Markets Look to CPI After NFP Clears Path for Fed Pause
Bearish signals point to further EUR/USD weakness toward key support levels.
The dollar continued to strengthen on Friday after the Non-Farm Payrolls (NFP) report showed that fewer jobs were created during the previous month. The Unemployment Rate dropped to 4.4% from the previous 4.6% but the NFP showed that only 50K jobs were added, lower than the forecast of 66K.
The latest set of labor market data is likely to give the Federal Reserve the go-ahead to keep the rate unchanged at the next meeting. Fed Chair Powell signalled during last month’s press conference that the rate will likely remain unchanged, so it does not come as a surprise. Currently there’s a 95% probability of a rate hold at the next Fed meeting, according to the CME FedWatch tool.
Volatility may be affected this week by the Supreme Court’s decision regarding the legality of President Trump’s sweeping tariffs. Markets largely expected the ruling to be made public last Friday, but the court did not announce it. A clear date has not been set at the time of writing.
Economic Calendar Highlights
The economic week opens with a key release: the Consumer Price Index (CPI), which is the main gauge of inflation. This will likely affect the interest rate probabilities and will have a strong impact on the dollar, especially because the last 2 releases were skipped due to the government shutdown. The CPI and Core CPI will come out on Tuesday at 1:30 pm GMT.
On Wednesday at 1:30 pm GMT, we will take a look at the U.S. Producer Price Index (PPI), Retail Sales, and Core versions of both indicators. The PPI shows changes in the price that producers charge for their goods and services and has inflationary implications because a higher producer price will eventually be passed on to the consumer. Retail Sales account for the majority of a country’s economic activity, so the impact on the currency is high.
The rest of the week is sprinkled with low-impact releases. Keep an eye on the Supreme Court ruling because that will be the main volatility catalyst if it’s actually announced.
Technical Outlook – EUR/USD
The pair dropped after the bearish divergence that appeared above 1.1700, and it’s becoming clearer that the uptrend is over. The medium-term bias is bearish, aiming for 1.1600 in the short-term and 1.1400 in the longer term.
The first barrier is located at 1.1600, but this is a minor support, which could be broken with ease. The next barrier is 1.1500, which should be considered a zone of support, not an exact number. The more important support is located at 1.1400 (July 2025 low).
The RSI will soon enter oversold, and will probably flash bullish divergence. This may trigger short-lived rallies, but the downside will likely continue unless the macro environment changes.
