EURUSD, DXY Outlook: Politics, Geopolitics, and Inflation

Key Events this Week

FOMC member statements
U.S.-Russia-EU-Ukraine peace deal development
German Politics and German CPI
US Core PCE

German Politics

The leadership of the Christian Democratic Union (CDU) alongside the Christian Social Union (CSU) has raised hopes for tighter fiscal policies and increased defense spending, keeping the euro near the 1.05 level against the U.S. dollar. However, geopolitical tensions and potential tariff risks from the White House have placed markets in a cautious stance.

Geopolitical Updates: Ukraine, US, Russia, EU

The latest Bloomberg headlines outlined the terms of the final stage of the deal between the U.S. and Ukraine, encompassing Ukraine’s natural resources, security guarantees, and economic cooperation with the U.S. If a peace deal is successfully reached, the Eurozone could experience a positive boost in energy supply, investor confidence, and economic growth.

Inflation

The German Preliminary CPI is scheduled for release on Friday amid deflation concerns, as it currently hovers around -0.2%, with market expectations pointing to an uptick toward 0.4%. However, on the same day, the Federal Reserve’s preferred inflation gauge is set to be released, which could impact the EUR/USD pair, especially as markets anticipate an extension of the Fed’s rate hold.

Additionally, FOMC members Logan, Barr, and Bostic are scheduled to deliver their insights today.

Technical Analysis: Quantifying Uncertainties

DXY Outlook: 3-Day Time Frame – Log Scale

Source: Tradingview

The U.S. Dollar Index (DXY) is holding above its extended consolidation range from 2023 to 2024, staying above the 106-mark. One final support remains in sight at 1.0520, aligning with the trendline connecting the lower lows from October 2023 (107.34), April 2024 (106.50), and June 2024 (106.10). A drop below 1.05 could shift the outlook to a bearish stance.

Conversely, if the index holds above 106, the trend could push towards 108.80 and 110, applying pressure on currency markets following their recent rebound.

EURUSD Outlook: 3-Day Time Frame – Log Scale

Source: Tradingview

The EUR/USD remains in a state of caution, affected by geopolitical tensions, U.S. inflation risks, and Germany’s evolving political climate. Additionally, upcoming inflation data will be critical in shaping expectations, given deflation concerns and potential tariff risks. The 1.0530 level is a key resistance point, aligning with the midpoint of the downward-trending channel.

A decisive close above 1.0530 could support an upward move toward 1.0620, 1.0700, and 1.0850. However, if the pair remains below this mark, a retest of 1.0360 and 1.0200 may be expected.

Written by Razan Hilal, CMT

Follow on X: @Rh_waves

You Tube: Commodities and Forex Trading with Razan Hilal, CMT

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