EUR/USD Forecast: US inflation fears and ECB dovishness to keep the pair pressured (for now)

EUR/USD has been under pressure as fears of inflation have boosted the dollar.
The ECB's dovish policy comments may pressure the euro counter Europe's vaccination progress.
Tuesday's four-hour chart is pointing to euro/dollar resuming the rally

Yohay Elam FXStreet

Hold the line – the rallying cry for several meme stocks seems relevant for EUR/USD. There are clear reasons for the currency pair's retreat from the highs, yet it it probably remains only a temporary correction.

Markets have cooled down on hopes that the US economy is cooling down after Friday's weak Nonfarm Payrolls results. Some see the meager 266,000 increase in jobs as skewed by the pandemic, while another narrative suggests that the lack of hiring is due to high unemployment benefits.

More importantly, fears of rising inflation remain prevalent, as commodity prices continue rising and after China reported a leap in producer prices – 6.8% annually, more than predicted. Tech stocks have already suffered from these growing concerns and the safe-haven dollar is also gaining some ground.

Robert Kaplan, President of the Dallas branch of the Federal Reserve, added to worries of tightening by repeating his desire to begin reducing the bank's bond-buying scheme. On the other hand, several of his colleagues are set to speak later in the day and repeat the bank's stance that current inflation is transitory.

Investors are also waiting for Wednesday's Consumer Price Index statistics from America. They may confirm these fears or help dismiss them.

US Consumer Price Index April Preview: The two base effects on inflation

On the other side of the pond, the euro has been suffering dovish comments from Francois Villeroy de Galhau, a member of the European Central Bank. He favors maintaining the ECB's bond-buying scheme at least through March 2022, if not beyond. After several contradictory headlines, his words seem to carry more weight and push the common currency lower.

Nevertheless, the euro remains underpinned by Europe's accelerating vaccination campaign. The old continent is catching up with the US and the efforts are bearing fruit – COVID-19 cases are falling in Germany and in other places. Roughly 30% of EU residents have received at least one jab.

The scientific community in Europe is eagerly awaiting Phase 3 results from CureVac, a German pharmaceutical firm that has developed an MRNA vaccine – like that of Pfizer/BioNTech and Moderna.

Overall, while the current correction is justified, it could later make way for another upswing.

EUR/USD Technical Analysis

Euro/dollar is benefiting from upside momentum, on the four-hour chart and trades above the 50 and 100 Simple Moving Averages (SMA). The Relative Strength Index (RSI) has dropped below 70, thus exiting overbought conditions and allowing for more gains.

Some resistance awaits at 1.2150, the April peak, and then by 1.2180, the high point recorded in May. Further above, 1.2250 is eyed.

Some support is at the daily low of 1.2125, followed by 1.2080 and 1.2050.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

GBP/USD flirts with weekly highs in the Fed's aftermath

GBP/USD reversed early losses following the Federal Reserve decision to keep rates on hold and neared the 1.3360 level before shedding some ground. Focus shifts to Governor Kevin Warsh's speech, while the Bank of England will announce its monetary policy decision on Thursday.

EUR/USD extends rally pass 1.1450 on Fed's Warsh

EUR/USD trades at fresh weekly highs above 1.1450, following the Federal Reserve monetary policy decision to keep interest rates on hold. The statement showed policymakers remain confident in economic progress while blaming inflation on energy prices. The divided vote among officials put in doubt a September hike, leading to sharp US Dollar losses.

Gold hovers around $4,100 as Fed decision hits the USD

Gold surged following the Federal Reserve's decision to keep the benchmark interest rate unchanged at 3.50%-3.75%. Policymakers noted that inflation remains elevated and that economic activity is expanding at a solid pace despite elevated uncertainty, spurring doubts about a rate hike in September. XAU/USD peaked above $4,100, now battling to retain the level.

No soft target: Warsh vows to return inflation to 2%

The Fed left interest rates unchanged at 3.50%-3.75%, but the decision carried a distinctly hawkish edge as three officials voted for an immediate 25-basis-point increase. Chair Kevin Warsh reinforced that message, insisting there was no tolerance for a softer inflation target and warning that the Fed would not hesitate to act.

How the CLARITY Act unlocks Wall Street’s tokenization pipeline

The United States (US) Digital Asset Market Clarity Act (CLARITY Act), awaiting a full Senate floor vote, promises to unlock Wall Street’s potential to tokenize financial assets, including equities, US Treasuries, private credit, real estate and commodities at a scale that could supercharge the real-world asset (RWA) market from the current $17 billion level to $5.5 trillion by 2030, according to

US Dollar mid-year outlook: Exceptional currency, exceptional risks?

The US Dollar enters the second half of 2026 in a markedly different position from a year ago. The King currency has recovered, reflecting persistent US inflation, changing expectations for Fed policy, geopolitical tensions and renewed demand for defensive assets.