. Proceedings get underway on Tuesday with the increasingly pivotal JOLTS job openings data, followed by the all-important CPI inflation report on Wednesday. Thursday sees the release of the latest PPI figures, while Friday rounds off the week with the University of Michigan’s consumer confidence and inflation expectations surveys. 

From the eurozone, we have already seen two strong reports today, including German industrial production, which rose 2.0% m/m vs. +1.6% eyed, while the Sentix Investor Confidence improved to -2.9 from -12.7, much better than -9.1 expected – no doubt due to the big rally in European stocks.

Which US data highlights are the most significant?

The EUR/USD forecast is likely to be impacted more by the upcoming US data than eurozone, as the rest of the week has only second-tier data scheduled from the single currency block.

Among this week’s US data highlights will be CPI on Wednesday. US inflation has been creeping higher for five consecutive months, leaving the Federal Reserve in a rather awkward position. On one side, economic cracks are beginning to show in certain sectors, yet inflation expectations among consumers are ticking upwards—no doubt stoked by concerns over tariffs and Trump’s tax-and-spend agenda. The pressing question now is whether these rising expectations will translate into sustained inflationary pressures or if softer economic data and falling oil prices have provided some much-needed respite in February. 

The PPI release is also one to keep an eye on, not least because it includes components that feed directly into the Fed’s preferred inflation gauge—the Core PCE Price Index—due later in the month. A stronger-than-expected PPI print could well shift expectations around the Fed’s next policy steps, making this release one to scrutinise closely. 

Once the inflation data is out of the way, attention turns to Friday’s University of Michigan surveys. Last month’s consumer sentiment reading saw a sharp drop from 71.1 to 64.7, raising concerns over the impact of Trump’s protectionist stance on confidence levels. This survey, which polls around 420 respondents on current and future economic conditions, will be crucial in gauging broader sentiment. Equally noteworthy is the inflation expectations component, which surged last month to 4.3% from 3.3%—a development that could have significant implications for actual inflation trends. A figure well worth watching.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R