EUR/USD Forecast: Focus Turns to US Inflation Data in Week Ahead

The US dollar ended last week on a firmer footing, buoyed by a sharp rise in inflation expectations. The University of Michigan’s survey showed a notable jump in the percentage of consumers expecting prices to rise over the next year—from 3.3% to 4.3%. This is a troubling development, as inflation expectations often translate into actual inflation, particularly if workers push for higher wages in response. This data followed a surprisingly strong January payrolls report, which revealed wages had increased by 0.5% month-on-month. Investors had been pricing in lower US interest rates in recent days, but with inflation expectations on the rise and ongoing speculation about inflationary policies under Donald Trump, the Federal Reserve is likely to remain on hold for some time. US bond yields ticked higher, and equities edged lower. With Federal Reserve Chair Jerome Powell’s testimony, US CPI data, and key corporate earnings due this week, the EUR/USD forecast remains cautiously bearish.

EUR/USD Forecast: Inflation Pressures Keep the Fed on Guard

Friday’s data has all but ruled out a Fed rate cut in the near term—though it was never a likely prospect to begin with. Despite a slightly softer headline payrolls figure, the overall picture remains one of resilience in the labour market, with sustained wage growth leaving little room for the Fed to loosen policy. More significantly, the University of Michigan inflation expectations data raised further concerns about price pressures.

With Trump’s economic policies expected to exert additional upward pressure on both inflation and employment, the Fed is likely to keep rates steady. Against this backdrop, the US dollar appears well-supported, particularly against the euro, which remains vulnerable to trade tensions and the risk of US tariffs.

While the preliminary University of Michigan Consumer Sentiment Index slipped to 67.8 from 71.9 expected, the inflation expectations component stole the spotlight. A sharp rise to 4.3% from 3.3% suggests consumers are bracing for higher inflation, particularly under Trump’s leadership. Meanwhile, the latest jobs report provided mixed signals but was ultimately dollar-positive. The headline figure missed expectations at 143K, but upward revisions of 100K across the previous two months offset the disappointment. The unemployment rate also edged lower to 4.0%.

Key Events This Week: Powell’s Testimony, CPI, and Retail Sales

Powell’s Testimony – Tuesday, 11 February (15:00 GMT)

Following Trump’s calls for lower interest rates, Powell is likely to reinforce the Fed’s independence, particularly given the strong wage and inflation data. Any suggestion of a dovish shift could pressure the US dollar and bond yields, though such indications remain unlikely.

US CPI – Wednesday, 12 February (13:30 GMT)

Traders will be watching inflation data closely. A strong CPI print would reinforce expectations of a prolonged Fed pause, potentially lending further support to the dollar. Thursday’s Producer Price Index (PPI) release will also be worth monitoring.

US Retail Sales – Friday, 14 February (13:30 GMT)

Retail sales have remained resilient despite concerns over high interest rates and inflation. However, December’s weaker-than-expected data raises questions about whether consumer spending is slowing. Investors will also be keeping an eye on corporate earnings, particularly from major retailers and tech firms, for further insight into the health of the US consumer.

EUR/USD technical analysis

Source: TradingView.com

The EUR/USD forecast from a technical point of view remains bearish given the fact we haven’t seen a breakdown in the structure of lower lows and lower highs yet. If and when that happens, we could start talking about a low and upside targets. For now, let’s concentrate on where the EUR/USD might reach on the downside and which resistance levels to watch for potential trade entries. Short-term resistance is seen around 1.0352, marking Thursday’s low. The more significant area of resistance is between 1.0430 to 1.0500. On the downside, 1.0300, 1.0250 and 1.0200 are the next immediate levels to watch. A potential close below the 1.0200 handle could pave the way for a drop towards parity. But we will cross that bridge if and when we get there.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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