Fundamental Overview

USD

The US dollar weakened broadly this week, driven by de-escalation in the Middle East and growing expectations surrounding a potential US-Iran deal. However, the bearish momentum faded somewhat, likely because the anticipated timeline for the deal passed without a formal announcement. Even so, the prospect of an agreement is expected to keep the dollar under pressure unless geopolitical tensions flare up again.

The next major catalyst will be the US CPI report, scheduled for release next week. The data carries significant weight for both the September FOMC decision and the upcoming Jackson Hole Symposium, where the Fed Chair's remarks traditionally set the direction for market expectations heading into the autumn policy cycle. A hotter-than-expected print would likely spark a dollar rally as traders increase their bets on further rate hikes. Conversely, a softer report would diminish the likelihood of additional Fed tightening and intensify downward pressure on the greenback.

Today's Non-Farm Payrolls (NFP) report also warrants attention. While the NFP is typically one of the most market-moving economic releases, the CPI report may carry greater significance given the Federal Reserve's current focus on inflation. Policymakers have repeatedly emphasized that the labor market remains stable and is not a source of inflationary pressure. Wage growth has been on a steady decline since 2022 and now hovers around pre-pandemic levels. Accordingly, average hourly earnings may be a more telling metric than the headline employment figures. That said, significant deviations from consensus expectations could still produce substantial market moves.

EUR

On the euro side, the European Central Bank (ECB) held interest rates unchanged at its most recent meeting but signaled—through the customary post-meeting media leaks—that it stands ready to raise rates at the September gathering should the inflation outlook deteriorate.

The majority of policymakers who commented after the decision underscored their commitment to data dependence and stopped short of pre-committing to any policy action in September. They also pointed to an absence of clear evidence of second-round inflationary effects and noted that inflation expectations remain stable.

Despite this cautious tone, market pricing currently assigns a 76% probability to a rate hike in September. However, another Eurozone inflation report is scheduled before the September meeting, and oil prices could decline further if an Iran deal is finalized. As a result, a September hike cannot yet be considered a certainty. The net direction for EUR/USD ultimately hinges on the relative monetary policy paths of the Fed and ECB—whether the Fed signals one more hike while the ECB delivers one of its own, or whether both approach a synchronized pause.

EUR/USD Technical Analysis — Daily Timeframe

On the daily chart, EUR/USD is consolidating as momentum has stalled at a major downward trendline. Sellers are likely entering positions here with defined risk above the trendline, targeting a move lower toward the 1.13 level. Buyers, meanwhile, continue to await a breakout to add to bullish positions, eyeing the 1.18 handle as the next objective.

EUR/USD Technical Analysis — 4-Hour Timeframe

The 4-hour chart provides a clearer view of the consolidation around the trendline. The swing low near 1.15 should now serve as key support. A break below this level would likely embolden sellers to press for new lows. Buyers, on the other hand, are expected to defend the swing low with defined risk beneath it, maintaining their aim of breaking above the trendline.

EUR/USD Technical Analysis — 1-Hour Timeframe

The 1-hour chart offers limited additional insight. Price action is likely to remain rangebound until the US CPI report, though short-term volatility spikes can be expected around today's NFP release. Sustained directional moves would likely require significant deviations from consensus, as modest beats or misses are unlikely to alter the broader outlook. The red lines on the chart define the average daily range for the session.

Upcoming Catalysts

The trading week concludes today with the release of the US NFP report.