The EUR/USD currency pair opened the trading week with a sharp decline, briefly testing below the 1.1000 psychological level before staging a partial recovery. Monday’s session concluded with the euro down 1.4% against the US dollar, marking one of its steepest one-day losses in recent weeks.
With the US Consumer Price Index (CPI) inflation report scheduled for release on Tuesday and the eurozone GDP data set to follow, volatility is expected to persist. Lesrouleaux provides a well-researched perspective on this topic in the article.
Risk Sentiment Shifts as US-China Trade Tensions Ease
Market dynamics were temporarily altered over the weekend after US-China trade negotiators announced a pause on several high-impact tariffs, initially set to resume under the US’s “reciprocal” tariff policy. The temporary walkback helped boost global risk appetite, providing a lift to equities and risk-sensitive assets in early Monday trading.
However, despite the initial positive sentiment, EUR/USD remained under pressure, largely due to expectations of stubborn US inflation. The pair dipped as low as 1.0985, its lowest level since early April, before rebounding toward the 1.1100 handle during late European and US trading hours.
Upcoming US CPI: A Crucial Test for the Dollar and the Euro
Traders are now firmly focused on Tuesday’s US CPI inflation data for April, which will likely dictate near-term price action across forex markets. Analysts expect headline CPI to print at +0.3% MoM, rebounding from -0.1% MoM in the prior month. Meanwhile, core CPI, which excludes food and energy, is also forecast to rise 0.3% MoM, up from 0.1% previously.
While year-over-year inflation figures are projected to remain stable, the potential for an upside surprise looms large, particularly given the Federal Reserve’s recent reluctance to pivot dovishly. Stronger-than-expected CPI data could further fuel expectations of a prolonged restrictive Fed policy stance, supporting the US dollar and adding pressure to the euro.
Eurozone GDP and Inflation Data Next on the Radar
Beyond the US data, eurozone economic fundamentals will also be under the microscope this week. The final German Harmonized Index of Consumer Prices (HICP) will be released on Wednesday. No material changes are expected, as preliminary readings showed inflation holding firm—a trend that has failed to lift the European Central Bank’s confidence in achieving sustained price stability.
However, Thursday’s release of advanced pan-European Gross Domestic Product (GDP) data will serve as the week’s primary event risk for EUR-based traders. Markets expect QoQ GDP growth to remain at 0.4%, with YoY growth stable at 1.2%. While these figures are not disastrous, they reflect a fragile recovery in the eurozone, which remains vulnerable to external shocks and internal demand weakness.
EUR/USD Technical Analysis: Weakness Accelerates
From a technical standpoint, EUR/USD is showing signs of renewed bearish momentum, continuing its downtrend from the recent swing high near 1.1500. The pair is trading only slightly above the 50-day Exponential Moving Average (EMA) around 1.1070, and recent price action suggests that bulls are losing control.
Importantly, daily candles have closed in the red on 10 out of the last 14 trading sessions, signaling a persistent downside bias. If CPI data confirms a sticky inflation environment in the US, the dollar could continue to outperform, dragging EUR/USD lower toward 1.0900, a critical support level.
Momentum indicators, such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), have also tilted bearish. RSI has failed to break above 50, while the MACD histogram continues to print below the zero line, reinforcing the bearish short-term outlook.
Outlook: More Volatility Ahead
With macroeconomic data releases lined up on both sides of the Atlantic, EUR/USD volatility is likely to increase throughout the week. If US CPI beats expectations, the greenback could see another leg higher, with traders pricing in fewer rate cuts in the second half of the year. Conversely, a softer CPI print may spark a temporary rebound in EUR/USD, especially if Thursday’s eurozone GDP data surprises to the upside.
However, given the broader risk-reward balance, the near-term bias appears to favor the US dollar, especially in light of hawkish Fed commentary and resilient US economic performance. Traders will also be watching the bond market, where Treasury yields could respond swiftly to any inflation surprises, providing additional cues for forex positioning.
Key Levels to Watch
- Support: 1.0980, 1.0900, 1.0825
- Resistance: 1.1100, 1.1175 (near-term high), 1.1270
Unless EUR/USD reclaims and holds above the 1.1100 level in the aftermath of upcoming macro prints, the risk skews toward the downside, with the 1.0900 area acting as a make-or-break threshold for bullish hopes.
Conclusion
EUR/USD’s dip below 1.1000 underscores the market’s sensitivity to shifting macroeconomic conditions, particularly with US inflation and eurozone growth data. The coming days will be pivotal. Traders should expect heightened volatility, rapid repricing of interest rate expectations, and technical movements influenced by both data releases and central bank rhetoric.
